August 3, 2013

SINGAPORE

BANKS

SHORT TERM (3 MTH)

LONG TERM

Conviction| |

Notes from the Field

Decent core revenues marred by markets

2Q13 did not turn out as bad as feared. A bond market sell-off did hit OCBCs GEH earnings but did not show up in the rest of the banks P&Ls. The impact was only on AFS. Loan growth accelerated, margins bottomed and fee income generally held up.
Figure 1: ROEs OCBC ROE looked ugly as insurance earnings disappeared
% 15.0

Kenneth NG, CFA

T (65) 6210 8610 E kenneth.ng@cimb.com

DBS

12.0

While recent talk of QE tapering has led to market volatility, the US outlook has improved. Policy makers regionally have also introduced pre-emptive measures to manage asset price inflation and consumer leverage. Asias long-term fundamentals remain sound
Wee Ee Cheong, CEO UOB

9.0

6.0 1Q10 3Q10 1Q11 DBS 3Q11 OCBC 1Q12 UOB 3Q12 1Q13

SOURCES: CIMB, COMPANY REPORTS

Highlighted Companies
High conviction top pick. Outperform with target price of S$19.07. DBS has the most exposure to trade finance and is building up the trade franchise superbly. Beneficiary of future increase in SIBOR.

OCBC
Underperform with target price of S$10.09. 2Q ROE dipped to 9.9% as insurance contributions fell sharply. OCBCs earnings remain the most sensitive to market swings.

Financing trade and US$ loans is increasingly in vogue. Treasury held up as more was customer flow-related activity that comes with trade. We nudged up our CY13 earnings growth forecast for the sector from 1.1% to 2.5%, after raising estimates for UOB. NII saw upgrades while non-NII saw cuts. Growth is not attractive enough to change our Neutral view; our view is stock-specific. DBS remains our top pick; OCBC is the least preferred.

rise further and are in no hurry to take duration risk just yet.

Small pots of NPLs

Despite concerns over overleveraged Singapore households, inflation in Indonesia and slowing China, 2Q NPL trends and guidance do not point to a big problem. The majority of the banks mortgage books is single mortgage. China lending is mostly for trade. Yes, the credit cycle has troughed, with small pots of trouble DBS (India), OCBC (Malaysia), UOB (Indonesia) but it is nothing systemic.

UOB
Neutral with target price of S$22.55. Margins are bottoming while the fee franchise has consistently delivered. Building up of wealth management and wholesale banking capabilities is a positive for fees.

Trade finance-led growth

Loan growth was strong for all (DBS: 5%, OCBC: 7%, UOB: +2.4%), driven by trade finance in varying degree. As Singapore/ASEAN slows, local banks seem to doing well, funding trade and corporates regional needs. The profitability of such activities shows up in fees, which held up well in 2Q. Loan growth guidance was also nudged up. Margins for all were flat and the banks guided for stable NIMs. The yield curve has steepened but banks are worried that rates can

Impact on AFS book

Trading did not hit P&Ls but the AFS book. All banks took a hard knock (DBS:-S$557m, OCBC:-S$499m, UOB:-S$446m) and Tier-1 CAR (DBS: 12.9%, OCBC: 14.9%, UOB: 13.6%) was dragged down as a result. Just because AFS impairment do not show up on the P&L does not mean that the economic value lost in 2Q was not heart-wrenching.
Designed by Eight, Powered by EFA

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.

BANKS
August 3, 2013

KEY CHARTS 2Q driven primarily by net interest income

2Q was a decent quarter, with non-core gains making DBS and UOB look better than it was at the headline level. Core banking revenues were healthy. Net interest income grew by 4-5% for all banks, driven mostly by trade finance and US$ loans. Loan growth was above expectations: DBS (+5.0% qoq), OCBC (+7.0%) and UOB (+2.4%). Full-year loan growth guidance was also raised: DBS (14%), OCBC (9-11%), UOB (11-15%). Non-interest income fell 6-11% across the board as fees normalised from the anomaly of chunky deals in 1Q. UOB was the only bank which recorded qoq net profit growth, helped by a large one-off associates investment gain.
Re sults ove rvie w DBS Ne t inte re st inc ome Non- inte re st inc ome Tota l inc ome Core ne t profit O CBC Ne t inte re st inc ome Non- inte re st inc ome Tota l inc ome Core ne t profit UO B Ne t inte re st inc ome Non- inte re st inc ome Tota l inc ome Core ne t profit 999 630 1,629 688 981 629 1,610 713 971 693 1,664 707 966 626 1,592 696 964 708 1,672 722 1,016 627 1,642 783 5% - 11% - 2% 9% 951 846 1,797 790 931 596 1,527 648 944 754 1,698 724 922 626 1,548 663 912 676 1,588 696 961 606 1,567 597 5% - 10% - 1% - 14% 1Q 12 1,336 820 2,156 933 2 Q 12 1,324 621 1,945 810 3 Q 12 1,332 672 2,004 856 4 Q 12 1,293 666 1,959 760 1Q 13 1,327 990 2,317 950 2 Q 13 Qoq (%) 1,382 927 2,309 887 4% - 6% 0% - 7%

NIMs bottoming finally

NIMs appear to have stabilised in 2Q, after falling for more than three years. DBSs NIM eased a mere 2bp to 1.62%, OCBC recorded flat NIM (1.64%) and UOBs NIM edged up 1bp to 1.71%. More importantly, management guided for NIMs to stabilise at current rates for the full year. In the long term, the banks expect to see NIM expansion only when SIBOR moves up. There is gapping opportunity now as the yield curve steepens but the banks are reluctant to take advantage of that until they think that rates have risen enough and will stabilise at higher levels.

2.3%
NIM (%)

DBS OCBC UOB

2.1%

1.9%

1.7%

1.5%

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

Rising proportion of US$ loans

Much of the loan growth in 2Q was attributed to US$ loans, driven in large part by trade finance. In 2Q13, US$ loans accounted for 33.6% of DBSs total loan book, 25.2% of OCBCs loans and 13.0% of UOBs loans. We believe USD lending is expected to rise further. These loans are short-term in nature, low-risk credit, low margin and tend to pay off in fees. DBS said it is less concerned about China and India as a good portion of their loans are trade finance loans. In 2Q, OCBCs US$ loans to total loans spiked 1.8% qoq due to US$ loans taken by a large SG corporate client, on top of trade finance growth.

