To The Moon

As an investor keeping a close eye on Singapore's banking sector, I'm reflecting on the recent UOB earnings report and its implications for DBS and OCBC, especially with their earnings announcements scheduled for tomorrow and Friday, May 8 and 9, 2025. UOB's decision to drop its 2025 guidance due to U.S. tariffs, alongside a stable Q1 net profit that missed estimates, raises some critical questions about the broader trends for Singapore's major banks. With potential rate cuts impacting net interest margins (NIMs) and market uncertainties looming, I'm diving into what this might mean for DBS and OCBC, and whether these challenges are already priced into their stocks.

Singapore 3 major banks

My Take on UOB's Earnings and Guidance Drop

UOB's Q1 results showed a net profit of S$1.49 billion, which was flat year-on-year and slightly below the expected S$1.5 billion. The bank's decision to suspend its 2025 guidance due to U.S. tariffs signals caution, and I can see why—U.S. trade policies under the Trump administration have introduced significant uncertainty, potentially affecting loan demand and economic growth in the region. UOB also increased its credit costs to 35 basis points, a pre-emptive move to cover potential loan losses amid macroeconomic uncertainties. This makes me question whether UOB's exposure to ASEAN markets, which contribute 82% of its group profit before tax, might make it more vulnerable to trade disruptions compared to its peers. The 1.6% drop in UOB's share price today further reflects market concerns, and I'm wondering if this is a sign of broader challenges ahead for Singapore banks.

$UOB(U11.SI)$  

UOB

What I Expect from DBS: Can It Stand Out?

DBS, reporting tomorrow, May 8, 2025, has historically been a strong performer, often leading in profitability metrics like return on equity (ROE), which was 18% in 2024 compared to UOB and OCBC's 13.7%. However, analysts are projecting a 4.4% year-on-year decline in Q1 2025 net income to S$2.95 billion, driven by softer NIMs as the three-month SORA has fallen from 3.02% to 2.55% by March 2025. I'm concerned that rate cuts, combined with U.S. tariff impacts, could further compress NIMs, potentially dropping to 2.09% from 2.15% in Q4 2024. On the positive side, DBS is expected to see a 7.7% rise in fee income, particularly from wealth management, which could offset some pressure on interest income. Given DBS's strong capital position (CET1 ratio at 15.1%) and its active capital management—like a S$3 billion share buyback program—I'm cautiously optimistic that DBS might weather these challenges better than UOB. However, with its share price at S$42.70 as of last Friday, trading at a price-to-book ratio of 2.0x, I'm questioning whether the market has already priced in these headwinds, or if there's room for a correction if earnings disappoint.

$DBS Group Holdings(D05.SI)$  

DBS

OCBC's Outlook: Will It Follow UOB's Trend?

OCBC, set to report on May 9, 2025, might face similar pressures as UOB, with analysts forecasting a 5.7% year-on-year drop in Q1 net income to S$1.98 billion, also due to NIM compression, potentially falling to 2.56% from 2.15% in Q4 2024. Like UOB, OCBC has exposure to regional trade, and the U.S. tariffs could dampen loan growth and increase credit risks, especially for exporters in key markets like China and Malaysia. However, OCBC has been efficient, with the lowest cost-to-income ratio among the trio at 38.5% in Q3 2024, and it's expected to see an 11.3% rise in fee income, which gives me some confidence in its resilience. Its share price, at S$16.17 last Friday, trades at a more reasonable 1.4x price-to-book ratio compared to DBS, suggesting that the market might not be overvaluing it as much. Still, I'm worried that if OCBC also misses earnings expectations or lowers guidance, its stock could face downward pressure similar to UOB's 2% drop today. I'll be watching closely to see if OCBC can leverage its strong non-interest income to defy the trend.

$ocbc bank(O39.SI)$  

OCBC

Are Declining NIMs Already Priced In?

The broader concern for all three banks is the impact of declining NIMs due to rate cuts and a falling SORA rate. Analysts have noted that the effects of 2024's rate cuts are still filtering through, and with the U.S. Federal Reserve holding rates at 4.25%–4.5%, further cuts in 2025 could exacerbate this pressure. However, I'm not convinced that the market has fully priced in these risks. DBS, OCBC, and UOB have all underperformed the Straits Times Index year-to-date, each down over 3%, and the recent sell-off—where the trio collectively lost S$48.8 billion in market value since April 2—suggests investors are already nervous. Yet, with DBS trading at a premium (2.0x P/B) compared to UOB and OCBC (both at 1.4x), I think DBS might have more downside risk if NIMs disappoint. UOB and OCBC, with lower valuations and stronger fee income growth, might be better positioned, but I'm not ready to buy until I see their earnings reports.

Final Thoughts: Can DBS Break the Mold?

UOB's earnings signal a cautious outlook for Singapore banks, and I’m bracing for similar challenges from DBS and OCBC. However, DBS's track record of resilience, higher ROE, and proactive capital management make me think it could stand out this time, even if it doesn't escape NIM pressure entirely. I'm particularly interested in whether DBS can maintain its net interest income through loan growth, as it has in the past, and whether its wealth management fees can provide a buffer. For OCBC, I'll be looking for signs of efficiency and non-interest income growth to offset tariff-related risks. Ultimately, I'm holding off on any investment decisions until I see the full picture from DBS and OCBC's earnings, as the guidance they provide on tariffs and NIMs will be crucial in determining whether these banks can defy the downward trend or if further declines are on the horizon.

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