IIFL says Singapore banks are the cheapest in the Asean region with 1.2x-1.6x forward P/B, 10x-12x forward P/E and dividend yield of 4%-5% after they underperformed their regional peers this year.

The house says such underperformance was mainly due to the overhang of NIM contraction, as Sibor declined by 24 bps during 2010 to a 23-year low.

“However, data indicate SIBOR should stabilise at the present level, before inching up next year,“ as rates are hardening across the region.

Last month across Asia, 10-year G-Sec yields rose 10-60 bps amid rising concerns about inflation; in the past month, the yield on Singapore’s 10-year G-sec firmed by 46bps.

It adds, a higher Sibor will lead to the re-rating of Singapore banks. House’s top picks are OCBC (O39.SG), rated Buy, for its wealth management franchise and overseas operations, and DBS, (D05.SG), also rated Buy, for its turnaround potential.