A downturn in Singapore banking stocks has prompted recommendations to purchase on weakness, as certain analysts highlight the lenders' long-term expansion potential amid the city-state's efforts to reinforce its role as a worldwide financial center.

Analysts and fund managers from Macquarie Group Ltd. to Jefferies Financial Group Inc. and Franklin Templeton Inc. are encouraging investors to look beyond the previous week's decline, which wiped out a combined $22 billion in market value from Singapore's three largest banks. Their confidence is rooted in Singapore's expanding role as a wealth management center, which is directly enhancing profits at DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd.

"The long-term outlook still remains positive for the Singapore banks," said Yiping Liao, portfolio manager at Franklin Templeton Global Investments. "Looking past the near-term, we expect net interest margins to trough in subsequent quarters and non-interest income to benefit from the structural shift in wealth moving to Singapore."

The change in sentiment follows investors offloading shares of DBS, OCBC and UOB due to worries that a surge in bond yields to multi-decade peaks could diminish their attractiveness as dividend stocks and result in losses on their bond portfolios. Although the complete effect will become apparent when third-quarter results are published in the upcoming weeks, the slump has harmed Singapore's reputation as one of Asia's top-performing major stock benchmarks this year.

The decline has rendered valuations more appealing to some analysts, with Singapore's largest lender DBS now trading at a price-to-book value of 2.9 times forward earnings, down from a September high of 3.1 times.

The drop in bank shares "provides a good buying opportunity for long-term investors," according to Joanna Cheah, an analyst at Jefferies. Net new money and assets-under-management trends remain healthy and are arguably better indicators of franchise momentum, while loan growth has also remained robust, she said last week.

Nevertheless, worries about elevated bond yields continue, with unexpectedly strong US inflation on Wednesday intensifying expectations of more aggressive rate increases by the Federal Reserve.

Increasing long bond yields could cause significant mark-to-market losses on banks' trading portfolios and impede capital activity, JPMorgan Chase & Co. cautioned last week. Citigroup Inc. analyst Yong Hong Tan also highlighted the possibility of weaker guidance on wealth-management fees if the present risk-averse sentiment continues.

Although the bank's trading income might encounter greater challenges this quarter, investors are likely to concentrate more on wealth management income and the outlook for net interest income in a rising rate environment, said Macquarie analyst Jayden Vantarakis.

The decline is "an opportunity to buy back in," he said.