Singapore banks – a haven amid market volatility, with promising earnings and attractive dividends

SINGAPORE: Now that the US elections are over, Singapore’s banks—particularly their stocks— have emerged as a potential refuge for investors seeking stability.

United Overseas Bank (UOB), OCBC, and DBS are seen as having a low risk of earnings downturn, with some analysts even forecasting a rise in earnings and margins.

Positive despite market turbulence

In an RHB report published by the Singapore Business Review, the outlook for these banks remains positive despite the broader market turbulence.

RHB’s Singapore research team, in a report published on November 25, 2024, stated that “earnings downside risk looks low,” with flat earnings expected for the sector in 2025.

This projection already takes into account anticipated US Federal Funds Rate (FFR) cuts, as well as steps taken by local banks to safeguard their net interest income (NII).

Swap prices, which suggest a less aggressive rate cut cycle from the US Federal Reserve, could also boost net interest margins (NIM) and earnings for Singapore’s banks, according to the report.

Modest but steady growth

The potential squeeze on NIMs in 2025 is expected to be mitigated by continued loan growth, strong fee income, and a normalization of credit costs. Moreover, Singapore banks are poised to offer attractive dividend yields, with RHB projecting a 5.6% yield for FY2025.

Among the three major banks, DBS stands out for its dividend safety, given its commitment to a fixed step-up in absolute dividend per share (DPS).

If earnings surpass expectations in 2025, OCBC and UOB could offer more significant potential for higher DPS.

Looking ahead, RHB forecasts a modest but steady growth trajectory for Singapore’s banks, with profit after tax and minority interests (PATMI) expected to increase by 1% to 2% from FY2024 to FY2026.

A solid 7% year-on-year PATMI growth is anticipated for FY2024, further reinforcing the stability and appeal of these banking stocks in uncertain times.