Singapore bank stocks have been under selling pressure in recent weeks, on concerns over their exposure to the US sub-prime mortgage sector. Sentiment in DBS has been especially hit, after the bank admitted to a much higher exposure to collaterised debt obligations (CDOs) than previously announced.
But analysts that Channel NewsAsia spoke to say some perspective is needed.
They note that Singapore banks invest in high-grade CDOs and so they are unlikely to directly impact their earnings or their capital positions in the long term.
Banks have come under the spotlight recently, amid concerns over the fallout from the US housing credit woes.
Their share prices have succumbed to selling pressure - with DBS, UOB and OCBC all losing ground.
But according to international ratings agency Fitch, Singapore banks are among the most transparent in Asia, in terms of disclosing their sub-prime exposure.
David Marshall, Managing Director, Fitch Ratings, said, "I would argue that the overall exposure of the three big Singapore banks is really not very material. The numbers might look large in terms of hundreds of millions of dollars, but really we're talking about 1 or 2 percent of their equity capital, and somewhat less than that for UOB."
For DBS, it has disclosed US$1.5 billion in total CDO exposure.
Out of that, asset or mortgage-backed securities with sub-prime exposures come to about US$188 million - or only 1.5 percent of total equity.
And analysts say this is not material to the bank's earnings or capital position in the long term.
OCBC only has US$181 million in asset or mortgage-backed securities exposure - or only 2 percent of the bank's equity.
As for UOB, it has US$60 million in asset or mortgage-backed securities - or 0.5 percent of total equity.
Still, analysts say the banks may see some CDO-related accounting losses in the third or fourth quarter.
Mr Marshall said, "In the short term, they could take some mark to market losses, because the markets have become very illiquid right now, so their earnings could be hurt by some market value adjustments. But I think we should determine between that and real economic losses, because those mark to market losses are accounting losses that could be reversed if those securities perform well until maturity and the banks can get their money back in full."
CDOs are securities backed by assets, from housing mortgages to corporate loans.
They are divided into tranches with different ratings, with the Singapore banks mostly holding top-graded CDOs rated AAA to AA for their low default risk.
Analysts say that some perspective is needed; they stress that credit problems are really concentrated in CDOs with sub-prime exposure, especially sub-prime loans made in late 2005-2006.
And top-graded CDOs are unlikely to see losses at the end of the day. - CNA/ms
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