Brisk loan growths in Singapore to ease in 2012 on fears of global uncertainties

Loan strong in Sep, but expect a significantly slower pace by early 2012. Sep 11 systemic loan expanded 3.1% MoM, with business loans’ jump of 4.4% MoM being the key driver. On the other hand, consumer loans expanded a milder 1.4% MoM. Within the business segment, general commerce loans (12% loan share) was the star performer, rising 10.8% MoM (following Aug 11’s 6.3% MoM expansion).

Housing loans (31% loan share) continued its expansion, although its 1.3% MoM growth was relatively mild. We expect the strong loan growth momentum to ease off in 4Q11 and more significantly into 2012, on the back of rising concerns on global economic growth.

UOB likely to maintain its share price outperformance going forward. We are NEUTRAL-weight the banking sector, as we expect slower economic growth to lead to higher NPLs and sharply lower loan growth. Although UOB’s total return YTD of -0.3% has outperformed DBS’ -7.1% and OCBC’s -10.1%, we see further UOB share price outperformance.

UOB is the only BUY recommendation amongst the three banks, as we see its conservative loan stance (over the past few years) contributing to a higher-thanpeers loan quality. Our target P/B ratios for the three banks are also close to our Gordon Growth Model valuations, in which we have assumed long term ROE expectations of ~2ppt greater than the FY10-12 average.