Singapore Banks Brace for Unprecedented Trade War Impact

UOB Kay Hian Research | 7 April 2025
The Trump Administration’s sweeping reciprocal tariffs have set off a chain reaction that could push the global economy into a self-inflicted slowdown. Singapore’s banking giants DBS and OCBC are caught in the crosshairs, facing heightened credit risks and anaemic loan growth across the region.

Reciprocal Tariffs Trigger Retaliation and Recession Fears

The US has imposed a baseline 10% reciprocal tariff on imports from all countries, with higher rates of 34% on China, 20% on the EU, and 24% on Japan. This has prompted swift retaliation from trading partners, bringing the world perilously close to an all-out trade war.
According to UOB’s Global Economics & Markets Research, the US economy is now expected to grow just 1.0% in 2025, down from the previous 1.8% forecast. The probability of a US recession has risen to 40%, compared to 20-25% previously.
Singapore’s economic growth is also at risk, with the current 2.5% forecast potentially cut by 0.5-1.5 percentage points. ASEAN economies like Malaysia, Thailand, and Indonesia will be similarly impacted by the disruption to regional trade flows.

DBS Group Holdings (Sell, Target: S\$40.00)

DBS’ ability to maintain its generous dividend payout is under threat, as we expect the bank to hold its 2025 dividend per share (DPS) at 60 cents (previous forecast: 66 cents).
We have cut our 2026 net profit forecast for DBS by 13% to S$9,317 million, due to:
Higher credit costs of 47 basis points (bp) in 2026 (previous: 19bp) as NPLs rise in the manufacturing sector.
Lower loan growth of 2.0% in 2026 (previous: 4.9%) in line with the regional economic slowdown.
Key Assumptions for DBS:
Year 2023 2024F 2025F 2026F 2027F
Loan Growth (%) 0.4 3.4 2.3 2.0 4.3
NIM (%) 2.15 2.14 2.03 1.95 1.92
Fees, % Chg 9.5 23.2 2.0 8.3 8.3
NPL Ratio (%) 1.11 1.09 1.23 1.32 1.35
Credit Costs (bp) 13.7 14.0 35.2 47.1 19.1
Net Profit (S$m) 10,062 11,289 9,907 9,317 10,896

Oversea-Chinese Banking Corp (Hold, Target: S\$16.85)

OCBC’s 2025 dividend per share is expected to remain stable at 100 cents (regular: 84 cents, special: 16 cents), but could be revised lower if economic conditions deteriorate further.
We have cut our 2026 net profit forecast for OCBC by 13% to S$6,766 million, due to:
Higher credit costs of 47bp in 2026 (previous: 22bp) as NPLs rise in the manufacturing sector.
Lower loan growth of 2.0% in 2026 (previous: 4.8%) in line with the regional economic slowdown.
Key Assumptions for OCBC:
Year 2023 2024F 2025F 2026F 2027F
Loan Growth (%) 0.4 7.6 2.2 1.8 4.2
NIM (%) 2.28 2.20 2.05 2.00 1.98
Fees, % Chg (2.5) 9.2 10.6 7.4 7.4
NPL Ratio (%) 0.95 0.89 1.06 1.21 1.22
Credit Costs (bp) 24.8 22.4 36.0 47.1 24.5
Net Profit (S$m) 7,021 7,587 6,963 6,766 7,633

Sector Catalysts and Risks

Catalysts:
Slowdown in global and regional trade, leading to weaker loan growth for Singapore banks.
Contraction in domestic consumption due to job losses in the manufacturing sector, potentially deteriorating asset quality.
Risks:
Escalation of trade conflicts between the US, EU, and China.
Geopolitical tensions between the major economic powers.