38% 34% 30% 26% 22% 18% 14% 10% 1Q10

DBS OCBC UOB

USD loans as a proportion of total loans (%)

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

AFS impact
Reported headline numbers do not really show the pain that banks suffered in May/June when interest rates jumped. As the bond market crashed at the end of 2Q, the banks AFS losses ranged from S$446m to S$557m each, equivalent to losing 1.5-1.8% of book values within 1 months. If AFS losses had to be recognised in the P&L, the economic value lost in 2Q would be equivalent to about two-thirds of 2Q earnings, on average.

S$m
600 500

Amount

% of book value 1.80% 1.75% 1.70%

400
300 200

1.65%
1.60% 1.55% 1.50%

100
DBS OCBC UOB

1.45%
1.40%

SOURCE: CIMB, COMPANY REPORTS

BANKS
August 3, 2013

Figure 2: Sector Comparison - South & Southeast Asia

Company DBS Group OCBC United Overseas Bank Singapore average Bank Bukopin Bank Central Asia Bank Danamon Bank Mandiri Bank Negara Indonesia Bank Panin Bank Rakyat Indonesia Bank Tabungan Negara Bank Tabungan Pensiunan Indonesia average Affin Holdings Alliance Financial Group AMMB Holdings BIMB Holdings Hong Leong Bank Malayan Banking Bhd Public Bank Bhd RHB Capital Bhd Malaysia average Bangkok Bank Bank of Ayudhya Kasikornbank Krung Thai Bank Siam Commercial Bank Thanachart Capital Tisco Financial Group TMB Bank Thailand average ANZ Banking Group Bank of Queensland Bendigo & Adelaide Bank Commonwealth Bank National Australia Bank Westpac Banking Corp Australia average Allahabad Bank Andhra Bank Axis Bank Bank of Baroda Bank of India Canara Bank Corporation Bank Federal Bank HDFC Bank ICICI Bank Indian Bank Indusind Bank ING Vysya Bank J&K Bank Oriental Bank of Commerce Punjab National Bank State Bank of India Union Bank of India Yes Bank India average South & South-East Asia Average Bloomberg Ticker DBS SP OCBC SP UOB SP BBKP IJ BBCA IJ BDMN IJ BMRI IJ BBNI IJ PNBN IJ BBRI IJ BBTN IJ BTPN IJ AHB MK AFG MK AMM MK BIMB MK HLBK MK MAY MK PBK MK RHBC MK BBL TB BAY TB KBANK TB KTB TB SCB TB TCAP TB TISCO TB TMB TB ANZ AU BOQ AU BEN AU CBA AU NAB AU WBC AU ALBK IN ANDB IN AXSB IN BOB IN BOI IN CBK IN CRPBK IN FB IN HDFCB IN ICICIBC IN INBK IN IIB IN VYSB IN JKBK IN OBC IN PNB IN SBIN IN UNBK IN YES IN Recom. Outperform Underperform Neutral Outperform Underperform Underperform Outperform Outperform Neutral Neutral Underperform Neutral Underperform Neutral Neutral Outperform Underperform Outperform Outperform Outperform Underperform Underperform Outperform Outperform Outperform Neutral Neutral Underperform Outperform Neutral Underperform Underperform Neutral Underperform Neutral Neutral Outperform Outperform Underperform Outperform Underperform Neutral Neutral Outperform Outperform Underperform Outperform Outperform Neutral Neutral Neutral Underperform Neutral Price (local curr) 17.54 10.74 21.92 660 10,700 4,200 8,700 4,300 630 8,200 1,110 4,475 4.19 5.33 7.81 4.32 14.10 10.32 17.38 8.31 203.00 37.25 180.50 17.70 159.00 33.50 37.25 2.34 29.92 9.63 10.79 73.82 31.17 31.46 67.45 57.40 1,103.20 487.65 169.65 241.60 279.90 349.50 631.25 887.10 70.55 390.45 518.00 1,099.40 137.45 523.75 1,680.60 116.75 308.70 Target Price (local curr) 19.07 10.09 22.55 1,300 9,600 4,000 10,000 4,975 680 8,900 1,250 4,900 3.70 5.03 7.35 4.50 13.70 11.90 18.70 10.50 214.00 40.00 240.00 28.00 220.00 48.00 52.00 2.10 26.93 9.55 8.67 58.52 30.99 26.43 131.00 97.00 1,600.00 700.00 171.00 578.00 300.00 400.00 714.00 1,371.00 128.00 490.00 639.00 1,493.00 285.00 633.00 2,202.00 121.00 410.00 Market Cap (US$ m) 33,653 28,966 27,121 510 25,531 3,896 19,646 7,760 1,469 19,577 1,135 2,529 1,922 2,533 7,226 1,415 