Highlights of Singapore Bank Giants Before Upcoming Q3 Earnings
$DBS Group Holdings(D05.SI)$
Investors are closely monitoring the forecasted metrics for these three local banking giants.
NIM Expected to Decline:
As the Federal Reserve begins its rate-cutting cycle, Singapore’s Overnight Average Rate (SORA) and other benchmark lending rates are anticipated to slightly retreat in Q3 2024. IG market strategists predict a minor adjustment in the net interest margin (NIM) for the major banks: UOB's NIM may decline from 2.05% in the previous quarter to 2.04%, OCBC's NIM could decrease from 2.20% to 2.18%, and DBS's NIM is expected to fall from 2.14% to 2.12%.
However, $Citigroup(C)$
Fee and Commission Income Projected to Rebound:
Since Q3 2023, banks have shown signs of recovery in net fee and commission income, with expectations for continued growth in the upcoming reporting quarter. Citigroup forecasts that net fee and commission income for all three banks will increase compared to the same period last year and Q2 of this year, with DBS expected to achieve a double-digit year-on-year increase. UOB analysts predict that DBS's wealth management fees will rise by 35% year-on-year, reaching RM535 million. OCBC's fee income is expected to grow by 8% to RM497 million, with a 17% increase in wealth management services.
Limited Increase in Loan Loss Provisions Expected:
IG anticipates only a limited increase in loan loss provisions, with DBS and OCBC expected to see a year-on-year decline in these provisions. So far, banks have been cautious with loan loss provisions, and the non-performing loan (NPL) ratio remains healthy. The ability of these banks to absorb potential financial shocks is solidly backed by their robust Common Equity Tier 1 (CET1) capital ratios, which range between 14% and 15%, well above the regulatory minimum set by the Monetary Authority of Singapore (MAS).
Institutional Investors Net Buying Reflects Positive Sentiment for Bank Stocks:
SGX data shows that institutional investors have net bought nearly SGD 1.5 billion in local financial stocks since March this year. IG market strategist Ye Junrong notes that institutional confidence in Singapore bank stocks has generally improved, driven by stronger-than-expected net interest income, resilient credit quality, recovering non-interest income, and attractive dividends. Currently, DBS offers a dividend yield of approximately 5.1%, OCBC at 5.6%, and UOB at 5.3%.
JP Morgan placed DBS on its Positive Catalyst Watch, stating that DBS has delivered one of the best bank turnarounds in the last decade, driven by technology-led changes that have enhanced growth, efficiency, and ROE.
Furthermore, $JPMorgan Chase(JPM)$
In terms of UOB, JP Morgan's research indicates that UOB has exhibited the least volatility in ROE among Singapore banks over the past 20 years. The agency expects this trend to persist in the medium term and holds a Neutral rating on UOB.
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