Deutsche Bank says although latest action to cool Singapore’s residential property market shouldn’t come as great surprise “it will likely dampen sentiment towards the banks near-term.” In month following measures August, banks underperformed the STI by 5.0%. It adds, UOB (U11.SG) was most affected, falling 8.0%, while DBS (D05.SG) and OCBC (O39.SG) were down 3.0%, “which is intuitive given the bank’s greater reliance on housing to deliver credit growth.”

It expects ongoing policy action to curb growth, but is unlikely to result in downside to consensus estimates; assumes 2011 total credit growth of 11% for Singapore banks. It’s order of preference is DBS, OCBC then UOB; “with margin headwinds likely to prevail in 4Q10 and the likely negative sentiment impact of further property measures we think sector upside is limited in the near-term.” 

 

Longer-term, it sees valuation upside, "which we think should be realised when Singapore bank NIMs begin to stabilise." DBS falls 1.0% to $14.56, UOB rises 0.1% to S$19.18, OCBC slips 0.8% to $10.08.