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Singapore's DBS Says It Has More Direct Exposure to CDOs

DBS Group Holdings, Southeast Asia's biggest bank, said on Friday it has more direct exposure to collateralized debt obligations than previously declared, sending its shares down over 2%.

Broker CLSA said in a report this week that while Singapore banks have limited exposure to collateralised debt obligations, DBS may have S$2.4 billion (US$1.6 billion) worth of CDO holdings -- nearly double the S$1.3 billion direct exposure it initially declared.

It said DBS may have more direct CDO exposure through a special purpose vehicle that had commercial paper backed by S$1.1 billion worth of CDOs, with the paper due for renewal.

"We are comfortable with our exposure to the conduit," a DBS spokeswoman told Reuters. She confirmed the figures cited in CLSA's report.

DBS bank had previously said that it had distributed $1.7 billion of structured products involving CDOs that were backed by AA and AAA rated collateral to institutional and private clients. However, it had not said that part of these products were in commercial paper.

Standard & Poor Ratings Services said in early August it has reviewed the exposure of Singapore banks to the U.S. subprime mortgage-related instruments and has determined that their exposure is negligible at this time.

Share prices of banks have slid on worries about further fallout from a global credit squeeze, and two of Singapore's three banks have also taken smaller hits on their books due to their exposure to complex debt-linked securities.

Analysts have warned weaker markets may force banks to further mark down their portfolio of credit derivatives, amid looming risk of credit downgrades for these instruments.

CLSA said in its report that if the three banks mark down their entire asset-backed CDOs, the impact on financial year 2007 earnings would be around 11%.

Oversea-Chinese Banking said earlier this month it had marked down its portfolio of CDOs by US$33 million as of end June while the No. 2 lender, United Overseas Bank, had made provisions of S$34 million at end June.

But most analysts say despite the recent shift in risk appetite there is still growth potential for Singapore banks as resurgent construction and property sector and strong economic growth boost their loan books.

"We continue to believe the sector offers significant long-term potential as the Singapore domestic growth story is still intact and the banks have never been better positioned to benefit from this growth," CLSA said.

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