DBS' liquidity not yet a concern: CIMB

But it is gradually diminishing as one of the positives of the DBS franchise, warns the analyst.

Here's more from CIMB:

DBS expects 2012 loan growth to be ~10% vs. low-teens guidance earlier the year. 2Q margin pressures have specifically come from China, because of interest rates liberalisation. This will be ongoing.

We believe that alternative debt financing has a part to play ahead while its US$-LDR is still high. Its S$-deposits shrank 2% qoq in 2Q as it refrained from competing for time deposits, S$ CASA did not grow because system deposits were diverted to perpetuals and bond issuances in the quarter. The fall in liquidity is not a concern yet, but it is gradually diminishing as one of the positives of the DBS franchise.

Justifying low credit costs

DBS acknowledges that its credit costs are below normal levels with SP only at 8bp of loans. Normal levels are closer to 20-30bp. Management said that they have been as aggressive as possible in putting in provisions but the environment is just benign.

Good intermediary
In the longer-term, we deem DBS as the best franchise to facilitate trade across Asia as it has a sizable presence in the two hubs of Asia. Its investment banking franchise and efforts to roll out private banking services will do well when times are better. However, the current risk-averse tendencies for corporates and investors render its treasury cross-sell initiatives less effective, and this showed up in its 2Q results.

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