We remain constructive on SG banks following 3Q earnings, but DBS remains our favourite pick

• DBS and OCBC reported largely flat earnings in 3Q25, but results beat market expectations, supported by stronger non-interest income. UOB, however, saw net profit decline 72.5% due to a fourfold increase in provisions.

• Net interest margin compression is expected to continue into 4Q25 and 2026, though at a more moderate pace given limited room for SORA to fall as it has run ahead of SOFR. Banks are also proactively hedging their balance sheets and lowering funding costs.

• Non-interest income is expected to remain the key growth driver, supported by strong demand for wealth management and the MAS EQDP program, which continues to attract interest in Singapore-focused assets.

• DBS and OCBC maintain solid credit quality. UOB reported higher credit costs, with 55 basis points coming from specific provisions linked to overseas commercial real estate loans. While capital risks are limited, these elevated costs continue to weigh on near-term profitability.

• All three lenders are projected to have similar upside of around 7% by FY2027. While we remain constructive on all of them, DBS (SGX: D05) remains the top pick, given its strongest fundamentals and highest forward dividend yield of 6.0%.

It was another subdued quarter for Singapore’s three largest banks, as net interest margin compression, elevated credit provisions and the implementation of the new 15% global minimum tax continued to weigh on earnings.

OCBC managed to deliver a marginal 0.2% year-on-year (YoY) earnings increase, while DBS reported a modest 2.4% YoY decline. UOB bore the brunt of the downturn, with net profit plunging 72.5% YoY in the third quarter, following a sharp 388% surge in provisions that significantly eroded profitability. For the first nine months of the year, all three lenders reported earnings declines compared to the same period a year earlier (Figure 1).

Figure 1: All three banks reported lower net income in 9M25

Despite largely flat headline performances for DBS and OCBC, both banks delivered results that exceeded market expectations, triggering post-results share price rallies. OCBC was the standout, reversing its year-to-date decline and climbing to a record high of SGD 19.2 on 12 December 2025. In contrast, UOB’s share price continued to trend lower, reflecting lingering investor concerns over asset quality and earnings visibility (Figure 2).

Figure 2: OCBC saw a sharp share price rally following its 3Q results release

Net interest margin compression continues while non-interest income fuels growth

Both SORA and HIBOR continued to ease in the third quarter, with expectations for further easing into the fourth quarter of 2025 and beyond. The faster downward repricing of loans relative to funding costs intensified the squeeze on net interest margins (NIMs) across all three banks.

OCBC saw the sharpest impact over the first nine months of the year, with NIM compressing by 29 basis points YoY and net interest income (NII) declining 6.1% (Figure 3). UOB fared relatively better, posting a 13-basis-point narrowing in NIM and a 3.0% fall in NII, partly cushioned by asset growth. DBS remained the most resilient, recording only a 9-basis-point contraction in NIM and delivering a 1.9% increase in NII, supported by effective balance sheet hedging, strong deposit inflows and an expanding low-cost deposit pool.

Figure 3: OCBC recorded the steepest declines in both NIM and NII over 9M25

Non-interest income remained a key pillar of growth for DBS and OCBC, which recorded YoY growth of 9.3% and 10.3% respectively over the first nine months of the year, largely driven by a surge in wealth management income of more than 30% (Figure 4). The two lenders also benefited from broad-based growth across other fee-based segments, including loan-related fees, transaction services, investment banking and trading activities.

OCBC’s slightly stronger performance was underpinned by a rebound in its insurance business, where income rose 33.5% year on year in the third quarter on better investment results and higher new business embedded value.

UOB, despite reporting a 19.3% increase in wealth management income, saw its overall non-interest income growth weighed down by elevated card reward expenses, which reduced the impact of fee income growth.

Figure 4: Non-interest income remains the key driver of growth

Banks’ earnings are likely to remain modest for 4Q and 2026

Ample domestic liquidity from safe-haven inflows, coupled with a still-tight Singapore dollar nominal effective exchange rate is likely to keep downward pressure on SORA. Externally, softening labour market conditions and relatively stable inflation in the US, despite tariff-related pressures, also point to further downside risks for US interest rates.

That said, as SORA has already run ahead of SOFR following a substantial year-to-date compression of about 184 basis points and now sits near 1.2%, its scope for further decline appears limited. Even if the Federal Reserve accelerates the pace of easing, SORA is likely to decline less than SOFR (Figure 5).

