Live more, Bank less | DBS Bank - Singapore Industry Focus … 0.5 1.0 1.5 2.0 2.5 4Q14 1Q15 2Q15...

ed-JS / sa- JC

Limited engines to fire

Rate hikes may not translate to a significant NIM spike

Earnings momentum to moderate in 2016 from lack of drivers; positive surprise could arise from lower-than-expected credit costs

Asset quality largely stable; but expect higher credit costs as we reach the end of a benign credit cycle

OCBC remains our preferred pick

Muted NIM impact despite rate hikes. Expectations are rife for the first Fed rate hike in years - 25bps by mid-Dec and another 25bps in 1Q16. This should push SIBOR further up to 1.4% by 1Q16. We have imputed slightly higher NIM in 2016 to account for the expected rate hike but we believe the NIM uptick may be muted as: (1) we expect funding costs to catch up, dampening the impact of loan yield increases on NIM; (2) in addition, with the S$ loan-to-deposit ratio now at a high of 87% from 79% two years ago, there may be little room left for banks to leverage on; and (3) the wildcard on whether Singapore banks still carry surplus US$ liquidity may dampen overall asset yields and hence NIM.

Moderated earnings growth. If the excitement of the NIM spike for the Singapore banks cools off, there leaves hardly any drivers for growth in 2016. Judging from the trends we have seen in 2015, we believe that even with the Fed rate hikes, there is not much room for NIM to rise significantly. With loan growth likely stay in the low single digits, topline growth will be slower. Non-interest income is unlikely to excite as well and may be volatile depending on markets, and to some extent, be the wildcard to earnings. As we exit the benign credit cycle, credit costs will start to accelerate. We forecast 2016 earnings growth of 6%. Upside surprise could come from higher than expected NIM increase. Every 10bps increase in NIM translates to 4-7% rise in earnings. Elsewhere, there is little to worry about capital levels in our view, as Singapore banks are among the highest capitalised in the region.

Asset quality still relatively healthy. So far, an asset quality capitulation appears remote. But banks have been prudently setting aside additional provisions where required. Stress tests have been carried out on selected portfolios particularly the commodities and oil & gas sectors, but so far, there has been little stress. Stay watchful on unemployment trends; this would spell the change in asset quality direction should the labour market weaken.

OCBC remains our preferred pick. There will be little difference in the relative earnings performance of the Singapore banks in 2016 in our view as overall drivers are expected to be lacklustre. Differences in non-interest income potential and regional presence will be of focus. Our pick of OCBC over UOB still rests on the same reasons - better non-interest income franchise and healthier asset quality indicators with a larger Greater China presence.

STI : 2,861.19

Analyst LIM Sue Lin +65 6682 3711 [email protected]

STOCKS

Source: DBS Bank Singapore Banks: Earnings growth trend

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

-30.0%

-10.0%

10.0%

30.0%

50.0%

2008 2009 2010 2011 2012 2013 2014 2015F 2016F

DBS OCBC UOB Total

*No forecasts for DBS; cumulative forecasts for the sector uses Bloomberg consensus forecasts for DBS Source: Companies, DBS Bank Singapore Banks: NIM trend

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

2.20%

2.40%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

2.20%

2.40%

2.60%

2008 2009 2010 2011 2012 2013 2014 2015F 2016FDBS OCBC UOB Average

NIM (Banks) NIM (Average/Industry)

*No forecasts for DBS Source: Companies, DBS Bank

Singapore Banks: Credit costs trend

0.24% 0.28%0.33%0.34%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F2016FDBS OCBC UOB Average 12-year average

Provision charge-off rate (Banks) Provision charge-off rate (average)

*No forecasts for DBS Source: Companies, DBS Bank

DBS Group Research . Equity 10 Dec 2015

Singapore Industry Focus

Singapore Banks

Refer to important disclosures at the end of this report

Price Mkt Cap Target Price Performance (%)

S$ US$m S$ 3 mth 12 mth Rating

DBS 16.51 29,325 NA (6.2) (15.6) NR OCBC 8.68 25,363 10.00 (2.7) (15.3) BUY UOB 19.38 22,042 19.20 0.8 (20.0) HOLD

Industry Focus

Singapore Banks

Table of Contents

Of rates hikes and such 3

Moderated growth ahead 4

Asset quality still relatively healthy 6

Little to worry about capital 7

Regional ambitions still a key strategy 8

Valuation and recommendation 9

Company Guides 10

OCBC 11

UOB 17

Industry Focus

Singapore Banks

Of rate hikes and such

SIBOR spike in 2015 did not fully translate to higher NIM. The SIBOR spike of 65bps up to 9M15 did not translate to a significant increase in NIM during the period. Typically, when SIBOR (or SOR) rises, loan yields get re-priced but tend to lag by over 3 months on average. Thankfully, while deposit costs rose in 1Q15, it subsequently trended down in subsequent quarters. 2015F NIM is nevertheless expected to rise but at a much smaller quantum that initially expected. A recap of 1Q15. When SIBOR rose significantly in 1Q15 (by 56bps), expectations were rife that banks’ NIM would finally start to rise. Contrary to expectations, average NIM was flat on average in 1Q15 with only UOB surprising on the upside. All banks saw loan yields rise due higher SIBOR and SOR, but the difference across the banks hinged on the relative non-loan asset composition and yields. Surplus liquidity from the decline in US$ trade loans led to a redeployment to lower yielding assets. UOB did not experience this as it was not exposed as much to such loans. The other difference which swayed to UOB’s advantage was its proportion of S$ loans, standing at the highest vs peers at 54% (DBS: 39%; OCBC: 36%). Across the banks, variable rate loans ranged between 80-90% of their loan books, and approximately 40% were SIBOR/SOR based. The other distinction was loan growth. Comparatively, UOB’s loans grew 2% q-o-q while OCBC’s was flat. With these effects combined, this explained why UOB saw NIM rising while OCBC’s NIM was lower in 1Q15. NIM was higher in 2Q15 but moderated in 3Q15. With the surplus liquidity successfully redeployed in 2Q15, NIM finally saw a real uptrend. Loan yields rose by another 8bps (similar quantum as in 1Q15) as more loans were re-priced while deposit costs started to ease. Average NIM rose by 4bps in 2Q15. Notably, SIBOR started to ease in 2Q15 to 82bps (-19bps q-o-q) implying that the impact of loan re-pricing in the coming quarter would moderate. The uncertainty of Fed rate hikes had reignited during that period. True enough, NIM trends moderated in 3Q15 as loan yields started to ease slightly but overall asset yields were dampened further by lower non-loan asset yield trends. Expect flattish NIM in 4Q15. With surplus liquidity likely to stay on the banks’ books, we anticipate non-loan asset yields to offset most of the impact from loan re-pricing from SIBOR movements. Assuming funding costs remain stable, there would be little room for NIM to expand in 4Q15.

