Singapore’s banking giants—DBS, UOB, and OCBC—are set to release their fourth-quarter (Q4) and full-year 2024 results in February, with analysts expecting strong earnings, resilient net interest income, and a heightened focus on capital management. Investors are particularly eyeing potential special dividends and share buybacks as the banks navigate a higher-for-longer interest rate environment.
Earnings Season Kicks Off: DBS, UOB, OCBC in Focus
DBS will be the first to report its financial results on February 10, followed by UOB on February 19 and OCBC on February 26. The three banks, which collectively make up over half of the Straits Times Index (STI), have outperformed the broader market in 2024, with DBS leading gains at 54.8%, followed by OCBC at 35.9% and UOB at 32.9%.
Market watchers anticipate a steady performance in net interest income, the key driver of banking earnings. According to IG market strategist Yeap Jun Rong, net interest margins (NIMs) are expected to remain resilient despite slight fluctuations: DBS’s NIM is projected to hold steady at 2.11%, OCBC’s may ease slightly to 2.16% from 2.18%, and UOB’s could soften to 2.03% from 2.05%.
With US Federal Reserve rate cuts projected to be slower than initially expected, Singapore’s banks are likely to benefit from a stable loan yield environment. Loan growth, which picked up momentum towards the end of 2024, is another key factor supporting earnings, as total loans grew 5.2% year-on-year in December, compared to a 3.3% increase in November.
Capital Returns: Special Dividends and Share Buybacks on the Horizon?
Investors are closely watching the banks’ capital management strategies, particularly the potential for special dividends and share buybacks. Analysts at Maybank Securities anticipate that DBS and UOB could announce special dividends, while OCBC may focus more on increasing its regular dividend payouts.
CGS International analysts Andrea Choong and Lim Siew Khee project that DBS could declare a special dividend of S$0.50 per share, in addition to raising its ordinary dividend per share (DPS) to S$0.60. DBS had already announced a S$3 billion share buyback program alongside its Q3 results, which may see further updates.
UOB, with an estimated excess capital of S$2.5 billion, could initiate a share buyback or distribute a special dividend, potentially bringing its DPS to around S$1.50. Meanwhile, OCBC, known for prioritizing dividends over buybacks, has about S$3.6 billion in excess capital and may return up to S$0.80 in DPS.
However, Jefferies analysts Sam Wong and Chen Shujin caution that while banks may consider one-off capital returns, they are also likely to prioritize long-term growth strategies, particularly overseas expansion. According to Jefferies’ projections, improving overseas operations could boost return on equity (ROE) for DBS, UOB, and OCBC by 0.7, 0.5, and 0.4 percentage points, respectively.
Resilient Outlook Amid Market Challenges
Despite the strong earnings outlook, some downside risks remain. Analysts at SGX Research warn that global monetary policy easing may not be as aggressive as initially hoped, potentially limiting further growth opportunities for Singapore’s banks.
That said, Singapore banks remain among the most defensive in the region, benefiting from their ability to navigate a strong US dollar and persistently high interest rates. Morningstar senior equity analyst Michael Makdad noted that with few signs of major deterioration in asset quality, Singapore’s banks remain well-positioned. Credit costs remain low, with minimal exposure to struggling borrowers outside a few sectors like office property.
Singapore’s banking sector has also seen a rise in wealth management fees, supported by a booming family office scene and rising equities markets. This, coupled with resilient credit demand from ASEAN economies and the technology, media, telecom, and renewable energy sectors, bodes well for revenue streams beyond interest income.
Stock Market Performance and Institutional Flows
Institutional investors have maintained strong confidence in Singapore’s banking stocks, with cumulative net inflows of S$1.19 billion in 2024. The three banks currently offer attractive dividend yields: DBS at 4.8%, OCBC at 5.0%, and UOB at 4.6%, all above their respective five-year averages.
From a technical perspective, DBS’s stock is trading within an upward channel, with support at S$43.80 and resistance near S$42.48. OCBC, which recently tested its record high of S$17.60, could push towards S$19.00 if momentum holds. UOB, meanwhile, is hovering just below its previous peak of S$37.94, with analysts eyeing a potential move towards S$39.90.
Final Thoughts
As DBS kicks off the banking earnings season on February 10, followed by UOB and OCBC, investors will be keenly watching capital management plans, dividend strategies, and loan growth trends. With a resilient earnings base, strong institutional confidence, and the potential for capital returns, Singapore’s banking sector looks set to maintain its strong performance into 2025.
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