1H25 Earnings Update: DBS Tops on Dividend Yield; OCBC Attractive for Capital Gains

• Singapore’s three leading banks posted year-on-year declines in 1H25 earnings, weighed down by slowing net interest income growth, rising provisions, and the introduction of the global minimum tax.

• DBS appears best positioned to withstand net interest margin compression through balance sheet hedging and net asset inflows. OCBC and UOB are likely to face steeper margin pressure, though conditions may ease in 2H25.

• All three banks maintained low NPL ratios through disciplined NPA write-offs and recoveries. DBS and OCBC have set aside elevated provisions to buffer against macro headwinds.

• The banks reaffirmed their commitment to shareholder returns via higher dividend payouts and share buyback programs. DBS is the most aggressive, expected to maintain the highest average dividend yield of 6.2% through 2027.

• In terms of upside, DBS offers limited capital growth, making it more suitable for dividend-focused investors, while OCBC presents the highest projected upside of 13.4% as of 2027.

Singapore’s three largest lenders reported another round of muted earnings in 2Q25, weighed down by slowing net interest income growth, rising provisions amid economic uncertainty, and the impact of the new 15% global minimum tax. DBS eked out a modest 0.7% year-on-year profit increase, while OCBC and UOB both saw around 6% year-on-year declines. Collectively, this dragged all three banks’ net income lower in the first half of the year (Figure 1).

However, DBS looked more resilient once the higher tax impact was stripped out, delivering a 3.3% year-on-year increase in profit before tax in 1H25. This highlights its ability to sustain growth in a tougher macro environment. In contrast, OCBC and UOB registered modest declines of 1.6% and 2.3% respectively.

Figure 1: All three banks reported declines in net income for 1H25

1H25 Earnings: Non-Interest Income Fuels Growth, DBS Stands Out

SORA and HIBOR continued to ease on expectations of rate cuts, squeezing net interest margins (NIMs) across all three local banks. OCBC saw the sharpest impact, with a 25-basis point compression (Figure 2) from a year ago as its predominantly floating-rate loan book in Singapore and Hong Kong repriced down more quickly than deposit costs. This drove a 4.9% decline in net interest income (NII). UOB fared better, with just an 8-basis point narrowing in NIM, while asset growth helped keep NII broadly flat. DBS remained the most resilient, recording only a 6-basis point contraction and still delivering a 3.2% increase in NII, supported by effective balance sheet hedging, robust deposit inflows and an expanding CASA base.

Figure 2: OCBC saw the steepest declines in both NIM and NII

Non-interest income remained the key driver of earnings growth. DBS and UOB reported double-digit gains (Figure 3), led by wealth management, which surged 30.3% at DBS, 24.5% at OCBC and 19.3% at UOB. DBS’s wealth management assets under management climbed to a record SGD 442 billion at end-June, up 11.6% year-on-year on the back of strong net new money inflows. Trading, treasury sales and investment banking also boosted non-interest income across the three lenders.

OCBC’s non-interest income growth was dragged down by its insurance business, which posted an 8.7% decline in income. The segment was hit by mark-to-market losses from lower interest rates on the valuation of insurance contract liabilities, alongside weaker private equity valuations within its insurance funds.

Figure 3: Non-interest income continues to drive growth

Banks Likely to Post Flat or Lower 2H25 Earnings

SORA still has room to fall in the coming months. Domestically, inflation in Singapore remains well anchored, with headline inflation growth kept below 1% since February 2025. Should demand weaken further from tariff impacts, the Monetary Authority of Singapore (MAS) may have scope to ease policy by flattening the slope of the Singapore dollar nominal effective exchange rate (S$NEER).

Externally, prospects of US rate cuts in the second half of the year remain on the table, even as the economy stays broadly resilient. Revised-down non-farm payrolls and moderating GDP growth point to softening momentum in the US economy. Still, with core inflation holding above 2% and risks of renewed tariff-driven price pressures, any easing by the Federal Reserve is likely to be gradual.