Singapore Banks: NIM trends (yearly)

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

2.20%

2.40%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

2.20%

2.40%

2.60%

2008 2009 2010 2011 2012 2013 2014 2015F 2016F

DBS OCBC UOB Average

NIM (Banks) NIM (Average/Industry)

Note: No forecasts for DBS

Source: Companies, DBS Bank

Singapore Banks: NIM trends (quarterly)

0.30%

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.55%

1.60%

1.65%

1.70%

1.75%

1.80%

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

DBS OCBC UOB Average NIM 3m SIBOR


Singapore Banks: Loan yields (quarterly)

0.30%

0.50%

0.70%

0.90%

1.10%

1.30%

2.00%

2.20%

2.40%

2.60%

2.80%

3.00%

3.20%

3.40%

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

DBS OCBC UOB Average 3m SIBOR


Spike in SIBOR in 2015 mainly due to relative currency movements. SIBOR movements in 2015 reflected the relative movements of the US$ vs S$. The higher the expectations that the S$ will weaken vs US$, the more the pressure for SIBOR to rise. SIBOR is a daily reference rate based on the

Industry Focus

Singapore Banks

interest rates that banks offer to lend unsecured funds to other banks in the Singapore wholesale money market (or interbank market). SIBOR movements tend to follow the Singapore Swap Offer Rate (SOR) which is defined as "the expected forward exchange rate between the US$ and S$”. SIBOR is generally determined by the demand and supply of funds in the Singapore interbank market and the SOR is generally influenced by external factors such as the USD interest and exchange rates. This results in the SIBOR being more stable than the SOR, which tends to be more volatile because exchange rates as well as US$ money market rates tend to fluctuate more. Fed rate hike to finally happen? Expectations are rife for the first Fed rate hike in years - 25bps by mid-Dec and another 25bps in 1Q16. Typically, when the Fed Funds rate rise, the 3m LIBOR rates follow suit and similar trends will be tracked by SOR and hence SIBOR. Our interest rate strategist is expecting the first Fed rate hike of 25bps to happen in Dec-15, followed by another 25bps in 1Q16. This should push SIBOR up to 1.4% by 1Q16 (from 1.08% currently). Further 25bps hike per quarter is expected subsequently and SIBOR is expected to hit a high of 1.95% by 4Q16. Fed fund rates, 3m LIBOR and 3m SIBOR trends

0.25 0.25 0.25 0.25

0.50

0.75

1.00

1.25

1.50

0.46

1.010.82 0.90

1.08

1.401.60

1.801.95

0.26 0.27 0.28 0.330.44

1.051.25

1.551.70

0.0

0.5

1.0

1.5

2.0

2.5

4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

FED funds rate 3m SIBOR 3m LIBOR

Source: CEIC, DBS Bank Expect muted impact on NIM in 2016. Judging from trends we observed in 2015, while we do expect NIM to increase in 2016 from SIBOR hikes, we believe the rise in NIM will be muted for the following reasons: (1) while loan yields will be priced up accordingly, we expect funding costs to catch up both within Singapore and at the banks’ regional operations, especially Malaysia for UOB and OCBC, which is the second largest profit contributor to these banks, (2) the Singapore banks’ S$ loan-to-deposit ratio have reached a high of 87% from 79% two years ago which may imply that liquidity has somewhat tightened and there is little room to further leverage on; this would add pressure to S$ deposit costs, and

(3) the wildcard is whether the Singapore banks still carry surplus US$, a situation seen in 1Q15, which may dampen non-loan asset yields and hence overall NIM. Note that the US$ loan-to-deposit ratio has eased from a high of 131% in 1Q13 to 78% in 3Q15. Taking these into consideration, we expect NIM to increase by 4bps in 2016 (see chart on previous page).

Moderated growth ahead

Few engines to fire in 2016; but room for positive surprises if NIM rises more than expected. Revenues are expected to grow at a slower pace for Singapore banks in 2016. With NIM expected to rise by 4bps to account for the rate hike scenario coupled with sluggish loan growth, topline growth is likely to still see moderate growth albeit slower y-o-y. Non-interest income may also face slower growth in view of the cautious operating environment. Expenses are likely to stay high as banks are on high gear to invest in digitisation and selective business expansion. Credit cost is probably the line to watch as we believe banks have finally reached the end of a benign credit cycle. From an expected 15% earnings growth in 2015F, we only forecast 6% earnings growth in 2016. Upside surprise would be a higher than expected NIM spike. Note that every 10bps increase in NIM leads to an earnings uplift of 4-7%. Singapore Banks: Earnings growth trend

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

-30.0%

-10.0%

10.0%

30.0%

50.0%

2008 2009 2010 2011 2012 2013 2014 2015F 2016F

DBS OCBC UOB Total

Note: DBS forecasts are obtained from Bloomberg consensus; cumulative forecasts for the sector uses Bloomberg consensus forecasts for DBS


Loan growth to stay in the low single digits; expect slower topline growth. With expectations of lacklustre GDP growth coupled with regional economies grappling to pick up growth, Singapore banks’ loan growth will likely drift down and stay below the 5% level in 2016. Forex translation may just add an additional 1-2bps to overall loan growth, bringing our modelled loan growth forecast close to 5%. UOB and

Industry Focus

Singapore Banks

OCBC are still cautious in Malaysia and Indonesia for growth and asset quality, hence focusing on selective growth drivers. OCBC’s Greater China presence may be the differing point to consider vs UOB. Note that earnings momentum is not sensitive to movements in loan growth. Our sensitivity indicates that every 1ppt rise in loan growth only results in 0.5-0.7% increase in earnings, holding other variables constant. Singapore Banks: Loan vs GDP growth trend

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2008 2009 2010 2011 2012 2013 2014 2015F 2016F

DBS OCBC UOB Loan growth %



Slower revenue growth in 2016. With NIM having minimal potential uplift, there is little room for topline growth. Non-interest income however may face some headwinds with the challenging macro environment. We have already seen wealth management income moderating as customers have turned cautious and are switching to deposits instead of investment related products which translates to lower wealth management fees earned. We expect similar trends to persist in 2016 until the risk-on sentiment dissipates. We have forecasted overall non-interest income growth to be in the single digit levels in 2016. As usual, trading and investment income will be wildcards depending on market opportunities.

Singapore Banks: Wealth management income (quarterly)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0

20

40

60

80

100

120

140

160

180

200

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15

DBS OCBC UOB Growth

Wealth management income (S$m) % growth

Note: Numbers obtained from quarterly disclosed financials; numbers from UOB are taken from the classification “investment-related income” as that is the best proxy available.


Higher expenses. Business-as-usual expenses should typically trend up in the mid-single digit range but overall costs will likely stay high as investments in technology are required particularly for digital banking and cyber security. Other investments to further enhance regional operations are still ongoing but the increase should not be high. Together with the slower revenue growth expected in 2016, cost-to-income ratio would hence tilt slightly higher. Provisions and credit costs - 2 line items to watch. We had in Aug 15 turned on our cautious mode on credit costs. While credit costs had remained low up to 1H15, the cycle has changed from 3Q15. We believe Singapore banks have reached the end of the benign credit cycle. That said, the banks have yet to reach 12-year average credit cost levels. We expect 2015F credit costs to be higher than 2014, with a further lift in 2016. We expect UOB to continue setting aside general provisions as buffer, a practice it has always followed over the years, and keeping its general provisions reserves to total loans at 1.4%, the highest among peers. Meanwhile, we expect OCBC’s days of low credit cost levels to end, but even then, we believe increases will remain small.

