SG banks 1Q26: Non-interest income drives earnings resilience, supporting constructive outlook

The 1Q26 reporting season confirmed that Singapore banks have navigated the rate down-cycle with resilience, while the transition toward a more balanced mix of fee and interest income continues to gain traction. DBS and OCBC delivered record total income, as robust non-interest income growth offset pressure on net interest income (NII). The results reinforce the quality and durability of the sector’s earnings base entering the next phase of the recovery cycle.

Figure 1: DBS and OCBC posted higher net profit in 1Q26

Related articles: DBS 1Q26: From NIM pressure to fee-led growth, recovery takes hold

OCBC 1Q26: The earnings outlook is improving as non-interest income takes the lead

UOB 1Q26: The earnings base is stabilising, but stronger growth still requires better conditions

Net interest margin compression is nearing a floor as rate expectations reset higher

Net interest margin (NIM) declined across all three banks in 1Q26, but the pace of compression moderated sharply from the declines seen through 2025, reinforcing the view that NIM is approaching a cyclical floor. Sequential margin pressure was modest across the sector. DBS held broadly flat on a day-adjusted basis at 1.89%, UOB narrowed by just 2 basis points quarter-on-quarter to 1.82%, while OCBC declined 10 basis points to 1.76%. OCBC’s sharper decline partly reflected its deliberate redeployment of excess liquidity into higher-yielding treasury assets, which diluted reported NIM.

Figure 2: OCBC recorded the steepest NIM compression in 1Q26

The key driver of margin stabilisation is the shifting outlook for the Federal Reserve's rate path. All three banks had guided on the assumption of one to two Federal Reserve rate cuts in 2026. That view is now fading. Persistent energy-driven inflation, geopolitical disruptions in the Middle East, and renewed supply chain uncertainty have reinforced a higher-for-longer rate environment. SORA, which fell sharply from above 3% in early 2025 to around 1.1% by the end of 1Q26, now appears close to its trough. If rates remain elevated for longer, NIMs are likely to stabilise earlier than previously expected, improving the sector’s earnings trajectory.

Non-interest income is emerging as the sector’s primary growth engine

The most important shift in 1Q26 was the growing role of non-interest income in sustaining revenue growth as interest rates normalise lower. For DBS and OCBC, the transition is already well advanced, with fee income, trading, and wealth management offsetting pressure on NII. UOB reported a decline in overall non-interest income, although wealth income still grew 5%, highlighting underlying resilience in customer activity.

Figure 3: Non-interest Income remains the key driver of growth for DBS and OCBC in 1Q26

The outlook for non-interest income remains constructive. Structural tailwinds that were already evident entering 2026 strengthened further through the quarter. Singapore continues to benefit from its position as a global wealth hub, supported by political neutrality, a strong rule of law, AAA sovereign credit ratings, and a stable appreciating currency. These advantages continue to attract capital inflows from high-net-worth individuals and institutional investors seeking to diversify away from geopolitically uncertain regions.

The recent escalation in Middle East tensions has accelerated capital reallocation decisions, reinforcing Singapore’s role as a regional safe haven for both wealth migration and asset deployment. All three banks stand to benefit from these flows, but DBS and OCBC, with their larger private banking franchises, remain better positioned to capture a greater share of new wealth inflows and fee-generating assets under management.

The Monetary Authority of Singapore’s April 2026 decision to increase the slope of the S$NEER band further reinforces this dynamic. A stronger appreciation path enhances total returns for foreign investors holding SGD-denominated assets, increasing Singapore’s attractiveness as a destination for global capital and providing an additional tailwind for wealth management growth.

Asset quality remains sound and credit cost normalisation continues

Asset quality across the sector remained well contained in 1Q26. Non-performing loan (NPL) ratios were stable across all three banks, while new non-performing asset (NPA) formation declined sharply from the previous quarter. At the same time, credit costs continued to normalise toward management guidance.

Table 1: All three banks reported 1Q26 credit costs within or below guidance

	DBS	OCBC	UOB
2025 Credit Costs (bps)	19	17	55
2026 Guidance (bps)	17–20	20–25	25–30
1Q26 Actual (bps)	14 (below guidance)	23 (within guidance)	26 (within guidance)
Source: DBS, OCBC, UOB presentations, iFAST Compilations. Data as of 31 Mar 2026

Figure 4: All three banks maintained stable NPL ratios in 1Q26

Figure 5: New NPA formation declined quarter-on-quarter across all three banks

The main area of ongoing monitoring remains UOB’s Greater China loan portfolio. The portfolio NPL ratio rose from 2.7% in 1Q25 to 3.5% in 1Q26, while NPA coverage remained at 57%, below the group-wide coverage level of 100%. The book accounts for approximately 14% of total loans and is not yet large enough to materially affect group-level credit costs. However, it remains the key residual risk within UOB’s credit profile and warrants continued attention as stress within selected Greater China exposures persists.

