Singapore banks face difficult year: ING Barings

Singapore banks face difficult year: ING Barings

SINGAPORE (AFP): Singapore banks face a brutal environment over the next 12 months as the impact of consolidation and an onslaught of foreign competition erodes earnings, Dutch banking group ING Barings said Wednesday.

Of the city-state's five banks, only three will survive the wave of mergers now taking place, the group said in a report.

It predicted United Overseas Bank (UOB) will win the battle for Overseas Union Bank (OUB), putting it alongside DBS Group and the merged Overseas-Chinese Banking Corp. (OCBC) and Keppel Capital Holdings to compete against foreign banks.

ING Barings banking analyst Tay Chin Seng downgraded Singapore's banking sector to underweight from neutral as the banks "are likely to face difficult operating conditions in the next 6-12 months, with low asset growth coupled with the erosion of net interest margins."

With an "underweight" rating, shares of the banks are expected to lag the stock market.

The competition was set to intensify as foreign banks issued with full banking licenses began participating in the local debit card payments network.

"This marks the first step in leveling the playing field for foreign banks and may not necessarily be the last," said Tay.

"This development is expected to lead to fiercer competition -- ultimately liberalization of the domestic banking sector will mean that organic asset growth will become difficult and the only means to change this is through regional acquisitions which is an avenue fraught with difficulties."

Tay put a "sell" recommendation on OCBC and UOB as "they are expected to be hampered with domestic integration risks." and a "buy" recommendation on the city-state's biggest bank DBS.

DBS and UOB were locked in a tussle to acquire OUB, although UOB appeared to have the upper hand with its S$10 billion (US$5.5 billion) bid winning the backing of OUB founder and 26.5 percent shareholder Lien Ying Chow.

DBS has said it would not revise its $9.4 billion bid.

Meanwhile, OCBC's planned $5.21 billion takeover of Keppel Capital took a step closer to being sealed after it announced Wednesday it had secured 70 percent of Keppel's issued and paid- up share capital, well above the 50 percent needed for the deal to go through.

It had also received acceptances totaling 74 percent of all listed warrants.

OCBC had earlier said its offer was conditional on acceptance by 50 percent of all shareholders. Two other conditions relating to regulatory approval by the Monetary Authority of Singapore and the Singapore Exchange have been met.

Keppel TatLee Bank is the smallest of five Singapore banks.

Keppel Capital major shareholders have already given their "irrevocable" support for OCBC's bid. The rest of the shareholders have until August 17 to accept the offer.

OCBC chief executive Alex Au said he was "delighted" by the high level of acceptances.

"We ... are confident that the remaining (Keppel Capital) shareholders and warrantholders will recognize the benefits and accept the offers by the closing date," he said in a statement.