Industry Focus

Singapore Banks

Singapore Banks: Credit costs trend

0.24%0.28%

0.33%0.34%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F2016F

DBS OCBC UOB Average 12-year average

Provision charge-off rate (Banks) Provision charge-off rate (average)



Asset quality still relatively healthy

All eyes on NPLs. Absolute NPLs have been on the rise in 2015, up by a good 15% 9M15YTD, following the trend of credit costs. NPL increases were seen in the manufacturing, general commerce and transportation sectors. By geography, increases have been seen across the board. Concerns on exposure to commodities and oil & gas sectors will be monitored. OCBC’s oil and gas exposure was 6% of total loans while commodities stood at 7% of total loans as at 3Q15. There may still be some risks to the oil and gas exposure depending on trend of oil prices but its commodity portfolio remains healthy. Meanwhile, UOB’s exposure to commodities is less than 8% of total loans while the sub-segment, oil & gas is c.5% of total loans. Singapore Banks: Quarterly NPL trend

-

0.5

1.0

1.5

2.0

2.5

3.0

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

Total NPL NPL ratio (%)

S$m %


Singapore Banks: Quarterly NPL trend – by geography

0

500

1000

1500

2000

2500

3000

3500

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15Singapore Hong Kong Malaysia Indonesia China Others

S$m


Singapore Banks: NPL trend

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2009 2010 2011 2012 2013 2014 2015F 2016F

DBS OCBC UOB Average

Gros s NPL ratio (Banks) Gross NPL ratio (Average/Industry)



Won’t be as bad as GFC, in our view. We have stressed tested our assumptions to reflect a GFC scenario, and found that this would result in 21-24% downside to our FY16F earnings. However, we believe this scenario is unlikely. Should global macro fundamentals deteriorate significantly, we would reference against the GFC scenario in 2008-09 - our FY16F loan growth would be a parallel comparison to FY09; asset quality indicators would be close to the FY08-09 average but excluding the effect of CDOs (collateralised debt obligations) and the Middle Eastern crisis. In a bear case scenario, UOB’s NPL could rise to 2% while OCBC to 1.3%, based on our analysis. Our asset quality forecasts reflect weakness in the banks’ operations in ASEAN (OCBC: 20%, UOB: 21% of pretax profit) and Greater China (OCBC: 19%, UOB: 10% of pretax profit). We are expecting a slight uptick in NPLs but this will not be significant. NPL ratios are also a function of slower loan growth, hence monitoring credit costs would be a better measure.

Industry Focus

Singapore Banks

Keep watch on unemployment, a more sensitive indicator to NPL rather than interest rates. There is a clear relationship between NPLs and unemployment rates, and this holds stronger than the correlation with interest rates. So long as one remains gainfully employed, instalments should continue to be paid. There have been concerns that as SIBOR rises, mortgage installments get costlier and there could be stress on repayments. We believe that most home owners should still be able to shoulder the burden of higher rates as banks have ensured that borrowers can still service their home loans if interest rates rise to 3.5% as per Monetary Authority of Singapore (MAS) requirements. To this end, we have also seen a shift in borrowers’ preference towards fixed mortgage rates from variable ones. Singapore Banks: Asset quality and unemployment

indicators

-10000

0

10000

20000

30000

40000

50000

60000

70000

80000

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Unemployment rate (LHS) Provision charge-off rate (LHS)

NPL ratio (LHS) Job creation (RHS)

% Total persons

Source: MOM, DBS Bank

Little to worry about capital

Singapore banks capital ratios are among the highest in ASEAN. Among all the variables considered in analysing banks, the “C” in the CAMELS framework is probably the least vulnerable on the downside for the Singapore banks. Singapore banks are among the highest capitalised in the region. Even before Basel III came into play, MAS required

banks to have 6% Tier-1 CAR and 10% Total CAR, which is above international and regional requirements of 4% and 8% respectively. With Basel III, the crucial implication is the requirement for CET1 to be at 9.5% by 2019 (stepped up on a transitional basis every year from 2014). MAS requires Singapore-incorporated banks to meet a minimum CET1 ratio of 6.5%, Tier 1 CAR of 8% and Total CAR of 10% from 1 January 2015. These standards are higher than the Basel III minimum requirements of 4.5%, 6% and 8% for CET1, Tier 1 and Total CAR, respectively. Inclusive of the capital conservation buffer of 2.5% and countercyclical buffer of up to 2.5%, the Singapore banks are expected to have a CET1 of 11.5% by 2019. All three Singapore banks fulfill this requirement even today. As at end 3Q15, the average fully loaded CET1 for the Singapore banks stood at 11.8%. This was backed by sustained retained earnings growth supplemented by scrip dividend. OCBC has said that it will continue with its scrip dividend until its CET1 inches closer to its peers. Note that OCBC’s CET1 was reduced after it acquired Wing Hang Bank in 2014 but it subsequently raised a rights issue and continued with its scrip dividend programme to rebuild its capital. In addition, we do not expect significant changes to the dividend policies and payments by the banks. Singapore Banks: Capital ratios (3Q15)

11.9% 12.2% 11.4%

12.9% 13.6% 14.6%14.8%

16.4% 16.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

DBS UOB OCBC

Core-Tier-1 CAR Tier-1 CAR Total CAR

(15.3%)(13.4%)

(12.3%)

(16.8%)

(14.0%)

(12.5%)

(16.1%)

(14.2%)

(11.2%)

(numbers in parenthesis are for previous quarter)


Industry Focus

Singapore Banks

Regional ambitions still a key strategy

Regional ambitions remain key on banks strategic agenda. With limited growth opportunities within Singapore, regional ambitions remain crucial to the banks’ strategic priorities. 2015 saw weakness from ASEAN operations because of the overall slowdown in the region but this does not derail banks’strategies for growth. UOB has steered its ship to be an ASEAN-centric bank and is positioning itself to take advantage of China’s “One Belt, One Road” theme. Since 2011, UOB has had a team dedicated to helping businesses seize new opportunities in the region. UOB’s Foreign Direct Investment (FDI) Advisory Unit has to date facilitated regional business expansion and investment plans for close to 600 new customers along the trade routes. Within ASEAN, we understand that UOB is relooking at its Indonesian operations to realign business focus. Furthermore, its strong historical footprint in Malaysia remains solid especially within the SME space. However, UOB’s Thai operation is expected to remain small. OCBC has an added edge over UOB, with a large physical presence in Greater China after the acquisition of Wing Hang Bank (now called OCBC-Wing Hang). Integration has been slow, but merger synergies are gradually surfacing. We believe market continues to underappreciate OCBC’s ability to generate improved revenues from its Greater China presence. Within ASEAN, OCBC’s strong foothold in Malaysia within the SME space is complimented by its wealth management business (OCBC Premier) and its Islamic banking offering. OCBC NISP remains a strong SME bank in Indonesia. In 3Q15, OCBC NISP saw top-line improvement, thanks to improved NIM and strong loan growth but offset by lower fee income and higher provisions (largely related to SME lending) while NPL ratio was stable. OCBC will be keeping its insurance franchise. OCBC has no plans to sell its position in Great Eastern as it remains complementary to its non-interest income franchise. Management believes that it remains logical and beneficial to keep the insurance product manufacturing in-house. Great Eastern still maintains its market position in both Singapore and Malaysia. Management believes that the viability of staying in the insurance business remains should be strongly analysed. New insurance companies are still coming into Asia and the insurance sector remains underpenetrated, indicating that there is still potential for growth over the long term. Q-o-q variations depend on asset allocation and would likely result

in earnings volatility. But so long as the total weighted sales and new business embedded value remain healthy, it will be positive for the insurance business over the longer term. As long as the interest rate cycle is on an uptrend, it will be positive to the insurance business. Singapore Banks: Regional profit contribution (3Q15)

Singapore55%

Malaysia17%

Indonesia4%

Greater China20%

Asia Pacific2%

Rest of the World2%

OCBC

Singapore67%

Hong Kong26%

Rest of Greater China5%

South/South East Asia

0%

Rest of the World6%

DBS

Singapore60%

Malaysia10%

Greater China19%

Indonesia3%

Rest of the World

6%Others

4%

Total

Singapore57%

Malaysia13%

Thailand10%

Indonesia5%

Greater China9%

Other6%

UOB


OCBC: Insurance business contribution to non-interest

income

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700

800

900

1000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

2008

2009

2010

2011

2012

2013

2014

Insurance Insurance % to non-interest income

S$m

Source: Company, DBS Bank

Industry Focus

Singapore Banks

Valuation and recommendation

Singapore banks are trading at -1.5 SD of its 10-year mean P/BV. Contrary to expectations, the Singapore banks have performed poorly vs ASEAN peers, with an 18% contraction in market cap YTD-2015. While share prices of the banks have rebounded from their lows in early October, this only reflected the good news that asset quality was unlikely to deteriorate significantly. Although we believe the banks remain fundamentally strong (no significant deterioration in asset quality, strong capital position), the market appears to be pricing in the slower loan growth and higher credit costs in the coming quarters and does not seem positive on any potential NIM spikes from rate hikes. Singapore banks are currently trading at 1.0x FY16 BV, which is at -1.5 SD of its 10-year mean P/BV multiple. Singapore Banks: Among the worst performers in ASEAN