7,785 27,618 18,683 6,457 12,380 7,229 13,801 7,903 17,241 1,291 953 3,260 73,130 2,744 3,961 106,010 65,227 86,990 552 526 8,468 3,362 1,655 1,752 701 978 24,687 16,759 496 3,348 1,586 872 656 3,030 18,816 1,140 1,818 Core P/E (x) CY2013 CY2014 12.0 11.8 13.9 12.6 11.5 11.1 12.4 11.8 5.2 20.4 10.8 11.9 9.7 6.4 10.2 8.0 11.0 12.3 10.9 13.9 13.0 15.0 12.7 14.1 14.4 10.9 13.5 10.3 13.4 10.1 8.2 10.8 6.7 6.1 17.6 10.3 12.8 11.6 12.4 15.4 11.9 13.9 13.6 2.6 2.6 9.1 4.7 3.6 3.1 3.1 8.1 19.9 11.1 2.3 14.8 12.5 5.0 2.6 3.8 7.8 3.3 7.4 8.3 12.0 4.3 18.1 9.1 10.5 8.4 5.7 8.9 6.8 9.3 10.7 9.9 12.2 11.6 12.7 11.1 12.9 12.7 9.5 12.0 9.5 11.0 8.8 6.9 9.4 6.2 5.7 12.0 9.0 12.1 10.7 12.1 14.7 10.9 13.6 12.9 2.1 2.5 8.2 4.2 3.4 2.7 2.9 6.8 16.9 10.0 2.1 12.1 11.7 4.5 2.1 3.6 6.8 2.9 6.3 7.3 11.0 3-year EPS CAGR (%) 1.5% 2.8% 6.3% 3.9% 21.9% 10.0% 5.0% 11.4% 13.9% 8.4% 10.1% 4.5% 15.8% 10.9% 3.4% 11.8% 12.5% 15.2% 11.4% 5.4% 10.6% 8.1% 10.0% 10.8% 18.0% 16.3% 13.3% 17.3% 12.1% 12.2% 82.3% 17.0% 6.7% 36.2% 4.7% 6.3% 9.4% 5.7% 8.6% 10.3% 3.1% 6.4% 0.8% 0.7% 10.9% -0.8% 5.7% 13.7% 8.4% -1.4% 20.7% 9.4% 6.8% 20.6% 1.0% 8.7% 3.1% 13.9% 8.5% 9.2% P/BV (x) CY2013 CY2014 1.28 1.22 1.35 1.27 1.39 1.28 1.33 1.25 0.91 4.21 1.29 2.28 1.59 0.81 2.47 1.01 2.58 2.34 0.98 2.02 1.79 2.08 1.99 2.17 2.98 1.35 2.06 1.31 1.83 1.99 1.25 2.18 0.81 1.31 1.66 1.65 1.90 1.13 1.04 2.69 1.76 2.12 2.08 0.30 0.35 1.41 0.62 0.43 0.43 0.41 0.89 3.69 1.42 0.27 2.45 1.47 0.96 0.31 0.54 1.06 0.41 1.64 1.16 1.78 0.79 3.54 1.17 1.92 1.37 0.71 2.00 0.91 2.02 1.98 0.93 1.89 1.62 1.90 1.74 2.03 2.59 1.23 1.88 1.21 1.67 1.70 1.13 1.91 0.74 1.15 1.51 1.47 1.81 1.09 1.02 2.56 1.69 2.04 1.99 0.27 0.32 1.24 0.55 0.39 0.38 0.37 0.80 3.16 1.29 0.25 2.10 1.30 0.81 0.27 0.48 0.94 0.37 1.36 1.03 1.64 Recurring ROE (%) CY2013 CY2014 CY2015 11.1% 10.5% 11.2% 10.2% 10.4% 10.5% 12.8% 12.0% 12.2% 11.3% 10.9% 11.3% 18.8% 23.0% 12.8% 21.4% 18.0% 13.7% 27.8% 13.6% 27.2% 21.3% 9.2% 14.7% 14.4% 15.0% 16.8% 15.3% 22.6% 12.7% 15.9% 13.3% 14.3% 21.4% 16.1% 21.6% 13.5% 23.2% 9.9% 17.0% 15.0% 9.8% 8.2% 17.7% 15.1% 15.6% 15.6% 11.8% 14.1% 17.2% 14.4% 13.1% 14.9% 14.3% 11.9% 20.6% 14.0% 12.8% 18.7% 12.8% 21.5% 12.4% 15.4% 15.1% 13.7% 25.2% 15.3% 15.4% 19.9% 21.3% 13.6% 19.9% 17.4% 13.2% 25.0% 14.0% 24.2% 20.1% 9.6% 16.0% 14.7% 15.6% 16.8% 16.2% 21.8% 13.5% 16.3% 13.3% 15.9% 20.8% 17.0% 21.6% 12.5% 21.4% 13.2% 17.4% 15.2% 10.3% 8.2% 17.5% 15.9% 15.5% 15.7% 13.3% 13.7% 16.3% 14.1% 12.4% 15.1% 13.5% 12.6% 20.3% 13.7% 12.3% 19.0% 11.7% 19.7% 13.5% 14.5% 15.0% 13.7% 23.8% 15.1% 15.4% 21.4% 20.4% 13.8% 19.5% 17.6% 13.1% 22.7% 14.4% 23.0% 19.4% 9.8% 16.5% 14.6% 15.9% 16.3% 16.4% 21.3% 13.8% 16.4% 13.4% 16.8% 20.1% 17.3% 21.5% 12.7% 20.9% 13.8% 17.5% 14.9% 10.5% 8.2% 17.1% 15.6% 15.3% 15.5% 14.2% 13.9% 16.3% 14.0% 11.9% 15.1% 14.0% 13.9% 20.2% 13.7% 13.5% 19.9% 12.3% 19.0% 14.7% 14.1% 15.3% 13.8% 23.1% 15.3% 15.4% P/PPOPS (x) CY2013 CY2014 8.2 7.8 10.1 9.3 8.9 8.3 8.9 8.4 3.7 14.9 4.7 7.6 6.1 3.9 7.3 5.0 7.4 8.1 6.9 10.2 8.6 4.8 9.0 9.9 9.9 6.1 8.9 7.0 6.3 6.3 4.8 7.3 1.3 3.3 7.3 5.9 7.9 6.6 7.8 9.9 7.0 8.8 8.5 2.9 13.4 4.2 6.9 5.7 3.3 6.5 4.3 6.0 7.2 6.5 8.7 7.6 4.0 8.1 9.2 8.7 5.9 8.1 6.5 5.8 5.6 4.3 6.4 1.9 3.1 6.6 5.5 7.5 6.1 7.7 9.5 6.6 8.4 8.0 Dividend Yield (%) CY2013 CY2014 3.4% 3.5% 3.1% 3.4% 3.8% 3.8% 3.4% 3.6% 4.7% 1.1% 2.9% 1.5% 1.8% 0.0% 1.8% 2.4% 0.0% 1.5% 4.6% 3.6% 3.4% 3.3% 2.0% 4.2% 3.2% 2.8% 3.5% 3.8% 3.0% 2.4% 4.9% 3.6% 4.5% 6.4% 1.7% 3.5% 5.4% 6.0% 5.6% 4.8% 6.2% 5.6% 5.4% 5.8% 1.3% 3.0% 1.8% 2.1% 0.0% 2.1% 2.5% 0.0% 1.7% 5.0% 4.1% 3.9% 3.9% 2.0% 4.6% 3.6% 3.1% 3.9% 4.2% 3.6% 2.8% 5.8% 4.2% 4.8% 6.7% 2.6% 4.0% 5.7% 6.3% 5.6% 5.1% 6.6% 5.8% 5.7%

