Not unexpectedly, MAS has raised the capital adequacy ratios for Singapore banks that are higher than called for under Basel III, as well as an earlier effective date: Jan 2013 instead of 2015.
Fact is, Singapore banks have always exceeded the MAS guidelines, let alone Basel’s.
Fact also is, our banks are not “global” banks the way the 8 largest banks in the world are (JP Morgan, Deutsche, HSBC, BNP), and are vulnerable because of exposure to neighboring countries.
As hybrid assets are not accepted” as part of core tier one, banks are likely to be less anxious to issue preference shares the way they did a few years back, ie rights issue may be called for in the coming years.
To minimize this, banks can choose to be less eager to raise dividends (even as it is, 56 cents annual from DBS translates to 4% yield at $14), or less aggressive in lending.
On valuations, we remain comfortable with DBS, OCBC and UOB, the former and the last trading within well-established range, DBS ($14-16), and UOB ($18-20).
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