Malaysia, -6.9

Singapore, -18.1Indonesia, -14.1

Thailand, -21.1

Philippines, -8.3

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Jan-15 Feb-15Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15

Malaysia Singapore Indonesia Thailand Philippines

%

Source: Companies, Bloomberg Finance L.P., DBS Bank

Singapore Banks: Rolling forward PBV band

Mean, 1.36

+1SD, 1.60

+2SD, 1.85

-1SD, 1.11

-2SD, 0.86

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

05 06 07 08 09 10 11 12 13 14 15

PBV (X)

Source: Companies, Bloomberg Finance L.P., DBS Bank OCBC remains a BUY on solid asset quality and Greater China traction. Our S$10.00 TP is derived from the Gordon Growth Model and implies 1.1x FY16F BV. The potential reach of its differentiated non-interest income franchise should support valuation. A turn in the interest rate cycle with minimal disruption to asset quality will be testimony of its robust credit position. UOB stays as a HOLD on its weaker asset quality indicators vs peers as well as its higher dependence on loan-related business which utilises more capital. Upside risk to earnings could arise should it be able to repeat trends it saw in 1Q15 where NIM improved ahead of peers due to its higher proportion of S$ loans and lower surplus liquidity. We believe UOB will stay conservative in keeping general provisions high, thereby limiting earnings growth potential.

Singapore banks’ peer table

Market cap Price

Target Price Rating PE (x) CAGR PBV (x)

ROE (%)

Net div (%)

(US$m) ($S/s) ($S/s) FY14A FY15F FY16F ^ (%) FY14F FY15F FY16F FY15F FY15F

DBS* 29,325 16.51 NA NA 10.1x 9.5x 9.2x 5.0 1.1x 1.0x 1.0x 11.1% 3.7%

OCBC 25,363 8.68 10.00 BUY 9.6x 8.9x 8.5x 6.0 1.2x 1.0x 0.9x 12.3% 4.6%

UOB 22,042 19.38 19.20 HOLD 9.7x 9.5x 9.1x 3.6 1.1x 1.0x 1.0x 11.3% 3.8%

Weighted average 9.8x 9.3x 8.9x 1.1x 1.0x 1.0x 11.6% 4.0%

Simple average 9.8x 9.3x 8.9x 1.1x 1.0x 1.0x 11.6% 4.0%

* Based on Bloomberg consensus ^ Refers to 2-year EPS CAGR for FY14-16F

Source: Companies, Bloomberg Finance L.P., DBS Bank

Industry Focus

Singapore Banks

Company Guides

ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa: F?

BUY Last Traded Price: S$8.68 (STI : 2,861.19) Price Target : S$10.00 (15% upside) Potential Catalyst: Earnings accretion from OCBC-WHB Where we differ: Earnings are more bullish than consensus with variance likely from low sustained credit costs Analyst LIM Sue Lin +65 6682 3711 [email protected]

Price Relative

Forecasts and Valuation FY Dec (S$ m) 2014A 2015F 2016F 2017F Pre-prov. Profit 5,008 5,366 5,715 6,051 Net Profit 3,760 3,885 4,064 4,347 Net Pft (Pre Ex.) 3,369 3,885 4,064 4,347 EPS (S cts) 101.2 97.3 101.8 108.9 EPS Pre Ex. (S cts) 90.6 97.3 101.8 108.9 EPS Gth (%) 33 (4) 5 7 EPS Gth Pre Ex (%) 19 7 5 7 Diluted EPS (S cts) 94.2 97.3 101.8 108.9 PE Pre Ex. (X) 9.6 8.9 8.5 8.0 Net DPS (S cts) 36.3 39.7 41.5 44.4 Div Yield (%) 4.2 4.6 4.8 5.1 ROAE Pre Ex. (%) 12.6 12.3 11.6 11.1 ROAE (%) 14.1 12.3 11.6 11.1 ROA (%) 1.1 1.0 1.0 1.1 BV Per Share (S cts) 744 833 927 1,027 P/Book Value (x) 1.2 1.0 0.9 0.8 Earnings Rev (%): 0 0 0 Consensus EPS (S cts): 93.2 96.0 100.8 Other Broker Recs: B: 20 S: 3 H: 5

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

RIDING ON ITS UNDERAPPRECIATED LINK Riding on its unappreciated Greater China franchise. We believe the market is still underappreciating the OCBC-WHB’s franchise in Greater China. With its enlarged Greater China presence, OCBC’s growth prospects in wealth management, retail & commercial banking and insurance are further enhanced. Active cross-selling for OCBC’s private banking and insurance businesses are key wins. Integration is still on-going but signs of improvement are visible in its wealth management income line.

Solid non-interest income franchise to drive earnings . We expect wealth management income to continue its upward trajectory, potentially contributing up to 20% of non-interest income (excluding insurance). Insurance contribution could be volatile due to interest rate movements. As such, underlying growth in new business embedded value and total weighted sales should be the focus parameters for insurance, and these have been robust.

Sluggish outlook ahead; dependent on regional economies. Loan demand remains weak but is unlikely to contract going into 2016. Further risk to provisions and NPLs would be largely dependent on oil prices and strength of the regional economies. At the moment, provisions are sufficient. Current NIM levels should be maintained as excess liquidity will be closely managed. Capital levels have built up healthily, largely supported by retained earnings and scrip dividends. The scrip dividend will likely continue until capital levels are more comparable to peers. Valuation: Our S$10.00 TP which implies 1.1x FY16F BV is derived from the Gordon Growth Model. OCBC’s share price should re-rate with stronger earnings at OCBC-WHB. The potential reach of its differentiated non-interest income franchise should support valuations. A turn in the interest rate cycle with minimal disruption to asset quality will be testimony of its robust credit position.

Key Risks to Our View: Slower traction in wealth management business . As a growing income contributor, stricter regulatory requirements for private banking clients could slow growth. Additionally, weak and volatile markets could put customers on a risk-off mode, reducing investment activities. Inability to fully integrate Wing Hang Bank’s business. Inability to extract synergies from its acquisition of Wing Hang Bank could take a longer-than-expected toll on EPS/ROE.

