Why analysts think Singapore banks are ''proxies'' to 2013, 2014 GDP jump

Could loan growth be the answer?

According to DBS, their Singapore economist raises the country’s GDP growth forecasts for 2013 to 3.8% (previous 2.9%) and that for 2014 to 4% (previous 3.5%). 

A surprise spike in September electronics industrial output and better-than-expected services and construction sectors growth lift 2013 GDP forecast while improving growth momentum in China and G3 economies sustains it into 2014.

Here's more from DBS:

While Singapore banks have generally guided for high single digit loan growth in 2014, they are proxies to the GDP recovery.

There is possible upside surprise to loan growth given the positive GDP outlook. Loan growth typically lags GDP growth by 4-6 quarters based on historical trends.

While a significantly softer mortgage growth could dampen loan growth trends from 2H13, the impact is offset by improving NIM as credit spreads are expected to widen even before the actual upswing in interest rate cycle.

Judging from the vibes of non-QE tapering, a significant hike in Fed Fund rates and hence SIBOR may still not be in sight.

But in the event of an interest rate cycle revival, there would certainly be a further upswing in NIM and earnings.

Our pick is OCBC for its strong banking operations, better-than-average asset quality indicators and product offerings over its peer UOB.