Introduction: What to Expect for 4Q24

The Singapore banking sector is gearing up for its 4Q24 earnings season, with DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB) in the spotlight. This quarter is marked by stable net interest margins (NIM), seasonally softer non-interest income, and capital management strategies. Analysts expect substantial focus on dividend growth and special payouts. Here’s a comprehensive breakdown of each bank’s performance and outlook.

DBS Group Holdings: A Strategic Focus on Capital Management

Profitability and Revenue Highlights

DBS is projected to deliver a net profit of S\$2,535 million for 4Q24, marking a 12% year-on-year (yoy) growth but a 16% quarter-on-quarter (qoq) decline. Total income is expected to grow by 6.7% yoy to S\$5,344 million, despite a 7.1% qoq dip. Net interest income is forecasted to grow by 4.3% yoy to S\$3,582 million, supported by stable NIM at 2.11%.

Loan Growth and NIM Dynamics

Loan growth is anticipated to remain muted at 2.0% yoy and 1.2% qoq, driven by both trade and non-trade corporate loans. The stronger USD and HKD, which appreciated by 6.3% against the SGD, are expected to bolster USD- and HKD-denominated loans, which account for 25% and 11% of DBS’s total loans, respectively. While NIM compression is expected to materialize in 1Q25 due to recent Fed rate cuts, 4Q24 margins will remain stable, aided by increases in the 3M HIBOR.

Non-Interest Income and Cost Management

Fees and commissions are projected to grow by 15.6% yoy, driven by a 54% yoy increase in wealth management contributions to S\$570 million. However, seasonal softness is likely to cause a 6% qoq decline. Operating expenses are expected to decrease by 1% yoy due to the absence of last year’s S\$100 million Corporate Social Responsibility expense.

Asset Quality and Dividends

DBS’s asset quality remains robust, with a stable NPL ratio at 1.0% and ample general provisions of S\$2.3 billion. Provisions for 4Q24 are estimated at S\$172 million, with a credit cost of 16bp. DBS is forecasted to increase quarterly dividends by 6 S cents to 60 S cents and declare a special dividend of 50 S cents per share.

Strategic Leadership Transition

Tan Su Shan, currently Group Head of Institutional Banking, has been appointed as Deputy CEO and will succeed Piyush Gupta as CEO after the next AGM in March 2025. With over 35 years of experience, she has played a pivotal role in operationalizing DBS’s digitalization strategy.

Recommendation

BUY: Target Price: S\$46.50

Oversea-Chinese Banking Corporation (OCBC): Leveraging ASEAN Opportunities

Profitability and Revenue Trends

OCBC is expected to post a net profit of S\$1,748 million for 4Q24, reflecting an 8% yoy growth but an 11% qoq decline. Total income is forecasted to rise by 9.6% yoy to S\$3,587 million, despite a 5.7% qoq drop. Net interest income is projected to decline by 1.1% yoy to S\$2,435 million, as NIM eases 13bp yoy to 2.16%.

Non-Interest Income Highlights

Wealth management fee income is expected to grow by 7% yoy to S\$492 million, while insurance contributions are projected at a normalized S\$275 million, thanks to a shift to fair value accounting under SFRS(I) 17. Net trading income is forecasted to increase by 35.1% yoy to S\$300 million.

Asset Quality and Dividend Growth

OCBC’s asset quality remains solid with an NPL ratio stable at 0.9%. Total provisions are estimated at S\$170 million for 4Q24, with credit costs of 22bp. The bank is expected to increase its final dividend by 9.5% yoy to 46 S cents, with a payout ratio estimated at 53.7% for 2024.

Strategic Initiatives and ASEAN Focus

OCBC’s growth strategy revolves around four pillars: Asian wealth, trade and investment flows, new economy ventures, and sustainable financing. The bank aims to deliver incremental revenue of S\$3 billion over 2023-2025, targeting an ROE of 12-13%.

Recommendation

BUY: Target Price: S\$20.80

United Overseas Bank (UOB): ASEAN Expansion in Focus

Profitability Snapshot

While UOB’s specific 4Q24 forecast details are not provided, analysts highlight its strong position within ASEAN markets, which accounted for 68.4% of total loans and 81.4% of total income as of 1H24. The bank benefits from its extensive regional network amidst the acceleration of supply chain repositioning under the China+1 strategy.

Strategic Growth Areas

UOB is well-positioned to capitalize on ASEAN’s projected FDI inflows, which are expected to grow at a CAGR of 8.3% to US\$356 billion by 2030. This economic shift provides a substantial tailwind for the bank’s loan and income growth.

Dividend Insights

Consensus estimates suggest UOB’s dividend yield for FY24F is 5.2%, rising to 5.6% in FY25F. Its payout ratio is expected to hover around 54.9% in the coming years.

Recommendation

Not Rated: UOB is not covered by the analysts in detail but remains a key player in the ASEAN banking landscape.

Sector Outlook: A Bright Future for Singapore Banks

The Singapore banking sector continues to offer attractive investment opportunities, supported by stable asset quality, strong dividend yields, and robust capital positions. With geopolitical tensions and economic uncertainties as potential risks, the long-term outlook remains positive, driven by ASEAN growth and strategic capital management initiatives.

Top Picks

Analysts favor DBS for its strong capital management emphasis and OCBC for its focus on ASEAN trade and investment flows. Both banks provide compelling value propositions with attractive P/B ratios and high dividend yields.