Singapore banking stocks are up 0.6% to 1.2%, in line with the STI’s 1.0% rise, likely reflecting robust underlying optimism over the domestic economy heading into 2011, but volume is tepid with DBS (D05.SG), UOB (U11.SG) and OCBC (O39.SG) all registering less than a million shares traded so far. 

DMG says that housing loans remain the sector’s pillar of strength after loan growth in November came in at +14.5% on year (vs October’s +13.8%), driven largely by housing mortgages. 

 

“However, we expect the banking sector to continue to be plagued by narrow NIMs, as SIBOR is seen to remain soft over the next few months.” The house maintains a Neutral call on the sector. 

 

UOB is the house’s top pick, rated Buy with a $22.00 target, due to its low P/B of 1.5X vs OCBC’s 1.8X. The house expects 2011 loan growth to slow to around 8.0% due to the government’s cooling measures and a higher 2010 base.