LOCAL bank stocks have declined significantly from their 2011 peaks but analysts warn of worse to come, so investors should resist the urge to buy.
The outlook for the sector will become clearer when the banks start releasing their fourth-quarter results in the next few weeks but Kim Eng analysts said bank shares are “not cheap yet”.
It has been a painful 12 months for bank investors.
United Overseas Bank shares have fallen by 21.8 per cent – from $20.90 on Aug 1 to $16.34 yesterday.
OCBC Bank was at $8.16 yesterday, down 20.9 per cent from its high of $10.32 on Jan 6 last year.
DBS was better off, falling 17 per cent from its Aug 1 high of $15.58 to $12.92 yesterday.
“In terms of valuation, the banks are now trading close to their book value and below their long-term average of 1.5 times, but still 33 per cent away from the trough in March 2009,” according to a Kim Eng report.
The report also noted there are headwinds that could affect earnings growth for the year, such as the poor outlook for Singapore’s economy, pressure on net interest margins and slower loan growth on the back of a slowing property market.
DMG analyst Leng Seng Choon noted that, given the lacklustre economy in general, banks’ earning prospects too are unlikely to be exciting.
“The downside risks are there in the first half of 2012. Higher (loan loss) provisions translate to weaker earnings, and the market won’t take to that too well,” he said.
In a separate research note on DBS, Mr Leng pointed out the bank’s fourth-quarter results could fall from the third quarter as net income on financial investments, which makes up part of non-interest income, is expected to be weaker. He recommends a neutral call on DBS.
All three banks are also facing tighter margins on loans, given that the low interest rate environment will remain for a while yet.
However, Kim Eng analysts are recommending OCBC for those who still want to enter the fray now, “for its strong credit-risk management and burgeoning wealth management franchise”.
“We expect UOB to continue underperforming in the light of the clampdown on the property sector to which it has a large exposure in the private residential segment.”