0.9 0.8 8.9% 9.5% 1.1 1.0 10.0% 11.8% 4.9 4.3 1.8% 1.9% 2.1 1.9 4.5% 4.8% 1.3 1.1 5.9% 6.3% 1.5 1.3 5.4% 6.0% 1.4 1.3 6.8% 6.5% 3.8 3.4 2.6% 2.6% 11.4 9.5 0.9% 1.1% 6.9 6.0 2.3% 2.5% 1.0 0.9 9.8% 9.9% 8.6 6.9 0.9% 1.0% 7.1 6.5 1.1% 1.2% 2.8 2.5 3.5% 3.2% 1.1 1.0 8.3% 8.4% 1.6 1.5 5.6% 6.0% 3.5 3.1 2.5% 2.8% 1.2 1.1 6.9% 7.5% 4.4 3.7 2.1% 2.3% 4.0 3.5 2.5% 2.7% 7.2 6.7 4.1% 4.4% SOURCES: CIMB, COMPANY REPORTS

Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to Dec ember year ends

BANKS
August 3, 2013

Figure 3: Sector Comparison - North Asia

Company Agricultural Bank of China Bank of China Bank of Communications China CITIC Bank China Construction Bank China Merchants Bank China Minsheng Bank Chongqing Rural Comm Bank ICBC Hong Kong average BS Financial Group DGB Financial Group Hana Financial Group Industrial Bank of Korea KB Financial Group Shinhan Financial Group Woori Finance Holdings Korea average Chailease Holding Chang Hwa Bank CTBC Financial E.Sun Financial First Financial Hua Nan Financial Mega Financial SinoPac Financial Taishin Financial Taiwan average North Asia Average Bloomberg Ticker 1288 HK 3988 HK 3328 HK 998 HK 939 HK 3968 HK 1988 HK 3618 HK 1398 HK 138930 KS 139130 KS 086790 KS 024110 KS 105560 KS 055550 KS 053000 KS 5871 TT 2801 TT 2891 TT 2884 TT 2892 TT 2880 TT 2886 TT 2890 TT 2887 TT Recom. Outperform Neutral Neutral Neutral Outperform Neutral Neutral Neutral Outperform Outperform Outperform Outperform Neutral Outperform Outperform Neutral Outperform Underperform Outperform Outperform Neutral Neutral Outperform Underperform Underperform Price (local curr) 3.15 3.25 5.09 3.63 5.79 12.94 7.75 3.25 5.09 15,900 16,800 36,500 11,600 36,800 40,900 11,550 71.70 17.40 19.85 20.15 17.40 17.55 25.65 15.25 13.95 Target Price (local curr) 4.14 3.22 5.41 3.81 7.77 14.22 8.69 3.38 6.38 20,000 21,000 44,000 14,000 44,000 52,000 13,000 95.90 13.90 21.90 23.10 18.90 18.00 28.50 12.10 11.61 Market Cap (US$ m) 130,498 120,528 47,438 25,131 186,251 37,680 36,801 3,897 224,632 2,736 2,004 9,416 5,679 12,652 17,258 8,284 2,161 4,195 9,087 3,361 5,013 5,040 9,778 3,843 3,201 Core P/E (x) CY2013 CY2014 4.6 4.1 5.1 4.6 5.3 4.7 4.9 4.1 5.5 4.9 5.0 4.4 4.7 4.4 4.2 3.7 5.7 5.1 5.2 4.7 8.3 7.7 8.2 7.0 10.7 9.7 8.2 8.9 10.6 14.4 10.3 11.5 12.6 15.1 12.0 11.8 11.1 12.0 5.5 7.5 7.2 8.1 6.2 7.6 8.3 6.4 7.5 10.0 14.4 10.0 10.8 11.3 15.0 10.9 11.3 10.9 11.3 4.9 3-year EPS CAGR (%) 17.7% 10.4% 4.4% 7.2% 13.3% 10.6% 7.8% 13.9% 9.7% 11.8% 8.0% 8.6% -10.0% 1.6% 4.8% 5.7% 2.3% 2.9% 18.1% 1.4% 6.4% 9.5% 9.5% 6.5% 10.0% 3.2% 0.8% 10.3% 11.4% P/BV (x) CY2013 CY2014 0.93 0.80 0.78 0.70 0.71 0.64 0.61 0.55 1.06 0.92 0.94 0.81 0.91 0.72 0.66 0.59 1.09 0.95 0.94 0.82 0.86 0.82 0.53 0.45 0.55 0.72 0.47 0.58 2.31 1.16 1.33 1.26 1.02 1.11 1.29 1.10 0.97 1.20 0.91 0.79 0.75 0.50 0.43 0.52 0.67 0.45 0.54 2.04 1.09 1.20 1.14 0.95 1.06 1.20 1.03 0.90 1.12 0.80 Recurring ROE (%) CY2013 CY2014 CY2015 21.4% 20.9% 21.1% 16.0% 16.1% 16.8% 14.0% 14.3% 14.7% 13.1% 14.3% 14.5% 20.4% 20.2% 20.3% 20.3% 19.8% 20.1% 20.6% 18.2% 17.9% 16.6% 16.9% 17.7% 20.4% 19.9% 19.4% 18.9% 18.7% 18.8% 11.1% 11.2% 6.8% 6.8% 5.4% 7.9% 6.1% 6.9% 22.3% 8.4% 13.5% 11.2% 8.4% 7.6% 11.3% 9.8% 9.6% 10.5% 17.4% 11.0% 10.9% 6.4% 7.1% 7.1% 8.4% 7.2% 7.5% 20.4% 7.8% 12.6% 11.0% 8.7% 7.3% 11.4% 9.4% 8.5% 10.2% 17.3% 11.0% 10.8% 6.6% 7.4% 7.1% 8.7% 7.7% 7.8% 20.4% 7.7% 12.4% 11.1% 9.0% 7.6% 11.5% 9.4% 8.4% 10.3% 17.5% P/PPOPS (x) CY2013 CY2014 3.0 2.7 3.2 2.8 3.0 2.7 2.5 2.2 3.6 3.1 3.1 2.8 2.9 2.7 2.9 2.5 3.8 3.4 3.3 3.0 4.5 4.1 3.7 2.4 4.0 4.6 2.3 3.5 6.5 13.3 8.3 8.6 8.8 9.3 8.9 10.4 5.1 8.5 3.5 4.1 3.8 3.6 2.3 3.5 4.2 2.1 3.2 6.2 13.2 8.1 8.1 8.3 9.2 8.2 10.0 5.0 8.2 3.1 Dividend Yield (%) CY2013 CY2014 7.6% 8.5% 6.4% 7.2% 4.7% 5.3% 5.1% 6.2% 6.3% 7.1% 4.6% 5.3% 4.9% 5.2% 7.1% 8.1% 6.2% 6.8% 6.3% 7.0% 2.2% 2.4% 1.6% 3.0% 1.4% 1.5% 1.7% 1.7% 4.3% 0.6% 2.7% 1.6% 2.8% 3.2% 4.2% 2.1% 1.5% 2.7% 5.8% 2.8% 3.0% 1.9% 3.4% 2.2% 2.0% 2.2% 2.3% 4.5% 0.6% 3.0% 1.8% 3.2% 3.3% 4.6% 2.2% 1.6% 3.0% 6.5%