Figure 5: SORA has surged ahead of SOFR, leading to a wider YTD spread

With less room for SORA to fall in 2026 and a faster pass-through of lower deposit costs since September 2025, the pace of NIM compression for the Singapore banks is likely to moderate.

DBS still appears best positioned among the three lenders. Fixed-rate assets account for roughly a third of its commercial book, reducing the sensitivity of NII to rate cuts, while the redeployment of surplus Current Account and Savings Account (CASA) deposits into high-quality liquid assets has helped support NII. The bank has also been the most proactive in passing through lower funding costs to customers, with its six-month fixed deposit rate now at a low 0.8%. OCBC and UOB are likely to experience relatively higher NIM pressure, given their larger proportions of floating-rate loan books. Overall, NII across the sector is expected to be moderately lower.

Non-interest income is set to remain the key earnings driver, led by wealth management. Singapore’s safe-haven status, together with the Monetary Authority of Singapore’s enhanced frameworks for family offices and private wealth structures, continues to attract capital inflows. In a declining rate environment, lower deposit yields are also prompting clients to reallocate funds from deposits towards investment products.

The continued implementation of the Enhanced Domestic Qualifying Programme (EDQP) and MAS-led “value unlock” initiatives could further stimulate demand for Singapore-focused portfolios, attracting fresh inflows. The resulting expansion in assets under management is also likely to provide a structural tailwind to sector valuations.

Credit stays resilient, but UOB bears the highest risk burden

All three banks’ non-performing loan (NPL) ratios remained stable in the third quarter (Figure 6). DBS reported lower non-performing asset (NPA) levels on both a YoY and quarter-on-quarter (QoQ) basis, while OCBC recorded higher YoY NPA, though conditions improved compared with the previous quarter. Broadly, new problem loan formation was largely offset by repayments and write-offs, keeping specific credit costs for both banks broadly stable over the past year (Figure 7).

Figure 6: The three banks kept NPL ratios broadly in line with a year ago

DBS and OCBC have also maintained strong balance sheet buffers, with NPA coverage ratios of 139% and 160% respectively. Given their established track records in loan write-offs and recoveries, current allowance levels appear adequate to absorb potential asset quality deterioration should macroeconomic conditions worsen.

While UOB also reported a stable headline NPL ratio, it booked a markedly higher credit cost of 134 basis point for the quarter, up from 36 basis point a year earlier. Management attributed a significant portion of this increase to pre-emptive general allowances, described as “buying insurance”. However, more concerning was the rise in specific credit costs to 55 basis points (Figure 6), reflecting newly identified problem loans linked to commercial real estate (CRE) exposures. NPL ratios for the bank’s Greater China and US portfolios rose by 110 basis points and 160 basis points respectively on a YoY basis.

UOB’s capital risks appear limited, given that US and Greater China CRE exposures account for only 1.5% of the total loan book, the bank’s higher total allowances and a loan-to-value ratio of 50% provide a buffer against further property value declines. However, its specific credit costs are expected to remain structurally higher than those of its peers. Its NPA coverage ratio, though improved to 100%, remains weaker than peers, highlighting a greater risk of additional provisioning should property market condition deteriorate. As a result, near-term earnings pressure for UOB is likely to persist.

Figure 7: UOB experienced a more pronounced rise in specific credit costs

Shareholder returns remain strong, with DBS projected to offer the highest dividend yield

While earnings have softened modestly in a declining rate environment, the banks’ solid balance sheets, underpinned by resilient non-interest income growth, have allowed them to remain well capitalised. Their strong Common Equity Tier 1 (CET1) capital ratios (Figure 8) continue to underpin shareholder returns.

Figure 8: the three banks maintain robust CET1 capital levels

DBS continues to stand out for its clear dividend policy and shareholder-friendly capital management. In the third quarter and through 2025, the bank paid dividends of 75 cents per share per quarter, implying a payout ratio of roughly 75 per cent. It has guided for an annual dividend step-up of 24 cents per share and maintained its special capital return of 60 cents per share through to 2027. This implies total quarterly dividends rising to 81 cents per share in 2026 and 87 cents per share in 2027.