Against this backdrop, Singapore banks face the prospect of further NIM compression. DBS appears best cushioned, with NIM expected to hold around 2% in 2H25, supported by proactive hedging and strong deposit inflows. This should keep its net interest income (NII) broadly stable despite the more challenging macro setting. By contrast, OCBC and UOB are likely to see NIMs slip towards 1.9%. Both banks have sharply trimmed deposit rates to 1.45% for OCBC’s nine-month and 1.55% for UOB’s six-month tenors, down 80 and 85 basis points from January levels. They have also made cuts to flagship accounts such as OCBC360 and UOBOne. These adjustments should begin to ease margin pressure in the second half.

Non-interest income will remain the key earnings driver, led by wealth management. Singapore’s safe-haven appeal amid global uncertainty continues to attract inflows, while lower deposit yields are prompting clients to channel more funds into investments. The recently launched Enhanced Domestic Qualifying Program (EDQP) by MAS could further spur demand for Singapore-centric portfolios, lifting advisory and fund distribution fees.

DBS is well positioned to extend its lead in wealth management, underpinned by the integration of Citi Taiwan and the expansion of its Family Office Foundry VCC platform. OCBC and UOB, however, are also set to benefit. OCBC’s acquisition of PT Bank Commonwealth in Indonesia and UOB’s successful integration of Citi’s consumer portfolios across Malaysia, Indonesia, Thailand and Vietnam will broaden their regional franchise and deepen customer deposits.

Trading and treasury income should also provide support. Heightened volatility around the Trump administration has fuelled demand for hedging solutions, while growing investor interest in Singapore markets is boosting brokerage commissions. That said, second-order effects from renewed tariffs could weigh on consumer sentiment, dampen loan demand and soften investment banking pipelines, tempering growth momentum.

Overall, credit allowances are expected to remain elevated and NIMs face further pressure. While non-interest income growth may partly offset declines in net interest earnings, high tariffs could weigh on sentiment and demand, leaving banks likely to report flat to modestly weaker net profit growth in 2025.

Banks Maintain Strong Credit Quality, Brace for Headwinds with Elevated Provisions

The trio continued to demonstrate resilient credit quality, with only limited direct exposure to US tariffs. All three banks highlighted that just a low single-digit share of their loan books is linked to US exporters, with the majority of borrowers domestically focused or concentrated within ASEAN, where reliance on the US market is minimal.

DBS and OCBC’s non-performing loan (NPL) ratios held steady at 1.0% and 0.9%, respectively (Figure 4), as new non-performing asset (NPA) formation was largely offset by repayments and write-offs. As a result, specific credit costs for both banks remained broadly stable over the past year (Figure 5).

UOB, however, saw its NPL ratio rise by 10 basis points, primarily due to overseas exposures tied to a US commercial real estate (CRE) account. With US CRE accounting for just 0.8% of UOB’s total loan book, the associated risks remain contained. Nevertheless, this contributed to a sharper increase in UOB’s specific credit costs, which rose to 32 basis points as of 30 June 2025.

Figure 4: The three banks kept NPL ratios broadly in line with a year ago

Figure 5: UOB experienced a more pronounced rise in specific credit costs

The greater risk lies in second-order effects, as renewed tariffs, particularly sector-specific levies, could dampen business sentiment and suppress demand. Against this backdrop, banks have stepped up provisions to guard against potential credit losses. DBS lifted its NPA coverage ratio to 137% from 129% a year earlier, while OCBC maintained a robust 156% at end-June. UOB’s coverage, though still prudent, continued to trend lower, easing to 88%, with its overall provision shrinking by SGD 86 million over the year. 

Banks Continue Pledges to Shareholder Returns

Singapore’s three local banks remain well-capitalised, supported by strong Common Equity Tier-1 (CET1) ratios (Figure 6). This capital strength allows them to maintain shareholder returns through higher dividends and share buybacks, even as earnings weaken.

Figure 6: the three banks maintain robust CET1 capital levels

DBS continues to lead with the most aggressive capital return policy. It maintains a fixed dividend of 75 cents per share, comprising a 60-cent ordinary quarterly payout and a 15-cent capital return dividend, translating to a payout ratio of about 75%, the highest among the three. The bank has guided for a 24-cent annual dividend increase and continued capital return dividends for 2025 and 2026, alongside a SGD 3 billion share buyback programme over the next three years.

