SINGAPORE : Despite the sharp drop in DBS' share price, analysts said the bank's fundamentals remain strong.

The counter is among those which have been hard hit by the recent market turmoil.

Its share price has fallen by nearly 50 per cent over the past 6 months - the sharpest drop among the three Singapore banks. It now stands at a five-year low. The current price is nearly 40 per cent lower than its fair value.

But despite the bank's fundamentals, some market watchers said DBS shares may face further downside pressure.

"The market is pricing risk and uncertainty as this point in time, and risk and uncertainty continue to increase. So on that basis, one would expect the bias to be on the downside rather than on the upside," said Trevor Kalcic, a regional bank analyst at ABN Amro Asia Securities.

Despite this, analysts said the bank's business fundamentals remain sound.

"The capitalisation will see them through this tough period. But having said that, vis-à-vis the excellent performance they had in 2006 and last year, chances are we will see profitability go down. (If) the downturn is severe, we will see some uptick in non-performing loans," said Ivan Tan, associate director at Standard & Poor's.

The slowdown in the construction sector is also expected to impact on DBS.

With more than half of its loans coming from property-related businesses, market watchers said the lender is expected to book weaker earnings growth next year.

That is likely to further weigh on DBS share price which is already facing some redemption pressures from hedge funds.

Some analysts said it is unlikely DBS will perform a share buyback to reduce its share capital, despite having issued S$1.5 billion worth of non-cumulative, non-convertible preference shares earlier this year.

"I would be very surprised if DBS were to launch a share buyback at this point in time... I think the focus for management at this point in time is ... keeping as much capital as they possibly can, in case things get really nasty," said Kalcic. - CNA /ls