Battle of the banks: Will DBS' resilient asset quality trump OCBC?

DBS is forecast to weather headwinds better than its rivals.

In a report RHB cited sustained rise in Singapore short-term interest rates and better-than-expected fee income from forex and customer treasury flows as catalysts.

Identified key risks for DBS however are higher-than-expected credit costs and a sharper-than-expected slowdown in China and regional economies.

Here’s more from RHB:

The current slowdown in regional economies has dampened credit demand and this has led to a rise in non-performing loans (NPLs).

We believe DBS would weather the headwinds better than peers, given its strong fee income momentum, resilient asset quality and leverage to the current uptrend in Singapore's short-term interest rates.

Meanwhile RHB said it likes OCBC for its robust asset quality and strong wealth management operations. RHB also pointed out the bank's enhanced regional growth prospects, citing the acquisition of OCBC Wing Hang in 2014.

A key driver of the strong 18 percent YoY growth in fees and commission income in 1H15, according to RHB, was OCBC’s wealth management operations which accounted for 16 percent of 1H15 revenue.

RHB further said:

Catalysts: Better-than-expected fee income from its wealth management businesses and better-than-expected growth in Common Equity Tier-1 capital.

Key Risks: Higher-than-expected credit cost and sharper-than-expected slowdown in China and regional economies.