Overview of the Singapore Banking Sector: All Eyes on Capital Management

The 4Q24 earnings season for Singapore banks is underway, with key players DBS Group Holdings (DBS), Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB) under the spotlight. This quarter is marked by stable net interest margins (NIM) and seasonally softer non-interest income, including wealth management fees and net trading income. Analysts expect notable updates on capital management, including potential dividend increases and special payouts. The sector remains a strong “OVERWEIGHT,” with DBS and OCBC leading the charge.

DBS Group Holdings (DBS): Leadership and Sustained Growth

Key Financial Performance

• Net Profit: Projected to grow 12% year-on-year (yoy) to S\$2,535 million but decline 16% quarter-on-quarter (qoq).
• Net Interest Income: Expect a 4.3% yoy increase to S\$3,582 million, supported by stable NIM at 2.11%.
• Fees and Commissions: Anticipated growth of 16% yoy to S\$1,002 million, driven by wealth management and cards.
• Provisions: Estimated at S\$172 million, with a benign Non-Performing Loan (NPL) ratio of 1.0%.

Strategic Insights

• Capital Management: DBS is expected to declare a higher quarterly dividend of 60 S cents and a special dividend of 50 S cents per share.
• Loan Growth: Supported by strength in USD and HKD, with muted growth of 2.0% yoy and 1.2% qoq.
• Leadership Transition: Tan Su Shan, Group Head of Institutional Banking, will succeed Piyush Gupta as CEO in March 2025, ensuring continuity in the bank’s digitalization strategy.

Recommendation

Rating: BUY

Target Price: S\$46.50

DBS remains a top pick for its focus on capital management and robust financial performance, with a projected P/B ratio of 1.97x for 2025.

Oversea-Chinese Banking Corporation (OCBC): Strengthening ASEAN Trade and Wealth Management

Key Financial Performance

• Net Profit: Expected to grow 8% yoy to S\$1,748 million but decline 11% qoq.
• Net Interest Income: Projected to dip 1.1% yoy to S\$2,435 million due to mild NIM compression.
• Wealth Management: Contribution to fee income increased 18% yoy but softened 6% qoq, reaching S\$492 million.
• Insurance Contributions: Normalized at S\$275 million, reflecting stable operations under the SFRS(I) 17 framework.

Strategic Insights

• Capital Management: Final dividend expected to increase by 9.5% yoy to 46 S cents, with a payout ratio of 53.7% for 2024.
• Loan Growth: Anticipated at 2.4% yoy, supported by trade and investment flows within ASEAN.
• Strategic Initiatives: Management targets an incremental S\$3 billion in revenue over 2023-2025, focusing on Asian wealth, trade, new economy sectors, and sustainable financing.

Recommendation

Rating: BUY

Target Price: S\$20.80

OCBC is well-positioned to capitalize on trade flows and investment within ASEAN, supported by its robust capital and low NPL ratio of 0.9%.

United Overseas Bank (UOB): ASEAN-Centric Growth

Key Financial Performance

• Net Interest Income: Expected to reflect mild compression due to a 13bp yoy decline in NIM to 2.16%.
• Fee Income: Anticipated growth of 7% yoy to S\$492 million, driven by loans and trade-related activities.
• Asset Quality: Stable NPL ratio of 0.9%, with credit costs aligned with management guidance at 22bp.

Strategic Insights

• ASEAN Focus: UOB benefits from its extensive network within ASEAN, where 68.4% of its loans and 81.4% of its income originate.
• FDI Inflows: Positioned to leverage projected ASEAN FDI inflow growth of 8.3% CAGR, reaching US\$356 billion by 2030.

Recommendation

Rating: Not Rated (NR)

UOB continues to benefit from its strong footing in ASEAN, though no specific target price or recommendation is provided for this quarter.

Sector Outlook and Risks

Positive Catalysts

• Soft landing of the global economy, paving the way for sustained growth.
• Banks reviewing capital management policies and returning excess capital to shareholders.

Key Risks

• Geopolitical tensions, including the Russia-Ukraine war and Israel-Hamas conflict.
• Potential trade conflicts between the US, EU, and China.