Singapore banks set for flat to weaker Q3 earnings as rate cuts squeeze margins
Singapore’s three local banks are expected to post flat or weaker third-quarter earnings, as declining benchmark rates further compress net interest margins (NIMs).
Analysts said attention this week will be on whether stronger wealth management and trading income can offset slower lending growth, amid lingering uncertainty from US President Donald Trump’s tariffs.
Maybank Research analyst Thilan Wickramasinghe expects earnings to remain “flat to negative” quarter on quarter, as sharper margin contraction outweighs gains in non-interest income. He forecasts Q3 net profits of S$2.77 billion to S$2.8 billion for DBS (D05 -1.06%), S$1.66 billion to S$1.73 billion for OCBC (O39 -0.29%), and S$1.48 billion to S$1.51 billion for UOB (U11 -0.03%).
That compares with a year-ago net profit of S$3.03 billion for DBS, S$1.97 billion for OCBC, and S$1.61 billion for UOB.
While investors’ shift into higher-yield investments may lift non-interest income, Wickramasinghe noted that management remains focused on preserving net interest income (NII) momentum. In Q2, average NIMs fell by nine basis points, but NII slipped just 3 per cent.
DBS and UOB will announce Q3 results on Thursday (Nov 6), followed by OCBC on Friday.
Rate cuts weigh on profitability
The US Federal Reserve has reduced its benchmark rate twice in recent months — by 25 basis points each in September and October — bringing the range down to 3.75 to 4 per cent, its first cuts since December 2024.
According to DBS Group Research analyst Lim Rui Wen, every 100 bps cut in Fed rates could shave S$400 million to S$500 million off the three banks’ combined NII.
At home, Singapore’s economy expanded 2.9 per cent year on year in Q3, easing from 4.5 per cent in Q2 but still above expectations, according to the Ministry of Trade and Industry.
Margin pressure intensifies
Domestic liquidity has kept short-term rates low, with the Singapore Overnight Rate Average (Sora) down 60 bps year to date. One-year Treasury-bill yields have also dropped to 1.35 per cent in October from 2.95 per cent in January, pointing to further margin compression.
In September, the three-month Sora fell to 1.51 per cent, the lowest since August 2022 — down 21 bps month on month and 202 bps year on year.
Lower yields are eroding returns on loans and short-term investments faster than deposit costs can adjust, even as the banks cut interest rates on flagship deposit accounts.
DBS’ Lim noted that NIM pressure persists as Singapore dollar rates remain “held down by excess liquidity”. Margins are expected to narrow further as returns on loans and investments decline faster than funding costs.
RHB Research echoed this view, warning that continued deposit growth outpacing loan expansion could further weigh on NII. However, DBS’ hedging positions, deposit repricing, and a rebound in the Hong Kong Interbank Offered Rate (Hibor) — which rose to 3.525 per cent at end-September, up more than 180 bps from June — should offer some relief.
Despite these headwinds, RHB said DBS could still record positive NII growth over the first nine months of the year, supported by deposit inflows.
Overall, RHB expects Singapore banks to report weaker H2 earnings versus H1, citing seasonality and the drag from US tariff policies.
Outlook and guidance
In Q2, OCBC and UOB guided for full-year 2025 NIMs of 1.9–1.95 per cent and 1.85–1.9 per cent, respectively.
DBS chief executive Tan Su Shan urged investors not to “focus on NIMs”, saying that deposit growth would continue to underpin NII, which is expected to exceed 2024 levels in 2025.
As at Oct 31, shares of DBS were up 6.7 per cent over the past three months, OCBC gained 1.7 per cent, while UOB slipped 1.5 per cent, inclusive of dividends.
Earning release date:
DBS – 6 Nov
UOB – 6 Nov
OCBC – 7 Nov
Thank you
