According to the report published by investment bank Credit Suisse last Monday, Asian banks should continue to do well this year, even if the global economy does slow.

This, the report said, is because 'domestic demand should be resilient and sustain loan growth momentum through 2008'.

Another driver for loan growth, which is closely linked to a bank's profitability, it said, is real interest rates.

And these, it said, were 'negative in some markets and falling in others, fuelling asset prices and demand for loans'. In Singapore, 'interest rates may turn out to be more negative than currently projected', and this should spur loan growth even further.

Real interest rates, which measure the real cost of borrowing, are banks' lending rates minus inflation. The lower the real interest rate, the more alluring it is for consumers and businesses to take loans.

Taking into account real interest rates and projected domestic demand, the markets with the strongest loan momentum this year are expected to be India, followed by Indonesia and then Singapore.

Within markets, the banks to look out for are those with 'low-cost retail deposit franchises' and 'relatively cheaper valuations'. In Singapore, this means UOB, the report said.

UOB, in fact, made it to Credit Suisse's list of top 10 Asian bank stocks, at ninth position, with a target price of $24.50. UOB shares closed at $17.60, down 34 cents, last Friday.

Credit Suisse was also positive about DBS Group Holdings, which it rated an an 'outperformer'. It has a target price of $24.50 for the Singapore bank. DBS closed at $16.68, down 32 cents, last Friday.

Credit Suisse was less bullish about OCBC Bank's prospects. It gave OCBC a 'neutral' rating and a target price of $9. OCBC closed at $7.47, down seven cents, last Friday.

Credit Suisse warned, though, that Singapore banks had a higher risk of being dragged down by a slowdown in developed economies such as the United States and Japan, more so than most other banks in the region.

This was because regional economies 'have, in no way, decoupled from the G-3 (the US, Europe and Japan)'.

Economies such as Hong Kong, Taiwan, Malaysia and Singapore are particularly vulnerable due to their 'high trade exposures' to G-3 markets.

chuahh@sph.com.sg