Guess which among Singapore's big three banks lead FY13 earnings race

Your guess is as good as ours.

According to Barclays Research, the three Singapore Banks reported FY13 results today with the three banks showing strong underlying banking trends. For 2014, while volume growth is expected to slow from the high levels in 2013, management remains positive on loan growth and fee generation. Barclays continues to like the Singapore banks for their defensive qualities and strong funding franchise and most prefer DBS (OW).

Here's more:

FY13 results – two beat, one in line: DBS profits were in line, OCBC profits beat by 6% on low credit cost while UOB results beat by 9% on higher margin and fee income growth and lower tax expense, relative to expectations.

Key sector trends in 4Q13 include: 1) stable margin (1-3bps higher q/q); 2) reasonably strong loan growth of 3-5%, especially in the Greater China region for UOB and OCBC; 3) mixed fee income performance, with DBS and OCBC negatively affected by weaker market activity, while UOB benefited from strong loan-related and card fee income; 4) asset quality remains strong.

We adjust our earnings forecasts by less than 1% after updating for FY13 performance.

Expect reasonably strong loan growth and stable margins this year: The banks were generally optimistic on loan growth in 2014, with DBS guiding for 8-10% growth and OCBC low teens growth driven by continued strong demand from Greater China for lower cost of borrowing offshore, especially if China liquidity conditions tighten. UOB was relatively more conservative, guiding for high single digit growth.

While deposit competition will likely intensify, driven by tighter system liquidity and regulatory liquidity requirements (e.g. liquidity coverage ratio and net stable funding ratio), the local Singapore banks have strong deposit franchises and strong loan demand should enable the banks to reprice up loans to offset higher funding cost. All three banks are guiding for margins to remain stable in 2014.

Investment view - prefer DBS (OW) and UOB (OW) over OCBC (UW): DBS is our top pick among the Singapore banks as it has the strongest deposit franchise and is more leveraged to a rise in benchmark interest rates in the medium term.

Loan growth may surprise on the upside relative to management's guidance of 8-10% growth driven by strong China-related corporate loan demand, in our view. Moreover, with DBS's strong capital adequacy, we believe it has the capability to move to a dividend payout ratio (vs management's current guidance of 58c DPS going forward).