SOURCES: CIMB, COMPANY REPORTS

BANKS
August 3, 2013

Banking trends 2Q13

Table of Contents
1. 2Q13 BANKING TRENDS 2. VALUATION AND RECOMMENDATION p.4 p.8

1. 2Q13 BANKING TRENDS 1.1 Overview

DBS and UOB beat expectations, mostly because of one-off factors whereas OCBC missed forecasts because insurance earnings vanished in 2Q. DBS had gains from the sale of HK properties. UOB had an associates income boost (due to investment gains) and some specific allowances write-back on investment securities that it sold (presumably for the European securities that it had marked down aggressively two years ago.) OCBC missed expectations as rising long-end rates caused GEHs non-par fund to take mark-to-market hits that almost wiped out life assurances earnings contributions to OCBC. Backing out some of the less sustainable factors, we view DBSs and UOBs results as being in line and OCBCs as a miss. New positives that came out in 2Q was an upward revision of FY13 loan growth and more confidence that margins had bottomed. The new negative is a hint of small pots of new NPLs starting to show.

Figure 4: Singapore banks 2Q13 overview

DBS Core Net profit Earnings grow th S$887m; Abov e CIMB's $835m. Street: S$883m -7.7% qoq, +7.2% y oy S$233.4bn, +5.0% qoq Loan grow th pow ered by trade finance 2Q: 1.62%, -2bps qoq; HK margins +5bp qoq -14.3% qoq, -7.9% y oy S$961m. +5.4% qoq, +3.2% y oy S$157.2bn, +7.0% qoq Loan grow th driv en by USD loans (+15.2% qoq) 2Q: 1.64%, flat qoq; M'sia -14bp; Indon +36bps 2Q: S$606m; -10.5% qoq, +1.7% y oy 2Q: S$347m; +9.8% qoq, +9.5% y oy 2Q: S$259m (incl. insurance), -28.1% qoq, -7.2% y oy 2Q: S$718m. +6.8% qoq; cost ratio 45.8% 2Q: S$849m -7.3% qoq, -2.0% y oy 2Q: 0.73%, (1Q: 0.74%) 2Q: S$83m; 21bp of loans (annualised) 2Q S$11m (3bp of loans) 2Q: S$72m (18bp of loans) 2Q: S$0m (-) 144% 9.9% 14.9% 16.8% +7.0% / +5.5% S$499m 1.8% OCBC S$597m; Below CIMB's $666m, Street's S$641m +8.5% qoq, -72.5% y oy S$1,016m. +5.4% qoq, +3.5% y oy S$168.3bn, +2.4% qoq Loan grow th across industries and geographies 2Q: 1.71%, +1bp qoq. Improv ed asset mix , low er cost of funds. 2Q: S$627m, -11.5% qoq, +0.3% y oy 2Q: S$436m, -3.9% qoq, +12.7% y oy 2Q: S$191m, -24.9% qoq, -21.2% y oy 2Q: S$725m. +4.2% qoq; cost ratio 42.9% 2Q: S$917m -6.0% qoq; -2.9% y oy 2Q: 1.27%, (1Q: 1.35%) 2Q: S$75m; 18bp of loans (annualised) 2Q S$41m (10bp of loans) 2Q S$86m (20bp of loans) 2Q: -S$52m (-12bp of loans) 134% 12.4% 13.6% 17.2% +2.4% / +3.0% S$446m 1.7%
SOURCE: CIMB RESEARCH, COMPANY

UOB S$783m; Abov e CIMB's S$660m, Street's S$700m

Net interest income $1,382m, +4.1% qoq, +4.4% y oy - Loans - Margins

Non-interest income 2Q: S$927m, -6.4% qoq , +49.3% y oy - Fee income - Other income Operating costs Core PPOP NPL ratio Prov isions - Loan-related SP - Loan-related GP - Other SP Cov erage ratio ROE (%) Capital ratios - Tier-1 - Total CAR - loan v s. RWA AFS Impact AFS Impact/BV 12.9% 15.5% +5.0% / +1.0% S$557m 1.5% 2Q: S$477m, -5.9% qoq, +25.9% y oy 2Q: S$450m, -6.8% qoq. +86.0% y oy 2Q: S$987m, +3.7% qoq; cost ratio 42.7% 2Q: S$1,322m,-3.2% qoq, +23.2% y oy 2Q: 1.22%, (1Q: 1.19%) 2Q: S$245m; 43bp of loans (annualised) 2Q: S$128m (22bp of loans) 2Q: S$113m (20bp of loans) 2Q: S$4m (1bp of loans) 141% 10.9%

1.2 Core banking revenues (NII and fee income)

The positive for 2Q was the strengthening core banking trends. Loan growth came in higher than expected, triggering full-year loan growth guidance upgrades. Singapore system loans slowed but 2Q loan growth for Singapore banks accelerated on the back of US$ loans. (see Fig 4) Singapore banks S$ loans rose only 2-3% qoq. US$ loans were taken for trade finance or to finance large corporates overseas business needs. Margins for these tend to be tighter than average but there is the opportunity to make it up in fees, and fees did hold up. Margins for all three came in flat; the banks indicated that margins are finally stabilising after falling for more than three years. Comparison of customer loan spreads, interbank and investment securities spreads suggests that there is still some pressure on customer loan yields and investment
5

BANKS
August 3, 2013

securities. These were offset by higher interbank spreads. Following the rise in long-end rates, all the banks said they were unwilling to shift to longer-duration securities just yet as there is scope for interest rates to rise further (and they want to avoid losses). Only DBS said that it saw an opportunity to extend the net duration of its customer loan book by taking more fixed-rate loans.
Figure 5: Loan-deposit ratio (%)
90%

