Singapore banks' China operations to be hurt by slowing trade loans

Exposure to Malaysia, Indonesia and Thailand is preferred.

According to Barclays, looser liquidity conditions globally and more fund inflows into Asia, coupled with slowing demand corporate loan demand will lead to pressure on loan growth and margin. 

Here's more from Barclays:

Singapore banks’ funding advantage, which previously enabled them to win regional and domestic loan market, is becoming a near-term drag on profitability as loan to deposit ratio begins to fall, in our view. Moreover, we see signs of loan and deposit pricing pressure due to competition driven by the foreign banks.

Preference for exposure to ASEAN region over Greater China
We expect Singapore banks’ China operations will be affected by slowing cross-border corporate and trade loans and the impact of China’s interest rate cuts in June/July 2012.

Moreover, offshore RMB funding costs have risen sharply to over 3% for 3M time deposits. We prefer exposure to the ASEAN region (Malaysia, Indonesia and Thailand), where credit and economic growth remains relatively strong supported by solid domestic consumer and government spending.

Wealth management insufficient to offset interest income drag
We still see long-term upside potential for wealth management, driven by Singapore’s high domestic savings rate, favourable demographics, and ongoing foreign fund inflows as Asia’s leading offshore wealth management centre.

However, greater wealth management fee income will not be enough to offset lower net interest income in the near-term.