Broker: UOB Kay Hian
Date of Report: 18 July 2025
Singapore Banks 2Q25 Results Preview: NIM Compression, Dividend Yields, and Strategic Shifts
Sector Overview: Singapore Banks Face NIM Compression Amid Trade Winds
Singapore’s banking sector is bracing for the second quarter 2025 (2Q25) results amid synchronized declines in SORA and HIBOR, which are expected to drive net interest margin (NIM) compression for major banks. However, solid fee income growth, resilient asset quality, and attractive dividend yields are bright spots for investors. UOB Kay Hian maintains an “OVERWEIGHT” stance on the sector, highlighting OCBC as a top pick and maintaining a “HOLD” on DBS.
- Key event dates: OCBC reports 1 August 2025; DBS and UOB on 7 August 2025.
- Sector recommendations: OCBC (BUY; Target: S\$19.25), DBS (HOLD; Target: S\$47.00).
- Sector average P/B ratio: 1.51x.
- Sector dividend yield 2025: 6.1%.
DBS Group Holdings: Navigating the Dip with Fee Growth and Cost Discipline
Ticker: DBS SP
Recommendation: HOLD
Target Price: S\$47.00
Share Price (17 Jul 2025): S\$46.68
Market Cap: US\$103,009m
2Q25 Financial Highlights and Forecasts
| Key Metrics |
2Q25F |
2Q24 |
YoY % Chg |
1Q25 |
QoQ % Chg |
| Net Interest Income (S\$m) |
3,689 |
3,594 |
+2.6% |
3,681 |
+0.2% |
| Fees & Commissions (S\$m) |
1,186 |
1,048 |
+13.2% |
1,275 |
-7.0% |
| Other Non-interest Income (S\$m) |
875 |
840 |
+4.2% |
949 |
-7.8% |
| Total Income (S\$m) |
5,750 |
5,482 |
+4.9% |
5,905 |
-2.6% |
| Operating Expenses (S\$m) |
(2,374) |
(2,192) |
+8.3% |
(2,220) |
+6.9% |
| Net Profit (S\$m) |
2,691 |
2,789 |
-3.5% |
2,897 |
-7.1% |
| EPS (S cents) |
95.0 |
98.3 |
-3.3% |
102.8 |
-7.5% |
| DPS (S cents) |
75.0 |
54.0 |
+38.9% |
75.0 |
0.0% |
| BVPS (S\$) |
22.91 |
22.12 |
+3.6% |
23.81 |
-3.8% |
Key Drivers and Observations
- NIM compression: Expected to fall 7bp QoQ to 2.05% due to the synchronized drop in 3M SORA and 3M HIBOR.
- Loan growth: Flat QoQ, but up 2.6% YoY, with overseas growth crimped by strong SGD.
- Fee income: Robust at +13% YoY, with wealth management up 31% YoY (but -6% QoQ). Card fees are recovering, while loans-related fees normalized after a strong 1Q25.
- Costs: Operating expenses up 8% YoY; cost-to-income ratio (CIR) to reach 41.3%, aligning with low-40% guidance.
- Asset quality: NPL ratio stable at 1.0%, with S\$2.6b in management overlays for general provisions. Credit cost expected at 25bp (2024: 14bp), total provisions S\$276m.
- Dividend: Quarterly dividend maintained at 60 S cents; Capital Return Dividend (CRD) at 15 S cents for 2Q25.
Guidance and Outlook
- 2025 net interest income is expected to be slightly above 2024, with three rate cuts anticipated and mid-single-digit loan growth offsetting NIM compression.
- Non-interest income growth guidance revised from high single-digit to mid-to-high single-digit, with fee income driven by low-to-high teens growth in wealth management.
- CIR is expected to remain in the low-40% range; specific provisions guidance unchanged at 17-20bp.
- Net profit for 2025 is expected to be lower than 2024 due to a global minimum tax rate of 15% (estimated negative impact: S\$400m).
Valuation and Dividend Projections
| Year |
FY24 |
FY25F |
FY26F |
| EPS (S ¢) |
394 |
383 |
397 |
| DPS (S ¢) |
222 |
300 |
300 |
| Payout Ratio (%) |
56.3 |
78.3 |
75.6 |
| Dividend Yield (%) |
4.8 |
6.4 |
6.4 |
Key Assumptions for DBS
| Year |
2023 |
2024 |
2025F |
2026F |
2027F |
| Loan Growth (%) |
0.4 |
3.4 |
2.4 |
2.0 |
4.3 |
| NIM (%) |
2.15 |
2.14 |
2.07 |
2.05 |
2.06 |
| Fees, % Chg |
9.5 |
23.2 |
17.0 |
8.2 |
7.4 |
| NPL Ratio (%) |
1.11 |
1.09 |
1.09 |
1.14 |
1.18 |
| Credit Costs (bp) |
13.7 |
14.0 |
27.7 |
19.5 |
17.1 |
| Net Profit (S\$m) |
10,062 |
11,289 |
10,836 |
11,131 |
11,869 |
| % Chg |
22.8 |
12.2 |
-4.0 |
2.7 |
6.6 |
OCBC: Resilience Amid NIM Pressure and Leadership Renewal
Ticker: OCBC SP
Recommendation: BUY
Target Price: S\$19.25
Share Price (17 Jul 2025): S\$17.08
Market Cap: US\$59,723m
2Q25 Financial Highlights and Forecasts
| Key Metrics |
2Q25F |
2Q24 |
YoY % Chg |
1Q25 |
QoQ % Chg |
| Net Interest Income (S\$m) |
2,309 |
2,430 |
-5.0% |
2,345 |
-1.5% |
| Fees & Commissions (S\$m) |
533 |
466 |
+14.4% |
546 |
-2.4% |
| Insurance (S\$m) |
270 |
294 |
-8.2% |
306 |
-11.8% |
| Net Trading Income (S\$m) |
350 |
356 |
-1.7% |
396 |
-11.6% |
| Other Non-Interest Income (S\$m) |
60 |
83 |
-27.7% |
62 |
-3.2% |
| Total Income (S\$m) |
3,523 |
3,629 |
-2.9% |
3,655 |
-3.6% |
| Operating Expenses (S\$m) |
(1,432) |
(1,395) |
+2.6% |
(1,420) |
+0.8% |
| Net Profit (S\$m) |
1,767 |
1,944 |
-9.1% |
1,883 |
-6.2% |
| EPS (S cents) |
39.0 |
43.0 |
-9.2% |
42.0 |
-7.0% |
| DPS (S cents) |
42.0 |
44.0 |
-4.5% |
0.0 |
n.m. |
| BVPS (S\$) |
13.03 |
12.29 |
+6.0% |
13.17 |
-1.1% |
Key Drivers and Observations
- NIM compression: NIM to ease by 24bp YoY and 8bp QoQ to 1.96%, after an 11bp compression last quarter. Net interest income down 5% YoY.
