SINGAPORE bank stocks declined on Thursday as Merrill Lynch downgraded its investment rating on the sector on expectations of weaker profit growth in 2009 due to a slowing economy and a sluggish property market.

'We have become more negative on Singapore banks as we expect slowing economic growth and a protracted downturn in the property market to impact profits in 2009,' analysts Andrew Maule and Alistair Scarff said in a report issued on Thursday.

The investment bank cut earnings per share estimates for the banks by 4 to 7 per cent for 2009.

By 0325 GMT (11.25am Singapore time), shares in DBS fell 2.6 per cent, OCBC lost 2.3 per cent and United Overseas Bank shed 2.2 per cent, underperforming a 1.5 per cent decline in the benchmark market index .

Merrill said Singapore banks so far have been a 'great' place to hide in 2008, amid the global credit crisis, outperforming both regional banks and Singapore's benchmark market index, backed by strong balance sheets and low non-performing loans.

'But we doubt they will remain a 'safe haven' for much longer with the operating outlook getting worse,' the note said.

Singapore has benefited from a fast-growing loan market, which surged 25 per cent in the second quarter from a year ago - the quickest pace since 1990.

But most analysts expect loan growth to slow in the second half of the year and beyond as the city-state braces for slower economic growth, a weaker property market and high consumer prices.

Singapore's economic growth is expected to slow to 4-6 per cent this year from 7.7 per cent in 2007.

Inflation for the year is expected to rise to as much as 7 per cent.