Which Singapore banks are the most vulnerable to trade tensions?

The Greater China region represented a fourth of one bank’s profit before tax.

Heightening trade tensions between the two largest economies are likely to pose risks to Singapore's DBS and OCBC who have larger footprints in Greater China, according to UOB Kay Hian.

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The two lenders are benefitting from close proximity to Chinese capital due to their respective footholds with Dao Heng Bank for DBS and Wing Hang Bank for OCBC. In fact, the overseas loan growth of DBS expanded at a faster pace by 12% over the past 12 months whilst it rose 11% for OCBC.

However, the two lenders are similarly vulnerable to possible downside risks. “DBS and OCBC benefit more from growth within Greater China. However, they will be affected more if trade conflicts escalate, resulting in broader slowdown at China’s coastal provinces,” said UOB analyst Jonathan Koh.

Greater China represented a fourth (25%) of DBS profit before tax and total assets compared to 19% for OCBC.

“We have lowered our target prices for DBS and OCBC accordingly to factor in the diminished growth prospects due to the potential slowdown in global trade,” Koh added.

As a heavily export-dependent economy, Singapore stands to lose as much as $22b in the case of a full-blown trade war which could smash financial markets and hit domestic manufacturing sectors in the city-state.