India Infoline says while Singapore’s economic growth remains strong, data point to healthy loan, non-interest income growth, over past 3 months Singapore banks have extended recent underperformance vs regional peers, STI.

Notes YTD, Indonesian banks +60%, Thai banks +35%, Malaysian banks +25%, but Singaporean banks either flat or down.

“Better-than-expected 3Q10 results and faster loan growth failed to offset the overhang of NIM contraction, as SIBOR declined further by 11 bps last three months to a 23-year low of 0.44%,” says IIFL.

Says local banks’ discount to regional peers has widened; are cheapest in region at attractive 1.2x-1.6x forward P/B, 10x-12x forward P/E, dividend yield of 4%-5%, stabilisation of Sibor crucial for re-rating.

Adds, consensus 2010-11 net profit estimates have edged up by 1%-9% after 3Q10 results. Top picks — OCBC (O39.SG), rated Buy, for its wealth management franchise, overseas operations, and DBS (D05.SG), also Buy, for turnaround potential.

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