Singapore Banks: DBS remains our top pick following the trio's Q4 earnings

• 4Q25 results were softer, but full-year 2025 performance remained resilient, as margin compression weighed on quarterly earnings while operational strength across the sector continued to underpin full-year outcomes.
• DBS leads the sector in terms of earnings quality, supported by its strong deposit franchise, disciplined risk management and clear dividend visibility.
• Net interest margins have likely peaked, and while further compression is expected in 2026, the pace of decline should be slower than that experienced in 2025.
• Non-interest income is becoming increasingly critical to earnings stability, with wealth management and fee income helping to offset rate-driven pressures on net interest income.
• The sector outlook remains constructive, as stabilising interest rates, contained credit costs and sustained capital returns could support a rebound in valuations.

The 4Q25 reporting season for Singapore’s banks came against a backdrop of falling interest rates, ample domestic liquidity and the implementation of the 15% Global Minimum Tax. While headline numbers reflected softer net interest margins, the broader picture points to resilience rather than deterioration.

Across the sector, profitability moderated quarter-on-quarter due to margin compression. However, full-year earnings demonstrated the strength of diversified business models, stable asset quality and disciplined capital management.

Related article: DBS: A softer quarter, a resilient year, and a solid long-term story

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

DBS stood out in terms of earnings quality and balance sheet strength

Among the three banks, DBS Group Holdings stood out in terms of earnings quality and balance sheet strength, despite a softer fourth quarter on the surface.

DBS reported 4Q25 net profit of SGD 2.36 billion, down 10% year-on-year (YoY), largely due to lower net interest income and higher specific allowances. Full-year group net interest margin (NIM) declined from 2.13% in FY24 to 2.01% in FY25.

Specific allowances rose to SGD 415 million in 4Q, primarily due to the prudent downgrade of a single Hong Kong real estate exposure. Importantly, this was partially offset by a SGD 206 million general allowance writeback, and the full-year non-performing loan ratio remained stable at 1.0% — reflecting disciplined risk management rather than systemic asset quality deterioration.

Funding strength was a key differentiator. DBS recorded its largest absolute deposit growth on record, adding SGD 64 billion in 2025, with more than two-thirds coming from CASA deposits. This stable, low-cost funding base provides flexibility to cushion margin pressures, including redeployment into high-quality liquid assets.

Non-interest income continued to play a stabilising role. Wealth management, fee income and trading activities supported earnings diversification — an increasingly important buffer in a lower-rate environment.

Shareholder returns were also compelling. Total FY25 dividends rose 38% YoY to SGD 3.06 per share, including capital return dividends. Management has guided that the 15-cent quarterly capital return dividend will be maintained through 2026 and 2027, offering rare visibility on income.

UOB reported FY25 net profit of SGD 4.7 billion, down 23% YoY, largely due to nearly S$1 billion of allowances set aside in 3Q25. 4Q25 net profit declined 7% YoY, with NIM at 1.84% and full-year NIM at 1.89%.

However, the weaker performance was primarily provision-driven rather than reflective of operational weakness. NPL improved slightly from 1.6% in 3Q25 to 1.5% in 4Q25. Assuming credit costs normalise, earnings could rebound in 2026. The underlying franchise remains intact, and the bank retains leverage to any recovery in regional growth.

OCBC delivered a relatively stronger fourth quarter. 4Q25 net profit rose 3% YoY to SGD 1.75 billion, supported by a 37% YoY surge in non-interest income.

Although net interest income declined 6% YoY and NIM narrowed to 1.86%, asset quality remained stable, with NPL ratio unchanged at 0.9% and total allowances declining 4% year-on-year.

OCBC’s results reinforce the growing importance of non-interest income in offsetting margin compression. Wealth management and fee businesses are increasingly central to sustaining earnings growth.

Figure 1: DBS recorded growth in NII despite NIM compression due to strong deposit momentum

Figure 2: NPL ratios are largely stable across the three banks

Figure 3: CET1 capital ratios of DBS and OCBC remained largely stable, while UOB’s declined

Net interest margin compression is expected to continue into 2026, though at a more moderate pace

NIMs have likely peaked.

