DBS' earnings growth to decelerate at a faster rate

Net interest income will suffer too.

According to Barclays, net interest income could disappoint due to broad-based margin compression (both domestically in Singapore and in Greater China), and slowing corporate lending and cross-border trade business.

Here's more from Barclays:

The proposed acquisition of Bank Danamon is still subject to regulatory approval, and we see execution and integration risk down the track. 

Margin pressure on both offshore and onshore RMB business
We believe DBS’s earnings growth will decelerate at a faster rate than peers’ due to its larger exposure to China and Hong Kong (Greater China accounts for 34% of total loans).

The bank’s onshore and offshore RMB business will be affected by China’s interest rate cuts in June/July and rising offshore RMB deposit costs in Hong Kong (where CNH time deposit rates exceed 3.5%).

Moreover, we see slowing demand for corporate and trade credit. Our China economics team, led by Yiping Huang, believes that slowing growth of new loans in China is being caused by weak corporate demand and cautious banking lending.

Growth in China’s trade activity has also slowed substantially to just 3% y/y in 3Q12 (vs 17% y/y in FY11). As such, we expect weakening demand for corporate loans and trade finance going forward.