OCBC adopts a more flexible approach, targeting a 50% base payout supplemented by a 10% special dividend for 2025. This makes its total dividend dependent on earnings performance. Given its high CET1 ratio, OCBC is expected to maintain payouts above the 50% baseline into 2026 and 2027, with an additional SGD1 billion share buyback plan to support earnings.

UOB has reaffirmed its plan to return SGD3 billion of surplus capital, including a 50-cent per share special dividend in 2025 and up to SGD 2 billion in share buybacks through 2027, while keeping its payout ratio at 50%.

Overall, DBS’s fixed dividend policy makes it the most shareholder-friendly, with average yields projected at 6.1% over the next three years, compared with about 5.6% for OCBC and UOB (Figure 7).

Figure 7: DBS projected to lead peers with a 6.1% average dividend yield through 2027

Expensive Prices, Healthy Payouts: Banks Still Reward Investors

With DBS shares recently topping SGD 50 to hit new highs, the stock now trades at a relatively elevated level. Applying a fair P/B of 1.8X gives a target price of SGD 51, implying limited upside of around 1.7%. Nonetheless, the bank’s solid earnings momentum and resilient asset quality, combined with strong capital return commitments, continue to support a steady income stream for investors in a declining interest rate environment. DBS remains our top pick for dividend-focused investors.

While OCBC and UOB’s earnings growth lags DBS, both offer greater valuation headroom. Using fair P/B ratios of 1.45X for OCBC and 1.25X for UOB, reflecting their lower ROE and net income growth estimates, we arrive at target prices of SGD 19 for OCBC and SGD 38 for UOB. This implies projected upside of 13.4% and 7.6% respectively by FY2027. These stocks may appeal to investors seeking capital growth.

The recently announced EQDP has also drawn investor attention to smaller-cap stocks listed on SGX. Investors may also consider opportunities beyond the three banks as well.  Some of these “hidden gems,” currently undervalued but positioned to benefit from increased liquidity and EDQP fund flows in the financial sector, include SGX and UOB Kay Hian.

Related article: Singapore’s Financial Sector: Opportunities Extend Beyond Banks

Table 1: Valuation table for DBS

DBS (SGX: D05)
	FY24	FY25E	FY26E	FY27E
EPS	4.0	4.0	4.1	4.3
EPS Growth	11.9%	0.5%	3.4%	4.4%
P/E Ratio (X)	11.0	12.6	12.2	11.7
Book Value/Share	24.2	25.4	26.6	28.3
P/B Ratio (X)	1.8	2.0	1.9	1.8
Dividend Yield	4.4%	6.0%	6.4%	5.7%
Target Price (SGD)				51
Upside Potential				1.7%
Source: iFAST Estimates. Data as of 28 Aug 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)	10.0	10.4	10.2	10.0
Book Value/Share	13.0	13.3	13.7	14.0
P/B Ratio (X)	1.3	1.3	1.2	1.2
Dividend Yield	5.1%	5.8%	5.4%	5.5%
Target Price (SGD)				19
Upside Potential				13.4%
Source: iFAST Estimates. Data as of 28 Aug 2025.

Table 3: Valuation table for UOB

UOB (SGX: U11)
	FY24	FY25E	FY26E	FY27E
EPS	3.6	3.5	3.6	3.6
EPS Growth	4.8%	-0.8%	1.3%	1.6%
P/E Ratio (X)	10.2	10.0	9.9	9.7
Book Value/Share	29.4	30.1	31.3	32.5
P/B Ratio (X)	1.2	1.2	1.1	1.1
Dividend Yield	5.0%	6.4%	5.1%	5.2%
Target Price (SGD)				38
Upside Potential				7.6%
Source: iFAST Estimates. Data as of 28 Aug 2025.

Figure 8: DBS’s share price and earnings per share

Figure 9: OCBC’s share price and earnings per share

Figure 10: 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).