SINGAPORE banks are optimistic about their earnings outlook moving into 2025, after yet another set of record quarterly earnings for the third quarter ended September 2024.
They also see upsides to net interest margins (NIMs) during Donald Trump’s second term as US president, given that markets expect inflationary policies that may result in higher interest rates.
DBS expects that pre-tax profits for 2025 will be around 2024 levels, with slight declines in NIMs mostly offset by loan growth, and commercial book non-interest income growth in the high single digits.
Chief executive Piyush Gupta also noted potential upsides to total income with the Trump term, given that higher rates benefit NIMs and the repricing of its fixed asset book.
Thilan Wickramasinghe, head of Singapore research and regional financials at Maybank Investment Banking Group, said DBS’ net interest income will likely be supported by loan growth recovery and NIMs holding up better than expected.
NIM declines will likely be measured going forward, given hedging and potential delays in US rate cuts under a new Trump administration, he added.
Meanwhile, the other two local banks believe that it is still too early to say if they would truly benefit from Trump 2.0, although they agreed that higher rates will boost NIMs.
OCBC also did not release its outlook for 2025.
But CEO Helen Wong said that profits at the bank should remain stable next year, with non-interest income growth in the double digits, which can counter declines in net interest income if rate cuts were to hold through.
An analyst at RHB noted that OCBC appeared optimistic about Asean’s growth prospects and opportunities, which would be supportive of loan growth.
CGS International analysts Andrea Choong and Lim Siew Khee also think that the ongoing repositioning of OCBC’s balance sheet to maintain net interest income could help sustain its top line, especially with fewer US rate cuts on the horizon.
Meanwhile, UOB is forecasting higher total income for 2025, which includes loan growth in the high single digits, and double-digit fee growth led by cards, wealth, trade and loan-related fees.
The CGS International analysts noted that UOB’s funding cost management is bearing fruit – with NIM and net interest income holding steady – although they await more ramp-ups on wealth management fees.
Non-interest income growth in Q3
The three banks last week posted Q3 results that beat consensus estimates.
DBS’ Q3 net profit rose 17 per cent on year to S$3.03 billion on broad-based growth.
UOB’s net profit for the third quarter rose 16 per cent to S$1.61 billion, amid record highs in net fee income as well as trading and investment income.
Meanwhile, OCBC’s net profit for Q3 rose 9 per cent to S$1.97 billion, underpinned by higher non-interest income and lower allowances.
DBS’ non-interest income was “better than expected”, amid strong market trading income given the volatility in foreign exchange (forex), interest rates and equity derivatives, said Maybank’s Wickramasinghe.
“While unpredictable, given (that) volatility is continuing in the fourth quarter, we expect an elevated contribution,” he added.
Wickramasinghe also expects DBS’ wealth segment to perform better than its guidance of a high single-digit fee growth for 2025.
Additionally, he noted that UOB has been successfully integrating its retail portfolio that it acquired from Citi in 2022, while showing good execution in leveraging its Asean footprint.
UOB’s Q3 customer flow-related trading increased 36 per cent on year.
Taken together with a 25 per cent on-year hike in wealth management fees, it is clear that clients are taking more risks, Wickramasinghe noted.
As for OCBC, recovery momentum in its trading income should carry through to Q4, given market volatility, he said.
The current positive market momentum should also drive mark-to-market gains at insurance arm Great Eastern, he added.
Capital return on the cards
The three banks were also focused on the topic of capital management this quarter.
Having applied new international standards for capital requirements under Basel IV, the three banks currently have Common Equity Tier-1 (CET-1) ratios above regulatory and historical levels, leaving room to return capital to shareholders.
DBS was the first mover, announcing a S$3 billion share buyback programme to be rolled out in the next few years.
The lender said it will continue to look at more ways to return the capital, given that it still had an excess of around S$3 billion to S$5 billion.
Morningstar analyst Michael Makdad said the buyback sets a new precedent for Singapore banks, which traditionally favour dividends over large repurchases to return capital to shareholders.
“We believe this reflects a strategic review of capital needs, encompassing both organic growth and potential acquisitions,” he said.
Makdad expects that DBS’ share performance may hinge on the speed at which the buyback is completed. Assuming that capital levels and capital generation remain robust, investors can expect more returns in future years.
Meanwhile, UOB’s management said they will find ways to take “full advantage” of the excess by the end of this year. It noted it has around S$2 billion to S$2.5 billion in excess capital to use.
On its cards are investment opportunities to take advantage of growth in the Asean region, or capital returns to shareholders, including share buybacks or higher dividends.
Maybank’s Wickramasinghe thinks UOB will provide a detailed plan on capital returns during the release of its Q4 results, which should encourage shareholder value creation.
“A strong commitment to capital returns… is welcome and we believe is a key re-rating catalyst going forward,” he said.
As for OCBC, its management said it prefers to give dividends over share buybacks to return excess capital to shareholders.
It is also looking to keep its excess capital as dry powder to support franchise flows and potential inorganic growth opportunities that may pop up.
Makdad said that OCBC will likely be under pressure to make clear its capital allocation plans at year-end results, given that its current capital levels already exceed its needs.
Nevertheless, he believes that investors could be satisfied without repurchases, if OCBC were to release excess capital through special and/or increased regular dividends, or announce value-enhancing acquisitions.
DBS declared an interim dividend of S$0.54 per share for the quarter, unchanged from the previous quarter. UOB and OCBC pay out dividends semi-annually.
Said the RHB analyst: “Singapore banks may offer investors a safe haven on the forex front and shifting rates outlook, among others, further supported by attractive dividend yields and relatively low-risk earnings.”
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