Figure 6: Loan growth came from US$ loans

Amount (S$bn) DBS OCBC 73,336 40,092 19,817 5,376 20,248 158,869 UOB 97,832 22,482 22,820 8,607 4,845 16,324 172,910 % of total loans DBS 41% 12% 34% 0% 0% 0% 13% OCBC UOB 46% 0% 25% 12% 0% 3% 13% 57% 0% 13% 13% 5% 3% 9% 10% 5% 4% 11% 7% DBS 3% -1% 8% 15% 4% qoq % OCBC UOB 3% 11% 2% -1% 4% 7% 3% 2%

LDR (%)
SGD HKD

86%

97,779 28,811 80,146 31,657 238,393

82%

USD MYR THB

DBS OCBC UOB 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13

78%

74%

IDR Others Total

70%
SOURCE: CIMB RESEARCH, COMPANY

100% 100% 100%

SOURCE: CIMB RESEARCH, COMPANY

Figure 7: Customer loan yields (%)

4.0%
3.5%
DBS OCBC UOB

Figure 8: Interbank loan yields (%)

3.0%

Figure 9: Investment securities yields (%)

DBS OCBC UOB
3.2%
DBS OCBC
UOB

2.8%

2.0%

3.0%
1.0%

2.4%

2.5%

2.0%

2.0%

0.0%
1Q11 3Q11 1Q12 3Q12 1Q13

1Q11

3Q11

1Q12

3Q12

1Q13

1.6% 1Q11 3Q11 1Q12 3Q12 1Q13

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Fee income held up as investment-related, loan-related and trade-related all held up. Wealth management fees softened a little as wealth management flows in June-July were weaker than before Fed-tapering fears. Treasury earnings were not as hard hit as initially feared as the hit was mostly on the AFS book. Our take is that it is still a rather hefty impact for 2Q. AFS losses were equivalent to 63% (DBS)/ 84% (OCBC)/ 57% (UOB) of 2Q earnings, meaning they lost two-thirds of 2Q earnings on average, with Junes collapsing bond markets.
Figure 10: Non-interest income (S$ m)
S$m 4Q12 Stockbroking Investment Trade related Loan related Credit cards Wealth mgmt Others Trading 44 27 115 70 82 80 158 286

Figure 11: Non-interest income trends (S$ m)

UOB
2Q13 18 24 75 73 17 196 54 149 4Q12 90 92 81 66 44 15 207 1Q13 106 86 133 58 53 18 218 2Q13 112 95 103
600 900

DBS
1Q13 62 64 134 103 78 113 (38) 474 2Q13 57 47 137 94 82 101 28 381 4Q12 14 13 74 70 14 342 23 207

OCBC
1Q13 19 17 71 60 13 351 25 120

1,200

DBS OCBC UOB

66 43 16 133
300 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13

SOURCE: CIMB RESEARCH, COMPANY

SOURCE: CIMB RESEARCH, COMPANY

BANKS
August 3, 2013

1.3 Credit quality and loan provisions

Group NPL ratios were generally flat qoq. There were no systemic credit quality issues but there were individual pots of new NPLs here and there. DBS is seeing some deterioration in the Indian SME segment (we estimate that India is 4-5% of group assets; DBS said that Indian SME loans make up ~6% of its Indian portfolio). Specific allowances for DBS came in at 22bp of loans as a result. The other two banks had virtually no specific allowances. OCBCs Malaysia NPLs ticked up while UOB had an Indonesian hotel asset booked as NPL. All three banks provided general allowances of around 20bp of loans. Coverage ratios are close to the 140% range. All three banks are not too concerned about excessively leveraged households in Singapore, saying that the majority of their mortgage clients are either owner-occupiers or have not more than one mortgage. The view on ASEAN markets is that while the region is slowing and Indonesia does have an inflation problem now (and potential credit quality problems in future), all three banks said that they are reasonably small in these markets and can focus on niche markets where they feel that credit quality risks can be managed. On China, DBS said that although certain sectors (commodity, shipping, construction) are clearly slowing, these are sectors from which it had been steering away for quite a while. The bulk (80%) of the new loans in 2013 are trade finance loans and there is little going to the financing of manufacturing or property in China.
Figure 12: Specific loan provisions
S$m

Figure 13: General loan provisions

S$m

Figure 14: Other provisions

S$m

350 300 250

DBS OCBC UOB

250
200 150 100

DBS OCBC UOB

60 40 20

DBS OCBC UOB

200 150 100

50 0 1Q10 4Q10 3Q11 2Q12 1Q13

50
0 (50) (100)
SOURCES: CIMB, COMPANY REPORTS

0 1Q10 (20) 4Q10 3Q11 2Q12 1Q13

1Q10

4Q10

3Q11

2Q12

1Q13

(40) (60)
SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Figure 15: NPL ratios (%)

3.0%

Figure 16: Coverage ratios (%)

DBS OCBC UOB
160%

Figure 17: Tier 1 CARs (%)

17%

2.5%

140%

15%

2.0%
120%

13%

1.5%
100%

1.0%

DBS OCBC UOB

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13

11%

DBS OCBC UOB

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13

0.5% 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13

80%

9%

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

1.4 Capital adequacy ratios

Tier-1 CAR was stable for DBS (12.9%) but fell for OCBC (14.9%) and UOB (13.6%). The lower Tier-1 ratio was mostly due to the AFS impact for all three banks but DBS was able to make it up with retained earnings. DBS and UOB kept interim dividends unchanged while OCBC raised interim dividends by 1 ct.