At A Glance Issued Capital (m shrs) 4,117 Mkt. Cap (S$m/US$m) 35,731 / 25,363 Major Shareholders Selat Pte Ltd (%) 10.7 Free Float (%) 82.8 3m Avg. Daily Val (US$m) 37.8 ICB Industry : Financials / Banks


Singapore Company Guide

OCBC Edition 1 Version 1 | Bloomberg: OCBC SP | Reuters: OCBC.SI Refer to important disclosures at the end of this report

86

106

126

146

166

186

206

6.8

7.8

8.8

9.8

10.8

11.8

Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

Relative IndexS$

OCBC (LHS) Relative STI INDEX (RHS)

ASIAN INSIGHTS VICKERS SECURITIES Page --

Company Guide

OCBC

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

NIM will be a ratio to watch. With SIBOR on an uptrend, banks will generally benefit from it although with different degrees. 80% of OCBC’s loans are pegged to variable rates; half of which are priced on SIBOR/SOR. OCBC should stand out better than UOB by virtue of its higher CASA and lower S$ loan-to-deposit ratio. Now that the SIBOR has reached its new normal, it is more likely that NIM will stay flattish going forward; funding cost pressures maybe felt along the way. Muted loan growth expected. Loan demand remains weak and 2015 loan growth could stay at low single digits and is unlikely to contract even going into 2016. OCBC believes that loan demand should pick up when the neighbouring economies see a pick-up in growth. Non-interest income drivers remain its key differentiator. OCBC differentiates itself from peers when looking at its non-interest income composition. Its focus to grow its non-interest income franchise, especially its wealth management business is aimed at buffering potential moderation in net interest income due to sluggish loan growth. Its insurance business, 87%-owned subsidiary, Great Eastern Holdings, remains a dominant part of its non-interest income. OCBC has no plans to sell its stake in Great Eastern as it remains complementary to its non-interest income franchise. Management believes that remains logical and beneficial to keep the insurance product manufacturing in-house. Since the acquisition of Bank of Singapore in 2010, we have seen its wealth management income growing steadily; this trend is expected to be sustainable. Minimal cost pressures. Expenses should remain stable with the bulk of integration issues set aside. On-going initiatives for digital banking could be a cost factor. In ASEAN, the Singapore banks are the most prepared for the digital banking phase. We note that OCBC has several key product differentiators vs peers and its regional digitisation plans are picking up speed. Regionalisation is a key item on its agenda. Malaysia remains OCBC’s second largest contributor but will likely face funding cost pressures which are intensely faced by its Malaysian banking peers. Loan yields have however stabilised in Malaysia. In Indonesia, while still a small contributor, should see funding cost pressures ease but growth will likely remain muted. Greater China would be the shining star with Wing Hang Bank. Integration is still ongoing. We see the wealth management line as the key initial indicator to watch for synergies in the coming quarters. Integration of its China business is still being finalised.

Margin Trends

Gross Loan& Growth

Customer Deposit & Growth

Loan-to-Deposit Ratio Trend

Cost & Income Structure


1.6%

1.6%

1.7%

1.7%

1.8%

1.8%

1.9%

0

1,000

2,000

3,000

4,000

5,000

6,000

2013A 2014A 2015F 2016F 2017F

S$ m

Net Interest Income Net Interest Income Margin

-100%-90%-80%-70%-60%-50%-40%-30%-20%-10%0%

0

500

1,000

1,500

2,000

2013A 2014A 2015F 2016F 2017F

S$ m

Fees & Commissions

Fees & Commissions Growth (%) (YoY) (RHS)

0%

5%

10%

15%

20%

25%

30%

0

50,000

100,000

150,000

200,000

250,000

300,000

2013A 2014A 2015F 2016F 2017F

S$ m

Customer Deposits (LHS)

Customer Deposits Growth (%) (YoY) (RHS)

71%

76%

81%

86%

91%

96%

151,069

171,069

191,069

211,069

231,069

251,069

271,069

291,069

311,069

331,069

2013A 2014A 2015F 2016F 2017FLoans Deposit Loan-to-Deposit Ratio (RHS)

0.380.3850.390.3950.40.4050.410.4150.420.4250.430.435

0

2,000

4,000

6,000

8,000

10,000

12,000

2013A 2014A 2015F 2016F 2017F

Net Interest Income Non-interest Income Cost-to-income Ratio

ASIAN INSIGHTS VICKERS SECURITIES Page -.

Company Guide

OCBC

Balance Sheet:

Asset quality largely robust. OCBC’s NPL ratio has held up well vs peers. Its credit cost has also been lower compared to peers. Despite concerns of an unsustainably low credit cost level, OCBC has successfully weathered through the storm as seen during several crisis phases over the past 10 years. That said, at such a low base, it would not be surprising to see credit cost normalise in coming years. OCBC’s oil and gas exposures were at 6% of total loans while commodities were at 7% of total loans as at 3Q15. There may still be some risks to its oil and gas exposure depending on oil price trends but its commodity portfolio remains healthy. Capital ratios to remain stable. We believe OCBC will continue with its scrip dividend policy to shore up capital. Separately, while there are still some non-core assets the bank can divest, these is not large and not an immediate priority. There has been a continuous debate on whether OCBC should divest its insurance business, Great Eastern Holdings, as it is perceived to be capital punitive once Basel III is fully enforced. But we are of the view that without majority control of the business, integrating it as part and parcel of its wealth management offerings would be challenging. Share Price Drivers:

Delivery of Wing Hang integration synergies would be a key catalyst for the stock. We believe market will continue to watch closely as OCBC proceeds to integrate its businesses in China and Hong Kong. OCBC has outlined its grand plans as benefits of this acquisition. While some synergies have trickled in, it has not been sufficient enough for a re-rating. Key Risks:

Slower traction in wealth management business. As a growing income contributor, stricter regulatory requirements for private banking clients could slow growth. Additionally, weak and volatile markets could cause risk-averse customers to reduce investment activities. Failure to integrate Wing Hang Bank’s business. Failure to extract synergies from recently acquired Wing Hang Bank could take a longer-than-expected toll on EPS/ROE. COMPANY BACKGROUND

The OCBC Bank group of businesses comprises a family of companies owned by Singapore's longest-established local bank. Its banking business franchise includes OCBC Bank, Bank OCBC NISP and Bank of Singapore, with branches in over 15 countries. OCBC has strategic stakes in other financial service businesses operating under independent brands such as Great Eastern, Bank of Singapore and Lion Global Investors.

Asset Quality

Capitalisation (%)

ROE (%)

Forward PE Band (x)

PB Band (x)


0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

2013A 2014A 2015F 2016F 2017F

NPL Ratio Provision Charge-Off Rate

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

2013A 2014A 2015F 2016F 2017F

Tier-1 CAR Total CAR

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2013A 2014A 2015F 2016F 2017F

Avg: 10.9x

+1sd: 12x

+2sd: 13x

‐1sd: 9.9x

‐2sd: 8.8x

7.6

8.6

9.6

10.6

11.6

12.6

13.6

14.6


(x)

Avg: 1.37x

+1sd: 1.47x

+2sd: 1.57x

‐1sd: 1.26x

‐2sd: 1.16x

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8


(x)

ASIAN INSIGHTS VICKERS SECURITIES Page -/

Company Guide

OCBC

Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F

Gross Loans Growth 17.7 23.7 4.8 4.7 6.2 Customer Deposits Growth 18.7 25.3 8.0 8.0 8.0 Yld. On Earnings Assets 2.6 2.7 2.7 2.8 2.8 Avg Cost Of Funds 1.0 1.1 1.1 1.1 1.2 Income Statement (S$ m)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Interest Income 3,883 4,736 5,472 5,869 6,226 Non-Interest Income 2,738 3,604 3,561 3,874 4,248

Operating Income 6,621 8,340 9,033 9,743 10,474 Operating Expenses (2,842) (3,332) (3,667) (4,028) (4,422)

Pre-provision Profit 3,779 5,008 5,366 5,715 6,051 Provisions (266) (357) (336) (457) (435) Associates 54 112 121 127 135 Exceptionals 0 0 0 0 0

Pre-tax Profit 3,567 4,763 5,152 5,385 5,752 Taxation (597) (687) (876) (915) (978) Minority Interests (202) (234) (309) (323) (345) Preference Dividend (82) (82) (82) (82) (82)

Net Profit 2,686 3,760 3,885 4,064 4,347 Net Profit before Except. 2,686 3,369 3,885 4,064 4,347 Growth (%) Net Interest Income Gth 3.6 22.0 15.5 7.2 6.1 Net Profit Gth bef Except (1.2) 25.4 15.3 4.6 6.9

Margins, Costs & Efficiency (%) Spread 1.6 1.6 1.6 1.6 1.6 Net Interest Margin 1.6 1.7 1.7 1.7 1.7 Cost-to-Income Ratio 42.9 40.0 40.6 41.3 42.2

