Analysts favour DBS ahead of Singapore Q3 earnings

Singapore Banks Face Q3 Earnings Scrutiny

Analysts anticipate that the third-quarter earnings for Singapore's three largest banks — DBS, OCBC, and UOB — might fall short of market expectations. This outlook follows a significant market correction last week, which saw the trio collectively lose more than US$22 billion in market capitalisation.

The downturn commenced on 7 October, triggered by Citi's downgrade of OCBC to a “sell” rating from “hold”, while simultaneously reiterating a “sell” stance on UOB. Despite these pressures, the broader lending environment is described as “favourable”, with the Monetary Authority of Singapore reporting a 16 per cent year-on-year increase in loan growth for August. UOB is scheduled to release its Q3 earnings on 4 November, followed by DBS on 5 November, and OCBC on 6 November.

DBS Emerges as Analyst Preference

Amidst the sector's challenges, DBS has become the preferred pick among several analysts. On 16 October, DBS shares closed at S$74.11, marking a 0.5 per cent daily increase. CGS International analysts Tay Wee Kuang and Tan Jie Hui upgraded DBS to an “add” rating from “hold” on Monday, raising their target price to S$79.50 from S$77.10.

They forecast a 2.9 per cent year-on-year growth in non-interest income for Q3, supported by a 7.4 per cent increase in wealth management fees due to sustained net new money inflows. Citi also maintains a “buy” rating on DBS, with a target price of S$86.80, describing the bank as an “Asia wealth proxy” benefiting from deposit inflows.

Jayden Vantarakis, head of Asean equity research at Macquarie Group, expects DBS to meet expectations this quarter, highlighting its estimated 4.4 per cent annualised dividend yield as the only bank paying dividends in Q3.

Mixed Outlooks for OCBC and UOB

Views on OCBC and UOB are more varied. OCBC saw its market value decline by S$8 billion on 7 October. However, Maybank Securities analysts Thilan Wickramasinghe and Amirul Rusydy maintain a “buy” call on OCBC with a target price of S$37.23, citing its comprehensive wealth proposition and the strong performance of its insurance subsidiary, Great Eastern.

Great Eastern recorded a 25.2 per cent year-on-year growth in new business embedded value (NBEV) in Q2. For UOB, Macquarie’s Vantarakis holds an “outperform” rating with a target price of S$45.29, noting its 30 per cent price-to-earnings discount.

Conversely, Citi’s Tan Yong Hong maintains a “sell” rating on UOB with a S$38 target price, projecting a 9 per cent quarter-on-quarter decline in Q3 profit to S$1.35 billion, attributing any relative fees growth momentum to a low base effect.

Lending Environment and Margin Dynamics

The broader lending environment presents a nuanced picture for the banks. Analysts have indicated that higher interest rates could compress net interest margins (NIMs), and rising bond yields are putting pressure on debt holdings.

Macquarie Group's Vantarakis, however, assumes flat quarter-on-quarter NIMs for the banks in Q3, attributing this to a lag in fixed-rate loan repricing, which is slightly below his interest rate model's prediction.

CGS International analysts Tay Wee Kuang and Tan Jie Hui project that DBS’ net interest income (NII) is unlikely to improve in Q3, forecasting a 2.4 per cent year-on-year and 2.5 per cent quarter-on-quarter decline. This is due to DBS continuing to replace fixed-rate assets, such as mortgages, which were repriced lower compared to 2024 to 2025 interest rates.

Nevertheless, they noted that DBS likely achieved 1.5 per cent quarter-on-quarter loan growth in Q3, which should partially offset the NIM compression.

Key Metrics to Watch in Upcoming Reports

As Singapore’s major banks prepare to release their Q3 earnings, decision-makers will closely monitor several key metrics. UOB’s Q3 results are due on 4 November, DBS on 5 November, and OCBC on 6 November.

Particular attention will be paid to net interest margins (NIMs) to assess the impact of interest rate movements, as well as loan growth figures which the Monetary Authority of Singapore reported at 16 per cent year-on-year in August.

Investors will also scrutinise non-interest income, especially wealth management fees, which CGS International expects to drive DBS’s non-interest income growth by 7.4 per cent year-on-year for Q3. The performance of insurance subsidiaries, such as Great Eastern for OCBC, will also be a critical component in evaluating overall profitability and future revenue streams.