Ample domestic liquidity from safe-haven inflows and a still-tight Singapore dollar nominal effective exchange rate continue to exert downward pressure on SORA. Externally, softer US labour market conditions and moderating inflation suggest further downside risk to US rates.

That said, 3-month SORA has already compressed substantially and currently sits near 1.12% as of today. With much of the anticipated US rate easing already priced in, the scope for further sharp declines appears limited. Even if the Federal Reserve accelerates easing, SORA is likely to decline less than SOFR.

As a result, while NIM compression may continue into 2026, the pace should moderate relative to 2025. Deposit repricing has largely caught up, and incremental downside risk to margins appears more limited.

Among the three, DBS appears best positioned given that roughly one-third of its commercial book is fixed-rate, reducing sensitivity to further rate cuts. Its proactive funding cost management also provides an additional buffer.

Figure 4: Spread between SORA and SOFR

We expect moderate earnings growth

For 2026, earnings growth across the sector is likely to be moderate rather than robust. Non-interest income (particularly wealth management fees) should remain a key growth driver, supported by Singapore’s safe-haven status and continued capital inflows. In a lower-rate environment, client reallocation from deposits into investment products should further support fee income.

We expect:

• UOB earnings to rebound as provisioning normalises.
• DBS and OCBC to deliver steady, moderate growth underpinned by diversified income streams.

DBS remains our top pick

The 4Q25 results confirm that while Singapore banks face cyclical margin pressures, structural strengths remain firmly intact. Earnings resilience, stable asset quality and strong capital positions provide confidence that the sector can navigate a lower-rate environment.

The recent share price pullback reflects concerns over NIM compression and global uncertainty. However, as clarity emerges that the steepest phase of margin compression is behind us and if credit costs remain contained, valuations could stabilise and potentially re-rate.

In our view, Singapore banks remain fundamentally sound, well-capitalised and positioned to deliver sustainable returns. Based on our earnings projections for 2026 and 2027, we derive a target price of SGD 58 for DBS, implying a 1.4% upside from yesterday’s closing price, along with an average dividend yield of 5.9%. Relative to the other two banks, DBS stands out for its relatively higher return potential underpinned by its earnings quality, funding strength and dividend visibility, making it our preferred exposure as we head into 2026.

Table 1: Earnings table for DBS

DBS (SGX: D05)
	FY24	FY25	FY26E	FY27E
EPS	4.0	3.9	4.1	4.2
EPS Growth	11.9%	-2.3%	5.5%	2.0%
P/E Ratio (X)	13.6	13.9	14.0	13.7
Book Value/Share	24.2	24.3	26.4	27.2
P/B Ratio (X)	1.8	2.4	2.2	2.1
Dividend Yield	4.1%	5.3%	5.7%	6.1%
Target Price (SGD)				58
Upside Potential				1.4%
Source: iFAST Estimates. Data as of 26 Feb 2026.

Table 2: Earnings table for OCBC

OCBC (SGX:O39)
	FY24	FY25	FY26E	FY27E
EPS	1.7	1.6	1.6	1.7
EPS Growth	7.7%	-2.4%	0.9%	1.4%
P/E Ratio (X)	11.3	13.1	13.0	12.8
Book Value/Share	13.0	14.2	13.7	14.0
P/B Ratio (X)	1.3	1.3	1.6	1.5
Dividend Yield	4.5%	4.6%	4.2%	4.3%
Target Price (SGD)				20
Upside Potential				-6.1%
Source: iFAST Estimates. Data as of 26 Feb 2026.

Table 3: Earnings table for UOB

UOB (SGX: U11)
	FY24	FY25	FY26E	FY27E
EPS	3.6	2.8	3.3	3.3
EPS Growth	5.8%	-23.2%	19.4%	0.5%
P/E Ratio (X)	9.6	13.3	11.1	11.1
Book Value/Share	29.7	31.2	30.9	32.0
P/B Ratio (X)	1.2	1.2	1.2	1.1
Dividend Yield	5.2%	4.9%	4.5%	4.5%
Target Price (SGD)				37
Upside Potential				0.9%
Source: iFAST Estimates. Data as of 26 Feb 2026.

Declaration:

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

This research report was prepared with the assistance of artificial intelligence (AI) tools.  iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.