BANKS
August 3, 2013

2. VALUATION AND RECOMMENDATION 2.1 DBS (Outperform, TP S$19.07)

The results season did not change our order of preference. DBS remains our sector top pick. We do not see the end of its Danamon opportunity as a crippling development. Yes, it does mean that DBS will not be able to compete with its Singapore and Malaysian competitors on building an ASEAN platform. However, DBS has enough opportunities and challenges in 1) riding the momentum of its Greater China franchise after recently turning around DBS HK, 2) managing the problems in India, and 3) taking advantage of its SG/HK position and geographical coverage to benefit from an internationalising Rmb. 2Q results have soothed our fears that treasury will be volatile when markets fall; treasury has proven a lot more resilient than expected, on the back of customer flows. The potential negative impact in the future would be a major slowdown in global trade (hitting trade and loan fees) or a sudden escalation of US$ funding costs (US$ trade loans are funded by commercial papers now). Without any of these coming on, we see DBS as a stable-growth franchise at an attractive 1.2x CY13 P/BV. We maintain our Outperform rating, with a recently raised GGM-based target price of S$19.07, based on 1.39x CY13 P/BV. Catalysts include sustained earnings delivery from its trade finance franchise and eventually, from a rise in interest rates.
Figure 18: DBS's P/BV
1.90

Figure 19: DBSs current P/BV vs. core ROE

2.0x 14.0%

1.70

1.8x +1 SD = 1.5x 1.6x

13.0%

1.50

12.0% 1.4x 11.0% 1.2x 10.0% 1.0x

1.30

Mean = 1.3x

1.10

-1 SD = 1.0x 0.8x 9.0%

0.90 0.6x 0.70 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Current P/BV Core ROE

8.0%

SOURCE: CIMB Research

SOURCE: CIMB

2.2 OCBC (Underperform, TP S$10.09)

OCBC remains our least preferred bank. After some underperformance, it is no longer the most expensive Singapore bank on P/BV terms but we think its earnings face a few potential headwinds. 2Q13 results have shown its susceptibility to a falling bond market. While the AFS book got hit like its peers, the other avenue where a falling bond market hurts OCBC, is via GEH earnings. GEH contributions, which had been an excellent earnings contributor in prior years, have fallen short as non-par fund gains reverse. Without insurance earnings showing up, 2Q ROE dipped to a below-peer low of 9.9% and OCBC was the only one to fall short of expectations. We do not think that we have seen the end of rising interest rates concerns as the Fed must eventually scale back its QE programme and subsequently, end it and reverse it. Without the Fed artificially keeping rates down, there is a lot of scope for global interest rates to normalise at higher levels. We see OCBCs 2Q13 miss as a prelude to what can happen to its profitability when interest rates start to rise. Sure, higher interest rates will eventually make its leading insurance franchise more valuable NBEV of insurance policies written in a high-interest rate environment tends to be higher but that is for the future. As interest rates rise, expect headline accounting earnings to be impacted. Worst for OCBC is if its current below-industry NPL ratio starts to head up and have credit costs add to further
8

Current core ROE

Current P/BV

BANKS
August 3, 2013

earnings headwinds. We retain our Underperform recommendation, with a recently lowered GGM-based target price of S$10.09, based on 1.27x CY13 P/BV. Catalysts for underperformance include future quarters when markets get volatile and rising provisions.
Figure 20: OCBC's P/BV
2.10

Figure 21: OCBC current P/BV vs. core ROE

2.2x 14.0%

1.90 +1 SD = 1.7x 1.70

2.0x 1.8x 1.6x 1.4x 1.2x

13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0%

1.50

Mean = 1.5x

1.30

-1 SD = 1.3x 1.0x

1.10

0.8x

0.90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Current P/BV Core ROE

SOURCE: CIMB Research

SOURCE: CIMB

2.3 UOB (Neutral, TP S$22.55)

UOB stands in the middle of our preference list. Its 2Q13 results were not particularly compelling. Pre-provision operating profit was in line. The headline outperformance came from a spike in associates and write-backs from investment securities allowances, both of which will fade in the quarters ahead. The positives are its determined attempts to build up other drivers of fee income (wealth management, wholesale banking), which seem to have contributed to a rather impressive series of quarterly fee income growth i n recent times. UOBs concern over liquidity requirements and focus on ensuring that each regional office can collect enough deposits to fund its own loans suggest that it might be the most resilient the next time funding stress spikes up in the global banking arena. The negatives for the stock are that the ASEAN region is slowing rather distinctly. UOBs diversification out of Singapore might not give it the alternative growth engines that it is seeking. We remain Neutral. In our 2Q results note, we raised our GGM-based target price to S$22.55, based on 1.43x CY13 P/BV.
Figure 22: UOB's P/BV
2.30

Figure 23: UOB current P/BV vs. core ROE

2.4x 16.0%

2.10

2.2x 2.0x

15.0%

1.90

+1 SD = 1.8x

14.0% 1.8x 13.0% 1.6x 12.0% 1.4x 1.2x 11.0%

1.70 Mean = 1.6x 1.50 -1 SD = 1.3x 1.30

1.10

1.0x

10.0%

0.90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Current P/BV Core ROE

SOURCE: CIMB Research

SOURCE: CIMB

Current core ROE

Current P/BV

Current core ROE

Current P/BV

BANKS
August 3, 2013

DISCLAIMER This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. By accepting this report, the recipient hereof represents and warrants that he is entitled to receive such report in accordance with the restrictions set forth below and agrees to be bound by the limitations contained herein (including the Restrictions on Distributions set out below). Any failure to comply with these limitations may constitute a violation of law. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this report may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB. Unless otherwise specified, this report is based upon sources which CIMB considers to be reasonable. Such sources will, unless otherwise specified, for market data, be market data and prices available from the main stock exchange or market where the relevant security is listed, or, where appropriate, any other market. Information on the accounts and business of company(ies) will generally be based on published statements of the company(ies), information disseminated by regulatory information services, other publicly available information and information resulting from our research. Whilst every effort is made to ensure that statements of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other subjective judgments contained in this report are based on assumptions considered to be reasonable as of the date of the document in which they are contained and must not be construed as a representation that the matters referred to therein will occur. Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and those investing may, depending on the investments in question, lose more than the initial investment. No report shall constitute an offer or an invitation by or on behalf of CIMB or its affiliates to any person to buy or sell any investments. CIMB, its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMB, its affiliates and its related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report. CIMB or its affiliates may enter into an agreement with the company(ies) covered in this report relating to the production of research reports. CIMB may disclose the contents of this report to the company(ies) covered by it and may have amended the contents of this report following such disclosure. The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and autonomously. No part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or view(s) in this report. CIMB prohibits the analyst(s) who prepared this research report from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company. Information barriers and other arrangements may be established where necessary to prevent conflicts of interests arising. However, the analyst(s) may receive compensation that is based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations and the research personnel involved in the preparation of this report may also participate in the solicitation of the businesses as described above. In reviewing this research report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. Reports relating to a specific geographical area are produced by the corresponding CIMB entity as listed in the table below. The term CIMB shall denote, where appropriate, the relevant entity distributing or disseminating the report in the particular jurisdiction referenced below, or, in every other case, CIMB Group Holdings Berhad ("CIMBGH") and its affiliates, subsidiaries and related companies.
Country Australia Hong Kong Indonesia India Malaysia Singapore South Korea Taiwan Thailand CIMB Entity CIMB Securities (Australia) Limited CIMB Securities Limited PT CIMB Securities Indonesia CIMB Securities (India) Private Limited CIMB Investment Bank Berhad CIMB Research Pte. Ltd. CIMB Securities Limited, Korea Branch CIMB Securities Limited, Taiwan Branch CIMB Securities (Thailand) Co. Ltd. Regulated by Australian Securities & Investments Commission Securities and Futures Commission Hong Kong Financial Services Authority of Indonesia Securities and Exchange Board of India (SEBI) Securities Commission Malaysia Monetary Authority of Singapore Financial Services Commission and Financial Supervisory Service Financial Supervisory Commission Securities and Exchange Commission Thailand

