Broker: CGS International
Date of Report: June 9, 2025

Singapore Banks Outlook 2025: Loan Growth Eases But ASEAN Demand and Deposit Strength Signal Resilience

Introduction: Sector Overview and Key Takeaways

Singapore’s banking sector is navigating macroeconomic headwinds in 2025, with loan growth showing signs of moderation in April. Despite the softer growth, robust deposit inflows and regional demand from ASEAN markets are providing much-needed support. CGS International maintains a Neutral outlook on Singapore banks, with DBS as the top sector pick due to its strong capital return initiatives and resilient earnings profile.

Loan Growth Trends: Easing Momentum, ASEAN Opportunities

– April 2025 saw the Singapore banking system’s loan growth slow to 3.4% year-on-year, down from the 3.6–4.2% range seen in the first quarter. – Non-resident loan expansion was subdued at just 1.2% year-on-year, highlighting global economic uncertainty, particularly following US tariff developments. – Notably, June brought significant loan deals: DBS and UOB extended a Rp6.7 trillion (approximately S\$530 million) facility for a data centre campus in Batam, Indonesia, while DBS and OCBC supported a S\$692 million green loan for a mixed-use residential project in Tengah, Singapore. – These infrastructure-driven loans, though each constituting less than 1% of the major banks’ loan books (DBS: S\$442bn; OCBC: S\$322bn; UOB: S\$341bn as of 1Q25), signal that ASEAN infrastructure activity could sustain loan demand through the rest of FY25. – The all-currency loan-to-deposit ratio (LDR) stood at 67.0% in April, down 0.8 percentage points quarter-on-quarter.

Deposit Growth and Funding Costs: CASA Ratios Set to Rise

– Deposit growth remained buoyant at 6.1% year-on-year in April. – The current account savings account (CASA) ratio was stable at 52%. – With Singapore Overnight Rate Average (SORA) and fixed deposit yields declining, CASA ratios are expected to climb as customers gravitate away from fixed deposits, especially after OCBC and UOB reduced rates on their flagship savings accounts from May. – Banks are likely to maintain stable funding costs in the second quarter of FY25, aided by the shift in deposit mix.

Key Corporate Developments: OCBC’s Great Eastern Holdings Privatization

– OCBC announced a revised exit offer to privatize its subsidiary Great Eastern Holdings (GEH), proposing S\$30.15 per share and a total outlay of approximately S\$896 million for the remaining 6.28% it does not own. – GEH will hold an extraordinary general meeting (EGM) by September 30 to seek shareholder approval either for delisting or a 1-for-1 bonus share issue (with OCBC subscribing to ensure GEH meets the 10% free float requirement for SGX trading resumption). – OCBC’s ongoing GEH privatization means its capital return policy will have limited visibility until after the transaction, expected to conclude by Q4 2025.

Sector Outlook: Neutral Stance, DBS Remains Top Pick

– The sector faces limited earnings growth prospects due to macroeconomic uncertainties and the potential for higher credit costs in FY25. – Upside risks include stronger-than-expected loan growth and a rebound in SORA if US interest rate cuts are less aggressive than anticipated. – Downside risks are weaker non-interest income, increased credit provisions, and guidance downgrades.

Detailed Company Analysis

DBS Group

– Recommendation: Add – Target Price: S\$47.90 – Current Price: S\$45.49 – DBS stands out for its transparent capital return program, including a S\$3 billion share buyback and a special dividend per share (DPS) of about S\$0.60 annually for the next three years (FY25–FY27). – These initiatives are expected to attract investors amid global uncertainty.

OCBC

– Recommendation: Hold – Target Price: S\$17.20 – Current Price: S\$16.37 – OCBC’s capital return policy is clouded by the ongoing GEH privatization, with more clarity expected after Q4 2025.

United Overseas Bank (UOB)

– Recommendation: Add – Target Price: S\$38.60 – Current Price: S\$35.32 – UOB is well-positioned to benefit from stronger-than-expected economic activity in China and ASEAN, with about 85% of its loan book exposed to these regions, providing a cushion for FY25 earnings.

Summary Valuation Metrics: Key Financial Comparisons

Comparative Regional Valuations: Indonesia, Malaysia, and Thailand

– Singapore’s average sector metrics: P/BV 1.46x (2025F), ROE 13.7%, P/E 8.6x, dividend yield 6.7%. – Indonesian banks show higher valuations and stronger ROE, with Bank Central Asia at P/BV 3.90x and ROE 21.7%. – Malaysian banks average P/BV 1.04x, ROE 10.5%, P/E 7.7x, dividend yield 5.9%. – Thai banks report lower P/BV, around 0.69x, with an average ROE of 8.1%, P/E 4.0x, and dividend yield 6.4%.

Key Market Trends: System Data and Charts

– Loan growth (yoy) for Singapore banks has moderated but remains positive. – Deposit growth is robust, with the CASA/FD split stable, though CASA is expected to rise as rates fall. – The overall LDR remains healthy at 67.0%. – SORA and 6-month T-bill yields have both declined, reflecting the lower interest rate environment.

Conclusion: Navigating Headwinds with Regional Strength

Singapore banks are facing a period of softer loan growth and macroeconomic uncertainty in 2025. However, strong deposit inflows, stable funding costs, and growing demand for infrastructure financing in ASEAN markets offer resilience. DBS leads the sector with robust capital return strategies, while OCBC and UOB are positioned to benefit from regional economic trends. The sector remains Neutral overall, with opportunities and risks finely balanced for the remainder of the year.