3 big risks DBS should watch out for

Clue: asset quality deterioration.

According to Barclays, DBS is their preferred pick among the Singapore banks as it has the strongest deposit franchise (highest proportion of current and savings deposits among the local banks), is defensive to potentially tighter system liquidity as the effects of QE tapering flow through and is most leveraged to rising rates in the medium term.

Here's more from Barclays:

In the near term, we believe loan growth could surprise on the upside (similar situation to 2013) driven by continued loan demand from corporates as interest rates remain low.

Earnings estimate revisions and valuation: For DBS, we raise our earnings forecasts by ~6% to reflect a one-off S$447m gain on disposal of its stake in the Bank of the Philippine Islands (BPI), half reflected in 4Q13 and half in 1Q14.

Our PT of S$19.00 is based on our unchanged blended valuation methodology.

Downside risks: 1) a sharp deterioration in asset quality in India and Indonesia (5% of loan book each); 2) Prolonged low interest-rate environment and slower-than-expected US economic recovery resulting in low margins for longer; and 3) weaker-than-expected economic growth in Asia resulting in slower loan growth.