OVERCOMING ADVERSITY: Stanchart bet the family silver on Asia last year and was rewarded with a 27 per cent rise in income despite the global credit crunch. -- PHOTO: BLOOMBERG NEWS

The stark comparison reveals a tale of reticent Singapore banks failing to seize the moment when they should be capitalising on their strong fundamentals and seeking out opportunities thrown up by the global financial crunch.

On Wednesday, Standard Chartered Bank's (Stanchart's) share price jumped 8 per cent in Hong Kong, after it reported a 27 per cent rise in pre-tax income last year to US$4.04 billion (S$5.63 billion).

In contrast, shares of Singapore's No.2 lender, United Overseas Bank (UOB), fell 2.2 per cent on the same day. This was despite a 12.1 per cent gain in full-year net profits to $2.1 billion, excluding one-time gains - a decent performance considering that many global banks were sitting on billions of losses from the sub-prime crisis in the United States.

Surely, all things being equal, UOB should be as highly prized by investors as Stanchart.

Stanchart made its mark by following a bold strategy - unlike its global banking peers - by betting the family silver on Asia. This has paid off handsomely.

UOB's operations in Singapore, Thailand and Malaysia fall smack in the same geographical reach where Stanchart is minting its profits.

But there the similarities end, apparently.

Bloomberg data shows that Stanchart is valued at 2.3 times price-to-book - a measure of its share price compared with its assets. This is a rich valuation, of a type investors give banks enjoying high growth in emerging markets.

But UOB is priced at a much weaker 1.7 times price-to-book while local peer, DBS Group Holdings, trades at a dismal 1.3 times price-to-book. This is the sort of pricing that investors give troubled banks such as Citigroup, which wrote down US$22 billion in sub-prime losses, and Societe Generale, which lost 4.9 billion euros (S$10.4 billion) due to rogue deals by a junior trader.

Are the valuations of these two Singapore banks fair?

Singapore banks are stuffed with deposits and are among the best-capitalised financial institutions worldwide. And with their excellent housekeeping, any sub-prime ghosts in their closets would have been roundly banished by the hefty write-downs made by each of them.

Yet, turn up for the banks' full-year results conferences and you will find analysts still poking anxiously at issues such as collateralised debts obligations - instruments linked to the US sub-prime crisis.

The local banks are not exactly helping themselves either. They fed into this sense of trepidation by painting a cautious outlook for this year.

In the negative reports written subsequently by analysts, investors got a hint of the managements' caginess.

Small wonder that they chose to vote with their feet, given the losses they had already suffered from the plunge in banks elsewhere.

Yes, the year will indeed be challenging for banks everywhere, given the twin perils of a possible recession in the US and rising inflation in China.

But like Stanchart, Singapore banks are in a 'great shape' to navigate the uncertain global financial sector even as its outlook darkens.

What is conspicuously missing from them is a sexy growth story like Stanchart's success at wooing emerging market investors, as much of their income still comes from Singapore.

While Western banks are relishing the prospects of gobbling up prey weakened by US sub-prime losses, Singapore banks do themselves no justice by going for short-sighted fixes like lending out surplus funds as short-term loans to earn a bit of money.

This will not buy them sustainable long-term growth when their own local turf is being threatened by the likes of Stanchart and Citigroup creaming off their best customers.

What they should do is to take on the world and successfully expand their overseas operations, with the once-a-generation opportunities thrown up by the US sub-prime crisis.

History is replete with examples of how banks have turned adversity to their advantage.

Consider this: HSBC used to be very much like the local banks, enjoying a cosy banking franchise in Hong Kong. But the rude shock it received as its share price tumbled in the run-up to the territory's handover talks in 1984, between then-British prime minister Margaret Thatcher and late Chinese leader Deng Xiaoping, led it to redouble its efforts to go global.

Compared with HSBC in the early 1980s when it was building its global empire, local banks are in a much stronger financial shape.

Let's hope they take the collective beating they suffered in their share prices as a wake-up call. Failure to effectively expand abroad may doom them to being what they once were in pre-independence Singapore - remittance shops and money-lenders - while the likes of Citigroup, HSBC and Stanchart have a free run of the region.

engyeow@sph.com.sg