Business Mix (%) Net Int. Inc / Opg Inc. 58.6 56.8 60.6 60.2 59.4 Non-Int. Inc / Opg inc. 41.4 43.2 39.4 39.8 40.6 Fee Inc / Opg Income 20.5 17.9 18.4 18.8 19.3 Oth Non-Int Inc/Opg Inc 20.9 25.3 21.0 21.0 21.2

Profitability (%) ROAE Pre Ex. 11.5 12.6 12.3 11.6 11.1 ROAE 11.5 14.1 12.3 11.6 11.1 ROA Pre Ex. 0.9 1.1 1.0 1.0 1.1 ROA 0.9 1.1 1.0 1.0 1.1


Guiding for slower loan growth

Driven by wealth management and insurance income

NIM upside largely accounted for in 1H15

ASIAN INSIGHTS VICKERS SECURITIES Page -0

Company Guide

OCBC

Quarterly / Interim Income Statement (S$ m)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Net Interest Income 1,246 1,277 1,249 1,282 1,317 Non-Interest Income 1,192 762 859 939 775

Operating Income 2,438 2,039 2,108 2,221 2,092 Operating Expenses (884) (954) (897) (942) (925)

Pre-Provision Profit 1,554 1,085 1,211 1,279 1,167 Provisions (97) (154) (64) (80) (150) Associates 14 64 89 102 99 Exceptionals 0 0 0 0 0

Pretax Profit 1,471 995 1,236 1,301 1,116 Taxation (184) (146) (185) (191) (181)

Minority Interests (55) (58) (58) (62) (33)

Net Profit 1,232 791 993 1,048 902 Growth (%) Net Interest Income Gth 10.7 2.5 (2.2) 2.6 2.7 Net Profit Gth 33.8 (35.8) 25.5 5.5 (13.9)

Balance Sheet (S$ m) FY Dec 2013A 2014A 2015F 2016F 2017F Cash/Bank Balance 19,341 25,314 27,339 29,526 31,888 Government Securities 20,610 22,249 24,018 25,928 27,990 Inter Bank Assets 39,573 41,220 39,152 40,940 43,476 Total Net Loans & Advs. 167,854 207,535 217,513 227,442 241,532 Investment 19,602 23,466 26,102 27,293 28,984 Associates 380 2,096 2,217 2,344 2,479 Fixed Assets 2,629 4,556 4,683 4,814 4,948 Goodwill 3,741 5,157 5,157 5,157 5,157

Other Assets 11,313 12,347 15,226 15,921 16,907 Life Ass Fund Inv Assets 53,405 57,286 57,286 57,286 57,286

Total Assets 338,448 401,226 418,693 436,651 460,647 Customer Deposits 195,974 245,519 265,161 286,373 309,283 Inter Bank Deposits 21,549 20,503 11,201 3,060 (1,375) Debts/Borrowings 26,702 28,859 28,859 28,859 28,859 Others 12,961 14,936 18,187 19,017 20,201 Minorities 2,964 3,088 3,397 3,720 4,065 Shareholders' Funds 25,115 31,097 34,665 38,397 42,390 Life Ass Fund Liabs 53,183 57,224 57,224 57,224 57,224

Total Liab& S/H’s Funds 338,448 401,226 418,693 436,651 460,647

Source: Company, DBS B ank

3Q15 earnings dented by lower insurance income contribution, partially offset by higher trading income; NIM was flattish while loans were sluggish

Bank of Ningbo as an associate from 4Q14

Moderated loan growth, guided at mid-single digit


Company Guide

OCBC

Financial Stability Measures (%)

FY Dec 2013A 2014A 2015F 2016F 2017F Balance Sheet Structure Loan-to-Deposit Ratio 86.5 85.4 82.9 80.4 79.1 Net Loans / Total Assets 49.6 51.7 52.0 52.1 52.4 Investment / Total Assets 5.8 5.8 6.2 6.3 6.3 Cust . Dep./Int. Bear. Liab. 80.2 83.3 86.9 90.0 91.8 Interbank Dep / Int. Bear. 8.8 7.0 3.7 1.0 (0.4)

Asset Quality NPL / Total Gross Loans 0.7 0.6 0.8 0.9 0.8 NPL / Total Assets 0.4 0.3 0.4 0.5 0.4 Loan Loss Reserve Coverage 140.5 174.3 137.2 131.4 153.7 Provision Charge-Off Rate 0.2 0.2 0.2 0.2 0.2

Capital Strength Total CAR 16.3 15.9 16.3 16.9 17.3 Tier-1 CAR 14.6 13.8 14.2 14.9 15.4

Source: Company, DBS Bank Target Price & Ratings History

Source: DBS Bank

S.No. DateClosing

PriceTarget Price

Rat ing

1: 29 Jan 15 10.47 12.70 BUY

2: 12 Feb 15 10.53 12.70 BUY

3: 30 Apr 15 10.68 12.70 BUY

4: 22 May 15 10.37 12.70 BUY

5: 10 Jun 15 10.06 12.80 BUY

6: 10 Aug 15 10.20 12.80 BUY

7: 31 Aug 15 8.93 10.00 BUY

8: 28 Oct 15 9.20 10.00 BUY

Note : Share price and Target price are adjusted for corporate actions.

1

23

4

56

7

8

8.23

8.73

9.23

9.73

10.23

10.73

11.23

Dec-14 Apr-15 Aug-15 Dec-15

S$

Credit cost to remain low; 10-year historical average at19bps

ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa: JC

HOLD Last Traded Price: S$19.38 (STI : 2,861.19) Price Target : S$19.20 (-1% downside) Potential Catalyst: Ability to overcome funding cost pressures; enhancing its regional operations Where we differ: Slightly above consensus possibly due to lower credit cost assumptions Analyst LIM Sue Lin +65 6682 3711 [email protected]

Price Relative

Forecasts and Valuation FY Dec (S$m) 2014A 2015F 2016F 2017F Pre-prov. Profit 4,311 4,584 4,814 5,086 Net Profit 3,139 3,212 3,367 3,611 Net Pft (Pre Ex.) 3,139 3,212 3,367 3,611 EPS (S cts) 199 204 214 229 EPS Pre Ex. (S cts) 199 204 214 229 EPS Gth (%) 8 2 5 7 EPS Gth Pre Ex (%) 8 2 5 7 Diluted EPS (S cts) 197 202 212 227 PE Pre Ex. (X) 9.7 9.5 9.1 8.5 Net DPS (S cts) 75.3 73.4 75.9 75.7 Div Yield (%) 3.9 3.8 3.9 3.9 ROAE Pre Ex. (%) 12.2 11.3 11.0 11.0 ROAE (%) 12.2 11.3 11.0 11.0 ROA (%) 1.1 1.1 1.1 1.1 BV Per Share (S cts) 1,741 1,870 2,008 2,162 P/Book Value (x) 1.1 1.0 1.0 0.9 Earnings Rev (%): 0 0 0 Consensus EPS (S cts): 197 202 216 Other Broker Recs: B: 11 S: 3 H: 14

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

STAYING CONSERVATIVE Missing links are not in the price. UOB has been known for its conservative growth but we believe the market may have overlooked the lack of its fee income differentiation as well as Greater China presence. We believe over time, regionalisation beyond ASEAN would need to improve and a stronger traction in non-interest income away from loan-related activities to prompt a re-rating for the bank. UOB is more Singapore-centric compared to peers with 52% and 48% of its loans and deposits being S$ based respectively. While this is not necessarily a weakness, it would remain a point of contention when peers are able to reap better contribution from overseas operations. These factors justify our HOLD rating.