Capital returns continue to underpin the sector’s income appeal

All three banks continue to offer attractive shareholder distributions, with strong visibility on capital returns into the rest of 2026. DBS remains the standout on dividend yield. Its 1Q26 dividend of SGD 0.81 per share translates into an annualised payout of SGD 3.24 per share, implying a forward yield approaching 6% at current share prices.

OCBC’s SGD 2.5 billion capital return programme also remains on track for completion by 2026, with around SGD 800 million still available under the share buyback tranche. Management has stated that any unused buyback allocation will be returned through special dividends, strengthening visibility on shareholder distributions. Its forward yield of 4.5% for 2028 continues to provide steady income support as earnings recover.

For UOB, the forward yield of approximately 5.1% for 2028 reflects improving earnings as credit costs normalise. Together, the sector continues to offer a combination of resilient earnings, strong capital generation, and attractive income returns, reinforcing its appeal in a lower-rate environment.

DBS stands out as top pick with higher upside compared to peers

The 1Q26 results reinforce a constructive sector outlook, but the dispersion across the three banks has become more defined. The differences now lie in earnings momentum, balance sheet efficiency, and capital return visibility.

DBS leads across multiple dimensions. It is delivering simultaneously on record wealth fees, stabilising NII, improving earnings guidance, and the strongest capital return profile in the sector. Its annualised ROE of around 16% remains the highest among peers, underscoring sustained operating outperformance and earnings quality.

OCBC continues to be a steady performer. A best-in-class NPL ratio of 0.9%, disciplined cost-to-income of 39.3%, and a diversified mix across wealth, trading, and insurance continue to support resilience. However, it also recorded the steepest NIM compression among the three banks, alongside a relatively lower dividend yield versus peers.

UOB remains a recovery story. Credit cost normalisation is progressing and NIM pressure is approaching a floor, but fee income recovery still depends on a sustained rebound in corporate activity and capital markets. Earnings visibility is improving, but further growth requires clearer confirmation from operating trends.

Against this backdrop, we maintain a positive view on Singapore banks, with DBS remaining our top pick. Based on 2028 earnings forecasts, it offers the highest upside among peers at 4.8%, alongside a forward dividend yield of around 6% over the next two years. This combination reinforces its positioning as the core income and total return play in the sector.

Table 2: Valuation table for DBS

DBS (SGX: D05)
	2025A	2026E	2027E	2028E
EPS	3.9	4.0	4.4	4.9
EPS Growth	-3.0%	3.9%	9.0%	12.0%
P/E Ratio (X)	15.6	15.0	13.8	12.3
Book Value/Share	24.3	25.2	26.3	27.7
P/B Ratio (X)	2.3	2.4	2.3	2.2
Dividend Yield	5.1%	5.4%	5.7%	5.8%
Target Price (SGD)				63
Upside Potential (Excluding dividends)				4.8%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 14 May 2026

Table 3: Valuation table for OCBC

OCBC (SGX:O39)
	2025A	2026E	2027E	2028E
EPS	1.6	1.7	1.8	2.0
EPS Growth	-2.4%	2.1%	8.1%	10.6%
P/E Ratio (X)	14.1	13.8	12.8	11.5
Book Value/Share	14.0	15.7	17.8	19.9
P/B Ratio (X)	1.4	1.5	1.3	1.2
Dividend Yield	4.3%	4.4%	3.9%	4.3%
Target Price (SGD)				23.5
Upside Potential (Excluding dividends)				2.6%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 14 May 2026

Table 4: Valuation table for UOB

UOB (SGX: U11)
	2025A	2026E	2027E	2028E
EPS	2.8	3.0	3.3	3.8
EPS Growth	-26.3%	8.9%	10.9%	13.1%
P/E Ratio (X)	13.6	12.5	11.2	9.9
Book Value/Share	30.2	32.5	35.0	37.7
P/B Ratio (X)	1.1	1.1	1.1	1.0
Dividend Yield	6.1%	4.0%	4.4%	5.0%
Target Price (SGD)				38
Upside Potential (Excluding dividends)				1.7%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 14 May 2026

Figure 6: Three banks’ 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) 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.