Credit Suisse - Asia Financials Sector – New report: Steepening yield curve (and its pattern) is positive for banks

Sanjay Jain / Research Analyst / 65 6212 3017 / sanjay.jain@credit-suisse.com
Anand Swaminathan / Research Analyst / 65 6212 3012 / anand.swaminathan@credit-suisse.com

! Short-term rates have finally come off sharply since January, while long-dated government bond yields have shot up in past few weeks. This has
steepened the yield curve, particularly sharply in India, Korea, Thailand and Indonesia.
! Trading positions are small, so profit impact should be minimal. Markdowns on available-for-sale securities will hit book value by about 3%, likely
to be more than offset by appreciation in corporate bonds and equities holdings.
! Net interest margins should expand by about 7 bp in 2010 as some bonds mature and are reinvested at higher yields. Banks in India, Indonesia
and HK likely to gain more.
! The pattern is important since it leads to better ROEs for banks without deploying capital while the low short-term rates alleviate the pain for
borrowers, keeping asset quality under check.
! We remain OVERWEIGHT on China, Singapore and Thailand while UNDERWEIGHT on Taiwan, Korea and Indian banks.