See how bad Singapore bank stocks are performing

A 2% dip in profit looms over the bank sector.

According to Macquarie Research, after a sharp rebound in 2012, the Singapore bank stocks are now trading within just a few percentage points of fair value. It is believed that further upside will be limited as growth momentum eases in 2H12 and beyond.

Here's more from Macquarie Research:

The stocks are no longer as compelling value ideas as they were earlier this year, but their solid balance sheets and cash yields should sustain valuations.

Operating earnings should increase 18% YoY in 3Q12, but this is mainly due to the low 3Q11 base at OCBC and UOB. We expect earnings growth to decline 2% QoQ for the sector, with underlying trends of tightening margins and slowing loan growth.

Not that our forecasts do not include OCBC’s one-off S$1.2bn divestment gain.

Loan growth has already slowed and we think this will continue given the tepid macro outlook. The recent property tightening measures are a net positive in terms of risk and capping mortgage tenures, but they also reinforce the story of slowing loan growth.

Meanwhile, competitive pressure on yields and increasing deposit costs as system LDRs rise will also impact ROAs.

The strong YoY comparables, in particular for UOB and OCBC, are indicative of the very weak results posted by both groups in 3Q11 when their earnings were especially impacted by global capital market volatility. The QoQ numbers are perhaps more indicative of the underlying trends, ie, tepid results in 2H12 relative to 1H12.

OCBC’s headline net income will be much higher than our reported forecast of S$643m due to the S$1.2bn consolidated divestment gains from the APB/FNN divestment. We are choosing to ignore it in our forecasts due to the one-off nature of the deal, which is already factored into our book value assumptions. But for the record, the net income number inclusive of one-offs should be near our modelled forecast of S$1,796m.