Singapore banks report 2Q09 results in the first week of August. Bottom line is likely to be down by about a fifth YoY, although up by 10-15% QoQ, with OCBC and UOB being the best performers YoY and QoQ, respectively.

Expect flat loan books, with DBS growing in Singapore and gaining market share. Margins should be generally flat-to-slightly-down QoQ, as falling deposit spreads (and fewer gapping opportunities) offset gains from better corporate/SME loan spreads.

Fee income should continue to improve, helped by capital market activity. Trading income should hold up to robust 1Q09 levels.

Loan loss provisions are likely to come off towards the 100 bp mark, as asset quality has not deteriorated as much as feared. However, NPLs are rising and banks are indicating a peak in 1H10.

Book values should expand for UOB and OCBC, from the reversal of some mark-to-market losses in 2008.

UOB remains our top pick – it has the best combination of ROEs, valuation and a conservative management.