DBS - Margin squeeze

Possible slowdown in reforms: DBS’ CEO, Richard Stanley, was unfortunately taken ill in late January 2009, and is expected to be off work for 3-6 months. While this is unlikely to impact the group’s day-to-day operations, we suspect any reform momentum that was building post his appointment in May 2008 may slow.

Margin squeeze: The 3-month SIBOR has fallen by 26bp to 0.69% since end-December 2008. We expect this to put a squeeze on DBS’ NIMs and add additional downward pressure on prospective earnings.

Asset quality proves to be more resilient than expected: We think this is the key risk to our call. However, we think the risk of this materializing is low considering the rapidly deteriorating economic conditions.

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