(i) As of August 2, 2013, CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) Affin Holdings, Agricultural Bank of China, Alliance Financial Group, AMMB Holdings, ANZ Banking Group, Bangkok Bank, Bank Central Asia, Bank Danamon, Bank Mandiri, Bank of China, Bank Rakyat Indonesia, BIMB Holdings, China Construction Bank, China Minsheng Bank, DBS Group, Hong Leong Bank, ICBC, Kasikornbank, Krung Thai Bank, Malayan Banking Bhd, National Australia Bank, OCBC, Public Bank Bhd, RHB Capital Bhd, Siam Commercial Bank, United Overseas Bank, Westpac Banking Corp (ii) As of August 3, 2013, the analyst(s) who prepared this report, has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. CIMB is under no obligation to update this report in the event of a material change to the information contained in this report. This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof. Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors. Australia: Despite anything in this report to the contrary, this research is provided in Australia by CIMB Securities (Australia) Limited (CSAL) (ABN 84 002 76 8 701, AFS Licence number 240 530). CSAL is a Market Participant of ASX Ltd, a Clearing Participant of ASX Clear Pty Ltd, a Settlement Participant of ASX Settlement Pty Ltd, and, a participant of Chi X Australia Pty Ltd. This research is only available in Australia to persons who are wholesale clients (within the meaning o f the Corporations Act 2001 (Cth)) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. This research has been prepared without taking into account the objectives, financial situation or needs of the individual recipient. In the last 12 months, CIMB Capital Markets (Australia) Ltd or CIMB Corporate Finance (Australia) Ltd has had an investment banking relationship, from which it may or has received fees, with Commonwealth Bank. France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection
10

BANKS
August 3, 2013

with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument. Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities Limited (CHK) which is licensed in Hong Kong by the Securities and Fu tures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CHK. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CHK. Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong). India: This report is issued and distributed in India by CIMB Secu rities (India) Private Limited (CIMB India) which is registered with SEBI as a stock-broker under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 and in accordance with the provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required to seek registration with SEBI as an Investment Adviser. The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates. Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (CIMBI). The views and opinions in this research report are our own as of the date h ereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations. Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (CIMB). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB. New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978. Singapore: This report is issued and distributed by CIMB Research Pte Ltd (CIMBR). Recipients of this report are to contact CIMBR in S ingapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR.. As of August 2, 2013, CIMBR does not have a proprietary position in the recommended securities in this report. South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch ("CIMB Korea") which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. The views and opinions in this research report are our own as of the date hereof and are subject to change, and this report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial investment instruments and it is not intended as a solicitation for the purchase of any financial investment instrument. This publication is strictly confidential and is for private circulation only, and no part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB Korea. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Offi ce of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result. Score Range: 90 100 80 89 70 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead
11

BANKS
August 3, 2013

to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates. United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being dissem inated by CIMB Securities (UK) Limited (CIMB UK). CIMB UK is authorised and regulated by the Financial Services Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Order); (c) are persons falling within Article 49 (2) (a) to (d) (high net worth companies, unincorporated associations etc) of the Order; (d) are outside the United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent "investment research" under the applicable rules of the Financial Services Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (Australia) Limited, CIMB Securities (India) Private Limited,and is distributed solely to persons who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Distribution of stock ratings and investment banking clients for quarter ended on 30 June 2013 1077 companies under coverage Rating Distribution (%) Outperform/Buy/Trading Buy Neutral Underperform/Sell/Trading Sell 52.5% 33.6% 14.0% Investment Banking clients (%) 7.4% 4.7% 5.5%

Recommendation Framework #1 * Stock Sector OUTPERFORM: The stock's total return is expected to exceed a relevant OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is benchmark's total return by 5% or more over the next 12 months. expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected benchmark's total return. to perform in line with the relevant primary market index over the next 12 months. UNDERPERFORM: The stock's total return is expected to be below a relevant UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is benchmark's total return by 5% or more over the next 12 months. expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a relevant TRADING BUY: The industry, as defined by the analyst's coverage universe, is benchmark's total return by 5% or more over the next 3 months. expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The stock's total return is expected to be below a relevant TRADING SELL: The industry, as defined by the analyst's coverage universe, is benchmark's total return by 5% or more over the next 3 months. expected to underperform the relevant primary market index over the next 3 months. * This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

Recommendation Framework #2 ** Stock Sector OUTPERFORM: Expected positive total returns of 10% or more over the next 12 OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a months. high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) months. an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a months. high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 TRADING BUY: The industry, as defined by the analyst's coverage universe, has a months. high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 TRADING SELL: The industry, as defined by the analyst's coverage universe, has a months. high number of stocks that are expected to have total returns of -10% or worse over the next 3 months. ** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

12

BANKS
August 3, 2013

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2012. AAV not available, ADVANC - Excellent, AEONTS Good, AMATA - Very Good, ANAN not available, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH not available, BCP - Excellent, BEC - Very Good, BGH - not available, BJC Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET Good, CENTEL Very Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, EGCO Excellent, ERW Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Very Good, ITD Very Good, IVL - Very Good, JAS Very Good, KAMART not available, KBANK - Excellent, KK Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Good, MAKRO Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent, SAMART Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Good, SPALI - Very Good, SRICHA not available, SSI not available, STA - Good, STEC - Very Good, TCAP - Very Good, THAI - Excellent, THCOM Very Good, TICON Very Good, TISCO - Excellent, TMB Excellent, TOP - Excellent, TRUE - Very Good, TTW Very Good, TUF - Very Good, VGI not available, WORK Good.

13