Regional growth remains in focus. UOB continues to pursue its regionalisation agenda. We note that its regional corporate banking strategy has gained traction, though in a different manner from its peers which have largely tapped on trade finance. Although Indonesia and Thailand economies remain vulnerable in the short term, UOB maintains its position to grow its regional franchise. UOB continues to participate in growth segments in Malaysia albeit selectively.

Conservative guidance. The bulk of its NIM upside had already been accounted for in 1Q15, and as such further upside in coming quarters would be muted. Loan growth is guided at 5% for FY15 excluding currency effect, but with the depreciation in the Malaysian Ringgit and Rupiah translated back to Singapore, loan growth by the year end would be lower than 5%. UOB’s credit costs are expected to remain higher than peers.

Valuation: Our S$19.20 TP is based on the Gordon Growth Model, implying 1.0x FY16F BV. While UOB’s regional footprint in ASEAN is more complete vs peers, near-term headwinds, particularly in managing its funding cost, could hamper growth. Key Risks to Our View: Sustained weakness in regional operations. Sustained weakness in ASEAN operations would dampen regional growth. This would mean Singapore operations need to buffer the slack. Quicker-than-expected regional recovery and alleviation of funding cost pressures could pose upside risk to our earnings forecasts.. At A Glance Issued Capital (m shrs) 1,602 Mkt. Cap (S$m/US$m) 31,053 / 22,042 Major Shareholders Wee Investment (%) 7.6 Free Float (%) 87.2 3m Avg. Daily Val (US$m) 40.2 ICB Industry : Financials / Banks


Singapore Company Guide

UOB Edition 1 Version 1 | Bloomberg: UOB SP | Reuters: UOBH.SI Refer to important disclosures at the end of this report

90

110

130

150

170

190

210

13.6

15.6

17.6

19.6

21.6

23.6

25.6

27.6


Relative IndexS$

UOB (LHS) Relative STI INDEX (RHS)


Company Guide

UOB

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

NIM would likely stay flat from here on. While UOB surprised on the upside for NIM in 1Q15, management guided for flat trends for the rest of the year despite the higher interest rate scenario as it believes funding costs would likely dent positives it might gain from the rate hike. We note that UOB’s S$ loan-to-deposit ratio remains the highest among peers and that itself could even pressure S$ funding cost; S$ deposits forms 48% of UOB’s total deposit base. Loan growth guidance remains conservative. UOB has conservatively guided loan growth of 5%; we expect it to tilt towards the lower end. Unlike peers, UOB cited that loan demand for Singapore has been strong and would remain so for the year. It was also the higher proportion of its S$ loans-to-total loans (52%) that gave it the advantage to see loan yields improving quicker than peers in 1Q15. Overall loan demand regionally is challenging. And UOB, being conservative, remains selective in growth in uncertain times. Lacking a non-interest income edge. Contrary to peers, UOB does not have a strong franchise when it comes to non-interest income. The bulk of UOB’s non-interest income is derived from loan-related activities. While there is increasing traction from wealth management income, it remains small vs peers. Fee income should be consumer-business driven from credit cards and private banking rather than from capital markets. Costs will likely stay high. We expect operating expenses to stay high with costs skewed towards business expansion and technology which is required particularly for digital banking and cyber security. Other investments to further enhance regional operations are still ongoing but the increase should not be high. Cost-to-income ratio is expected to stay within the 43-45% range near term but targeted at 40% over the longer term. Credit costs at the higher end. Compared to peers, UOB’s credit costs tend to range at higher levels largely due to its conservative stance towards setting aside higher general provisions (1.4% of total loans). This causes overall credit charge to edge 10bps higher than peers’ average. We expect UOB’s credit costs to continue to hover around 32bps. Regionalisation remains core to UOB’s strategy. UOB is relooking at its operations in Indonesia, given the current challenging operating environment In Malaysia, growth remains cautious but asset quality is at a comfortable position. Its Thai operations remain small. While there are concerns that it may not gather enough RMB deposits compared to peers (due to its smaller Greater China presence), management believes that it would have sufficient avenues to deploy its excess RMB deposits.

Margin Trends

Gross Loan& Growth

Customer Deposit & Growth

Loan-to-Deposit Ratio Trend

Cost & Income Structure


1.6%

1.7%

1.7%

1.8%

1.8%

1.9%

1.9%

0

1,000

2,000

3,000

4,000

5,000

2013A 2014A 2015F 2016F 2017F

S$ m

Net Interest Income Net Interest Income Margin

-100%-90%-80%-70%-60%-50%-40%-30%-20%-10%0%

0

500

1,000

1,500

2,000

2013A 2014A 2015F 2016F 2017F

S$ m

Fees & Commissions

Fees & Commissions Growth (%) (YoY) (RHS)

0%2%4%6%8%10%12%14%16%18%20%

0

50,000

100,000

150,000

200,000

250,000

300,000

2013A 2014A 2015F 2016F 2017F

S$ m

Customer Deposits (LHS)

Customer Deposits Growth (%) (YoY) (RHS)

68%

73%

78%

83%

88%

93%

160,971

180,971

200,971

220,971

240,971

260,971

280,971

300,971

2013A 2014A 2015F 2016F 2017FLoans Deposit Loan-to-Deposit Ratio (RHS)

0.405

0.41

0.415

0.42

0.425

0.43

0.435

0.44

0.445

0.45

0.455

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2013A 2014A 2015F 2016F 2017F

Net Interest Income Non-interest Income Cost-to-income Ratio


Company Guide

UOB

Balance Sheet:

Remote blips in asset quality. UOB had experienced sporadic NPL issues over the past year from mortgages (3Q14), selected corporate segments in Singapore (shipping-related) and its Indonesian portfolio (due to a sustained macro weakness). As such, UOB’s NPL ratio has been higher vs peers, sitting at 1.3%. UOB’s exposure to commodities is less than 8% of total loans while the sub-segment, oil & gas is c.5% of total loans. We take comfort that provision coverage is the highest vs peers. Strong capital position. Capital ratios is expected to remain robust and above peer average. While the bank looks overcapitalised and hence exerting pressure on ROE, management believes this would provide room for RWA expansion going forward, coupled with future requirements relating to counter-cyclical buffers. Its CET1 comfort zone is 11-12%. We expect absolute DPS to remain stable. Share Price Drivers:

Conservatism does not warrant a premium. UOB has been well known for its conservative growth but we believe market tends to overlook its weakness in its position in fee income differentiation as well as the lack of its Greater China presence. While these would keep UOB’s valuations at bay in the near term, we believe over time, regionalisation beyond ASEAN would need to improve to prompt a stronger re-rating for the bank. In addition, a stronger traction in non-interest income away from loan-related activities could lift re-rating sentiment. Asset quality metrics to be closely monitored. NPL blips in the previous few quarters may not imply issues to worry about ahead. But persistent blips such as these could dampen share price performance. Key Risks:

High proportion of loans in mortgages. With mortgage approvals sliding after several property cooling measures, we believe UOB may face more downside risks on mortgage growth once previous approvals for drawdowns taper off. Regional funding costs, a near-term challenge. UOB has been facing funding cost pressures in its regional operations, particularly in Indonesia and Malaysia. Near-term pressure on funding costs could curb NIM upside. Company Background

UOB provides a wide range of financial services through its global network of branches, offices, subsidiaries and associates: personal financial services, private banking, commercial and corporate banking, investment banking, corporate finance, capital market activities, treasury services, futures broking, asset management, venture capital management, insurance and stockbroking services.

