The earnings reports for Singapore’s three major banks—DBS, OCBC, and UOB—are set to reveal the impact of moderating net interest margins (NIMs) and other macroeconomic factors. Based on analysts' expectations:

1. Projected Earnings Trends

DBS: Anticipated 4.4% y-o-y decline in net income to $2.95 billion for 1QFY2025. This reflects challenges in maintaining NIMs amidst rate cuts and a potential slowdown in loan growth.

OCBC: Expected to post a 5.7% y-o-y decrease in net income to $1.98 billion. A similar narrative of narrowing NIMs and weaker growth drivers applies here.

UOB: Forecast to achieve a 1.1% y-o-y growth in net income, marking the slowest pace since 2QFY2024. This modest growth suggests some resilience but highlights the industry-wide pressure on profitability.

2. Impact of Declining NIMs

Declining NIMs are a significant headwind, as they directly affect banks’ core interest income. Rate cuts, coupled with competition for deposits, contribute to this compression. Additionally, loan repricing in a lower interest rate environment could further strain NIMs.

3. Market Pricing of Declining NIMs

Likely Priced In: Financial markets are typically forward-looking, and declining NIMs have been a known factor for some time. As such, it is probable that this information has been partially or fully priced into the stock valuations of these banks.

Risk Factors: Surprises in earnings (either positive or negative) could shift sentiment. For instance:

A sharper-than-expected drop in NIMs or a guidance downgrade could lead to additional downside.

Conversely, resilience in fee income or non-interest income streams could offset NIM pressures and support stock prices.

4. Other Considerations

Loan Growth and Asset Quality: Investors will also focus on loan growth trends and the quality of the loan book amidst economic uncertainties.

Cost Efficiency: Banks that demonstrate strong cost discipline may cushion the impact of lower NIMs on overall profitability.

Non-Interest Income: Performance in wealth management, trading, and other non-interest revenue segments may act as a differentiator.

Conclusion

While declining NIMs are likely already priced in, the degree to which this is the case depends on market sentiment, upcoming guidance from the banks, and broader macroeconomic developments. A more comprehensive assessment will emerge post-earnings when additional insights into these factors are available.