To The Moon

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.