- Loan growth: Healthy YoY at 6.2%, muted QoQ at 0.2%.
- Fee income: Up 14% YoY, with wealth management fees up 20% YoY, and loans/trade-related fees up 8% YoY.
- Insurance: Contribution expected to normalize at S\$270m due to SFRS(I) 17 accounting changes.
- Asset quality: NPL ratio stable at 0.9%. Provisions set at S\$226m, credit cost at 28bp (above management guidance of 20-25bp).
- Dividend: Expected interim dividend of 42 S cents for 1H25.
Strategic and Management Updates
- 2025 targets maintained: Mid-single-digit loan growth, CIR at low 40%, credit cost 20-25bp. NIM to remain stable at 2.00%, assuming three Fed rate cuts in 2025. Exit NIM was 2.03% in Mar 2025.
- Liquidity management: Fixed deposit rates cut; surplus liquidity largely deployed into high-quality liquid assets (HQLA) by 1Q25.
- Leadership renewal: Tan Teck Long appointed Group CEO effective 1 Jan 2026. With 30+ years of banking experience (including at DBS), Mr. Tan drove Global Wholesale Banking CAGR of 20% (income) and 25% (net profit) over three years, capturing Greater China-ASEAN flows and modernizing risk and pricing frameworks.
Valuation and Dividend Projections
| Year |
FY24 |
FY25F |
FY26F |
| EPS (S ¢) |
167 |
156 |
165 |
| DPS (S ¢) |
101 |
100 |
84 |
| Payout Ratio (%) |
60.5 |
64.3 |
51.0 |
| Dividend Yield (%) |
5.9 |
5.9 |
4.9 |
Key Assumptions for OCBC
| Year |
2023 |
2024 |
2025F |
2026F |
2027F |
| Loan Growth (%) |
0.4 |
7.6 |
1.9 |
1.9 |
4.2 |
| NIM (%) |
2.28 |
2.20 |
1.96 |
1.94 |
1.96 |
| Fees, % Chg |
-2.5 |
9.2 |
11.9 |
7.4 |
7.4 |
| NPL Ratio (%) |
0.95 |
0.89 |
1.01 |
1.09 |
1.16 |
| Credit Costs (bp) |
24.8 |
22.4 |
29.7 |
22.0 |
20.1 |
| Net Profit (S\$m) |
7,021 |
7,587 |
7,039 |
7,401 |
7,780 |
| % Chg |
22.2 |
8.1 |
-7.2 |
5.1 |
5.1 |
Peer Comparison: DBS, OCBC, UOB
| Company |
Ticker |
Rec |
Price (S\$) |
Target Price (S\$) |
Market Cap (US\$m) |
PE 2025F (x) |
PE 2026F (x) |
P/B 2025F (x) |
P/B 2026F (x) |
P/PPOP 2025F (x) |
P/PPOP 2026F (x) |
Yield 2025F (%) |
Yield 2026F (%) |
ROE 2025F (%) |
ROE 2026F (%) |
| DBS |
DBS SP |
HOLD |
46.68 |
47.00 |
103,009 |
12.2 |
11.8 |
2.02 |
1.95 |
9.7 |
9.7 |
6.4 |
6.4 |
15.9 |
16.2 |
| OCBC |
OCBC SP |
BUY |
17.08 |
19.25 |
59,723 |
11.0 |
10.4 |
1.28 |
1.22 |
9.1 |
9.0 |
5.9 |
4.9 |
11.7 |
11.8 |
| UOB# |
UOB SP |
NR |
36.78 |
n.a. |
47,516 |
10.3 |
9.8 |
1.22 |
1.16 |
7.5 |
7.2 |
5.9 |
5.5 |
12.1 |
11.4 |
| Average |
|
|
|
|
|
11.2 |
10.6 |
1.51 |
1.44 |
8.8 |
8.6 |
6.1 |
5.6 |
13.2 |
13.2 |
#UOB based on consensus estimate.
Sector Catalysts and Risks
- Positive catalysts: More US trade deals, especially with major partners, and Singapore’s manufacturing sector benefiting from lower reciprocal tariffs.
- Risks: Regional/global trade slowdown impacting loan growth, and geopolitical tensions (Russia-Ukraine, China-Taiwan).
Conclusion: Dividend Yield and Value Still Attractive, OCBC Leads the Pack
Despite NIM compression, Singapore banks remain attractive for investors seeking dividend yield and relative value. OCBC stands out for its ASEAN focus, solid fundamentals, and leadership transition, while DBS offers a robust yield and cost discipline. The sector remains a key watch for the impact of global trade developments and monetary policy shifts in the months ahead.
