Cut in American rates will help banks

INDONESIA, Singapore and Hong Kong banks stand to benefit most among Asian peers to a reduction in United States interest rates because of the markets' "resilient" financial systems, according to analysts at UBS AG.

PT Bank Central Asia, Indonesia's second-largest financial services company, Singapore's DBS Group Holdings Ltd and BOC Hong Kong (Holdings) Ltd are UBS's top three Asian bank picks for next year, the Zurich-based bank said in a research note.

Investors should take "overweight" positions as "the bank systems in these markets are the most resilient and most geared to lower US rates," UBS said in the note. It expects the Federal Reserve to cut its benchmark rate by a percentage point to 3.5 percent by mid-2008, Bloomberg News reported.

Asian banks may benefit from strong lending growth as any cut in US interest rates to fight a slowdown in the world's biggest economy will strengthen the region's currencies, boosting domestic consumption and investment, Bloomberg News said. Banks in Indonesia, Singapore and Hong Kong trade at lower valuations than those in Chinese mainland and India, which face measures to restrict lending.

Loan growth in Indonesia will remain strong in 2008 at 20 percent while in Hong Kong and Singapore, the rise will be around 10 percent to 13 percent, UBS said.

Hong Kong banks boosted loans by 30 percent and deposits by 35 percent in October, the fastest pace since 1989, Goldman Sachs Group Inc analysts wrote in a report yesterday.

Chinese and Indian lenders are likely to face pressure from regulators to restrict lending to the property sector to prevent overheating, the report said. UBS put a "neutral" weighting on banks in those two markets as they trade at about two to three times the average global price-to-earnings ratio.

China plans to shift to a "tight" monetary policy in 2008, the central bank said on Wednesday, signaling it may raise interest rates further after five increases this year.

Chinese mainland banks, with up to US$80 billion of excess capital, will join those from Japan, Hong Kong, Singapore, Malaysia and South Korea to lead cross-border mergers and acquisitions next year, the report said.