Asset Quality

Capitalisation (%)

ROE (%)

Forward PE Band (x)

PB Band (x)


0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2013A 2014A 2015F 2016F 2017F

NPL Ratio Provision Charge-Off Rate

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

2013A 2014A 2015F 2016F 2017F

Tier-1 CAR Total CAR

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2013A 2014A 2015F 2016F 2017F

Avg: 10.7x

+1sd: 11.4x

+2sd: 12.1x

‐1sd: 10x

‐2sd: 9.3x

7.7

8.7

9.7

10.7

11.7

12.7


(x)

Avg: 1.32x

+1sd: 1.41x

+2sd: 1.51x

‐1sd: 1.23x

‐2sd: 1.13x

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7


(x)


Company Guide

UOB

Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F

Gross Loans Growth 16.8 9.5 4.3 4.8 6.0 Customer Deposits Growth 17.9 8.9 9.0 9.0 9.0 Yld. On Earnings Assets 2.7 2.7 2.8 2.9 2.9 Avg Cost Of Funds 1.0 1.0 1.1 1.1 1.1 Income Statement (S$m)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Interest Income 4,120 4,557 4,929 5,230 5,559 Non-Interest Income 2,600 2,900 3,141 3,385 3,660

Operating Income 6,720 7,457 8,071 8,615 9,220 Operating Expenses (2,898) (3,146) (3,487) (3,802) (4,134)

Pre-provision Profit 3,822 4,311 4,584 4,814 5,086 Provisions (429) (635) (689) (768) (756) Associates 191 149 127 164 175 Exceptionals 0.0 0.0 0.0 0.0 0.0

Pre-tax Profit 3,584 3,825 4,022 4,209 4,505 Taxation (559) (561) (684) (716) (766) Minority Interests (17.0) (15.0) (15.8) (16.5) (17.7)

Preference Dividend (110) (110) (110) (110) (110)

Net Profit 2,898 3,139 3,212 3,367 3,611 Net Profit bef Except 2,898 3,139 3,212 3,367 3,611 Growth (%) Net Interest Income Gth 5.2 10.6 8.2 6.1 6.3 Net Profit Gth 7.6 8.3 2.3 4.8 7.3

Margins, Costs & Efficiency (%) Spread 1.7 1.7 1.7 1.7 1.7 Net Interest Margin 1.7 1.7 1.7 1.8 1.8 Cost-to-Income Ratio 43.1 42.2 43.2 44.1 44.8

Business Mix (%) Net Int. Inc / Opg Inc. 61.3 61.1 61.1 60.7 60.3 Non-Int. Inc / Opg inc. 38.7 38.9 38.9 39.3 39.7 Fee Inc / Opg Income 25.7 23.5 23.5 23.7 23.9 Oth Non-Int Inc/Opg Inc 12.9 15.4 15.4 15.6 15.8

Profitability (%) ROAE Pre Ex. 12.3 12.2 11.3 11.0 11.0 ROAE 12.3 12.2 11.3 11.0 11.0 ROA Pre Ex. 1.1 1.1 1.1 1.1 1.1 ROA 1.1 1.1 1.1 1.1 1.1


Provisions to remain high due to conservative stance on general provisions

Expect NIM to stay stable despite rate hike momentum; bulk of NIM hike seen in 1Q15

ASIAN INSIGHTS VICKERS SECURITIES Page .,

Company Guide

UOB

Quarterly / Interim Income Statement (S$m)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Net Interest Income 1,156 1,168 1,201 1,212 1,235 Non-Interest Income 816 682 755 713 851

Operating Income 1,972 1,850 1,956 1,925 2,086 Operating Expenses (800) (805) (853) (876) (904)

Pre-Provision Profit 1,172 1,045 1,103 1,049 1,182 Provisions (162) (166) (169) (152) (160) Associates 37.0 43.0 4.00 40.0 28.0 Exceptionals 0.0 0.0 0.0 0.0 0.0

Pretax Profit 1,047 922 938 937 1,050 Taxation (176) (134) (133) (173) (189)

Minority Interests (3.0) (2.0) (4.0) (3.0) (3.0)

Net Profit 868 786 801 761 858 Growth (%) Net Interest Income Gth 2.8 1.0 2.8 0.9 1.9 Net Profit Gth 7.5 (9.4) 1.9 (5.0) 12.7

Balance Sheet (S$m) FY Dec 2013A 2014A 2015F 2016F 2017F Cash/Bank Balance 26,881 35,083 30,575 33,326 36,326 Government Securities 17,598 17,898 18,793 19,733 20,719 Inter Bank Assets 31,412 28,692 30,587 31,991 33,856 Total Net Loans & Advs. 178,857 195,903 203,915 213,270 225,708 Investment 12,768 12,178 15,049 15,743 16,654 Associates 997 1,189 1,316 1,480 1,655

Fixed Assets 2,293 2,388 2,262 2,129 2,129 Goodwill 4,144 4,149 4,149 4,149 4,149 Other Assets 9,279 9,256 16,313 17,062 18,057

Total Assets 284,229 306,736 322,958 338,881 359,252 Customer Deposits 214,548 233,750 254,788 277,718 302,713 Inter Bank Deposits 13,706 11,226 (4,005) (14,049) (22,244) Debts/Borrowings 18,981 20,953 20,953 20,953 20,953 Others 10,417 11,035 19,407 20,254 21,389 Minorities 189 203 219 235 253 Shareholders' Funds 26,388 29,569 31,597 33,769 36,188

Total Liab& S/H’s Funds 284,229 306,736 322,958 338,881 359,252


NIM and loan growth was flat q-o-q; trading/investment income improved q-o-q while provisions remained high

Loan growth guided at mid-single digit

ASIAN INSIGHTS VICKERS SECURITIES Page .-

Company Guide

UOB

Financial Stability Measures (%)

FY Dec 2013A 2014A 2015F 2016F 2017F Balance Sheet Structure Loan-to-Deposit Ratio 84.8 85.3 81.6 78.5 76.4 Net Loans / Total Assets 62.9 63.9 63.1 62.9 62.8 Investment / Total Assets 4.5 4.0 4.7 4.6 4.6 Cust . Dep./Int. Bear. Liab. 86.8 87.9 93.8 97.6 100.4

Interbank Dep / Int. Bear. 5.5 4.2 (1.5) (4.9) (7.4)

Asset Quality NPL / Total Gross Loans 1.1 1.2 1.3 1.5 1.2 NPL / Total Assets 0.7 0.8 0.8 1.0 0.8 Loan Loss Reserve Coverage 150.5 145.9 150.4 145.9 197.0 Provision Charge-Off Rate 0.2 0.3 0.3 0.4 0.3

Capital Strength Total CAR 16.6 16.9 18.1 18.9 19.3 Tier-1 CAR 13.2 13.9 15.0 15.7 16.0


Target Price & Ratings History

Source: DBS Bank

S.No. DateClosing

PriceTarget Price

Rat ing

1: 29 Jan 15 23.37 23.10 HOLD

2: 13 Feb 15 23.57 23.10 HOLD

3: 30 Apr 15 24.49 23.10 HOLD

4: 29 Jun 15 22.90 25.50 HOLD

5: 10 Aug 15 21.55 25.00 HOLD

6: 31 Aug 15 19.38 19.20 HOLD

7: 30 Oct 15 20.33 19.20 HOLD

Note : Share price and Target price are adjusted for corporate actions.

1

2

3

4

5

67

17.36

18.36

19.36

20.36

21.36

22.36

23.36

24.36

25.36

Dec-14 Apr-15 Aug-15 Dec-15

S$

Higher NPL ratios vs peers

Industry Focus

Singapore Banks

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or

risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 10 Dec 2015, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have proprietary

positions in OCBC, UOB recommended in this report as of 31 Oct 2015

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of

Industry Focus

Singapore Banks

securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States This report was prepared by DBS Bank Limited. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982 Tel. 65-6878 8888

Company Regn. No. 196800306E

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