The second-half of the financial year will be a challenging one for Singapore banks with net interest margin still under pressure, loan growth moderating, says DBS Vickers, according to Dow Jones.

With provisions almost at all-time lows, non-interest income will be key factor determining earnings performance. Expects fee income to remain robust in 2H10 given strong capital markets.

“What remains volatile would be trading income. We believe this would remain the wildcard to potentially excite earnings going forward,” says DBS Vickers.

The broker lowers overall FY10-12 earnings forecasts by 4%-5% to account for weaker margins as interest rates expected to remain low over next few quarters.

Tips average net interest margin of 2.0% in 2010 vs 2.2% last year. Rates OCBC (O39.SG), UOB (U11.SG) at Buy with respective $10.70, $22.80 targets; no rating on DBS (D05.SG).