Both OCBC and UOB operate with a target payout ratio of 50%. OCBC has added a special dividend of 10% of net profit for the year, lifting its effective payout to around 60%. UOB is on track to distribute special dividends totalling 50 cents per share for 2025, pushing its effective payout to about 74%. The bank has also chosen to exclude newly created general allowances from its distributable earnings, citing their one-off nature, to support dividend stability.

Overall, UOB’s elevated payout, combined with its recent share price correction, has lifted its headline dividend yield to about 6.2%, the highest among its peers for 2025. However, DBS’s fixed and transparent dividend framework remains the most supportive for shareholders, with average forward dividend yields projected at around 6.0% for the next two years (Figure 9). By contrast, dividends at OCBC and UOB remain more closely tied to earnings, which could prove more volatile, particularly for UOB, given its thinner CET1 buffer and greater earnings pressure from net interest margin compression and elevated credit costs.

Figure 9: DBS projected to lead peers with a 6.0% average dividend yield through 2027

DBS stands out as top pick despite similar upside across peers

Overall, Singapore’s three major banks continue to be supported by resilient financial fundamentals. Earnings remain underpinned by strong non-interest income and increased demand for Singapore assets, which helps to offset ongoing NIM compression and elevated provisions. While UOB faces relatively higher credit pressure than its peers, capital risks remain contained. Looking ahead, we expect UOB’s earnings to rebound in 2026 as provisioning normalises while DBS and OCBC are likely to deliver moderate growth.

In our previous update, we recommended OCBC (SGX: O39) for its capital return potential. Following the recent share price rally, OCBC’s upside has narrowed to 6.4%, based on a fair P/B of 1.45X and a target price of SGD 20. DBS is now projected to offer a higher upside of 7.4%, underpinned by a fair P/B of 2.1X and a target price of SGD 58. UOB (SGX: U11), following its recent share price pullback, also offers a projected upside of 7.2%, with a target price of SGD 37 based on a fair P/B of 1.2X.

While we remain constructive on the financials sector, DBS (SGX: D05) remains our top pick, supported by strong earnings momentum and resilient asset quality. Its superior forward dividend yield of around 6.0% over the next two years further strengthens its appeal as the preferred choice for dividend-focused investors.

Table 1: Valuation table for DBS

DBS (SGX: D05)
	FY24	FY25E	FY26E	FY27E
EPS	4.0	4.0	4.1	4.2
EPS Growth	11.9%	0.3%	2.8%	2.0%
P/E Ratio (X)	13.6	13.6	13.2	12.9
Book Value/Share	24.2	25.4	26.4	27.2
P/B Ratio (X)	1.8	2.1	2.0	2.0
Dividend Yield	4.1%	5.6%	6.0%	6.4%
Target Price (SGD)				58
Upside Potential				7.4%
Source: iFAST Estimates. Data as of 8 Dec 2025.

Table 2: Valuation table for OCBC

OCBC (SGX: O39)
	FY24	FY25E	FY26E	FY27E
EPS	1.7	1.6	1.6	1.7
EPS Growth	7.7%	-3.1%	1.7%	1.4%
P/E Ratio (X)	11.3	11.6	11.4	11.3
Book Value/Share	13.0	13.3	13.7	14.0
P/B Ratio (X)	1.3	1.4	1.4	1.3
Dividend Yield	4.5%	5.2%	4.8%	4.9%
Target Price (SGD)				20
Upside Potential				6.4%
Source: iFAST Estimates. Data as of 8 Dec 2025.

Table 3: Valuation table for UOB

UOB (SGX: U11)
	FY24	FY25E	FY26E	FY27E
EPS	3.6	2.9	3.3	3.3
EPS Growth	5.8%	-19.0%	13.1%	0.5%
P/E Ratio (X)	9.6	11.8	10.5	10.4
Book Value/Share	29.7	29.9	30.9	32.0
P/B Ratio (X)	1.2	1.2	1.1	1.1
Dividend Yield	5.2%	6.2%	4.8%	4.8%
Target Price (SGD)				37
Upside Potential				7.2%
Source: iFAST Estimates. Data as of 8 Dec 2025.

Figure 10: DBS’s share price and earnings per share

Figure 11: OCBC’s share price and earnings per share

Figure 12: UOB’s share price and earnings per share

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a NIL position in the abovementioned securities. The analyst who produced this report hold a position in OCBC (SGX: O39).