To The Moon

What to Expect from the Q3 Earnings of Singapore's Bank Giants?

As Singapore's three banking giants, $DBS Group Holdings(D05.SI)$  ,$ocbc bank(O39.SI)$  , and $UOB(U11.SI)$  , prepare to disclose their critical third-quarter (Q3) earnings this week(DBS and UOB on Thursday, November 6, and OCBC on Friday, November 7), market attention is laser-focused on income resilience.

Earnings Forecast: Pressure and Contrast

The consensus among analysts points toward flat or sequentially weaker earnings for the sector, primarily due to the tightening of lending margins. Maybank Research analyst Thilan Wickramasinghe's forecast suggests profits will be lower across the board compared to the previous year.

However, the forecasts reveal critical divergences among the banks. DBS is uniquely projected to achieve a positive 0.67% Year-on-Year (YoY) growth in Net Interest Income (NII), buffering its minimal –0.22% expected dip in Total Income. In contrast, UOB and OCBC are projected to see YoY NII contractions, underscoring a broader revenue challenge for them this quarter.

Furthermore, DBS is set to maintain its lead in efficiency, boasting a projected Return on Equity (ROE) of 16.46%, significantly ahead of its peers' ~12.25%, reinforcing its superior capital deployment despite industry headwinds.

Stock Price Performance Year to Date

The Year-to-Date (YTD) stock performance of Singapore's three banking giants shows a stark divergence, reflecting differing levels of investor confidence.

DBS leads decisively with a strong YTD return of 27.60%, significantly outpacing its rivals and beating the Straits Times Index (STI) return of 16.62%. This robust gain is attributed to its leadership in the high-growth wealth management sector, superior capital efficiency (high ROE), and the market's perception of its greater overall income resilience.

In contrast, OCBC recorded a more modest YTD gain of 8.15%, while UOB lagged substantially with only a 2.36% YTD increase.

Financial Highlights: Key Metrics to Watch

The Q3 reports will provide granular details on how the banks are balancing profitability with asset quality in a decelerating growth environment.

Margins and Profitability: The NIM Headwind

Net interest margin compression is the central narrative of this earnings season. The Q2 average NIM fall of 9 basis points (bps) is expected to accelerate in Q3.

~Mechanism of Pressure: The lag between the immediate fall in loan/investment yields (due to lower benchmark rates) and the slower adjustment of deposit costs is aggressively squeezing the interest spread.

~Rate Sensitivity: DBS Group Research estimates that every 100 bps cut in US Federal Reserve rates could trim the aggregate Net Interest Income (NII) for the three banks by S$400 million to S$500 million. This underscores the substantial impact of the recent Fed cuts.

Revenue Resilience and Composition

Non-interest income streams are crucial for providing the necessary buffer against core lending slowdown.

~Wealth Management: As short-term rates decline, investors are reallocating funds toward higher-yield, fee-based products. This shift is expected to bolster revenue from wealth management, providing a capital-efficient income source.

~Trading Income: Maybank Research specifically highlights that DBS and UOB possess a higher potential for upside surprises driven by trading and wealth businesses.

Asset Quality and Capital Adequacy

While profitability is under pressure, asset quality is expected to remain sound, supported by Singapore’s moderate economic expansion (Q3 GDP growth of 2.9% year-on-year).

~Loan vs. Deposit Growth: Analysts from RHB Research warn that if deposit growth continues to outpace loan growth, this imbalance could further weigh on NII momentum, even as overall asset growth continues.

Market Dynamics & Outlook

Interest Rate and Funding Environment

The shift in monetary policy is the primary macro driver influencing Q3 results.

~Global Rate Action: The US Federal Reserve's two rate cuts in September and October (bringing the range to 3.75% to 4%) had a direct impact on USD-linked assets and global funding costs.

~Local Liquidity: The compounded three-month Singapore Overnight Rate Average (SORA) has dropped by approximately 60 bps during the quarter, largely due to excess domestic liquidity, directly fueling NIM compression.

Regional and Segmental Offsets

~Hibor Buffer: The significant rebound of the three-month Hong Kong Interbank Offered Rate (Hibor), which rose by over 180 bps from end-June to end-September, is expected to provide a partial offset and hedge benefit for banks like DBS with material exposure to the Hong Kong market.

~Strategic Hedges: Banks are employing internal hedges and strategically repricing deposit accounts to manage the speed of margin erosion.

Outlook: Navigating a Moderating Growth Environment

The consensus is built on resilience despite headwinds:

~NIM Acceleration: DBS Group Research predicts margin compression will accelerate due to the delayed impact of deposit repricing and the sustained low SORA environment.

~H2 Weakness: RHB Research generally anticipates that the Singapore banking sector will book weaker H2 earnings compared to H1 due to a combination of seasonality and evolving geopolitical and tariff-related policies.

Management Guidance and Differentiation

~DBS Strategy: DBS CEO Tan Su Shan has urged investors to look beyond NIM, emphasizing that deposit volume growth will remain the core support for NII, projecting full-year NII to exceed the 2024 figure.

~OCBC & UOB Guidance: Both OCBC and UOB previously guided for 2025 full-year NIMs in the range of 1.85% to 1.95%. Investors will monitor the Q3 results for any updates to this forward guidance.

~Strategic Focus: The outlook for OCBC is particularly sensitive to providing clarity on its leadership transition, while UOB’s medium-term prospects rely on maintaining cost controls and leveraging its integrated regional network.

The banking sector's substantial dividend yields and strong capital buffers support a high valuation floor, making the banks attractive for income-oriented portfolios even as profit growth moderates.

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