Singapore banks: Updated target price supports our top pick for DBS

Key Points

Yet, despite this backdrop, the sector held up better than expected. Fee income growth remained strong, cost discipline was intact, and balance sheets stayed healthy.

This resilience matters. It tells us that the banks can navigate a down-rate cycle and, more importantly, that the starting point for 2026 is stronger than it may appear.

As we move into the new year, the question for investors shifts. It is no longer about whether earnings can hold up, but how they recover from here and which bank is best positioned to capture the next phase of growth.

2025 resilience underpins the next phase of growth

2025 financial results highlighted clear differences in how each bank navigated the rate cycle.

DBS was the only bank to deliver full-year growth in net interest income despite falling rates, which shows a strong signal of balance sheet strength and execution. Wealth management continued to scale, with AUM reaching new highs and driving fee income higher. The step-up in dividends further reinforces management’s confidence in the earnings outlook.

OCBC delivered a steady performance. It recorded the smallest decline in net profit and maintained best-in-class asset quality, with NPLs falling to a seven-quarter low. Fee income, particularly from wealth management, helped offset pressure on interest income.

UOB had the toughest year. A spike in credit provisions in 3Q weighed on full-year results. However, the recovery in 4Q is important. Credit costs normalised, and the ASEAN franchise continued to strengthen following the Citi integration. The recovery path is visible, though likely to be more gradual.

Table 1: Key financial results of three banks for 2025

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

For investors, 2025 was a stress test — and the sector passed. The earnings base is intact, and the downside from here looks more limited.

SORA bottoming out, signalling margin stabilisation and potential upside

The rate environment is no longer just shifting from a headwind to a stabiliser, it is increasingly turning into a potential tailwind.

After falling from above 3% in early 2025 to around 1.1–1.2% by year-end, SORA appears close to its cyclical trough. While markets had previously priced in an extended easing cycle, that narrative is now being challenged. Rising geopolitical tensions in the Middle East are introducing a renewed inflation impulse, primarily through higher energy prices, supply chain disruptions, and increased shipping and insurance costs. These factors risk slowing or even halting the global disinflation trend.

This shift matters for rates. Even if the Federal Reserve proceeds with easing, the pace is likely to be more measured and conditional. In such an environment, SORA is unlikely to follow SOFR meaningfully lower and could instead stabilise or drift higher, particularly if inflation proves stickier than expected.

Figure 1: Spread between SORA and SOFR

The Monetary Authority of Singapore (MAS) reinforces this evolving backdrop. Its decision to keep policy unchanged for three consecutive meetings, alongside a higher 2026 inflation forecast of 1–2%, signals a growing sensitivity to upside inflation risks. A firmer inflation trajectory not only reduces the urgency for further easing but also raises the possibility that policy may need to remain tighter for longer than previously anticipated.

Putting this together, rather than simply moderating, NIM compression may bottom out earlier than expected, with a credible path toward stabilisation and even gradual expansion if rates reprice higher.

Safe-haven inflows position Singapore for sustained wealth growth

Beyond rates, a more structural tailwind is emerging — Singapore’s role as a financial safe haven.

Rising geopolitical tensions in early 2026, particularly in the Middle East, have led to a more cautious global environment. Importantly, Singapore’s banks have limited direct exposure to the region. Unlike global peers such as HSBC and Standard Chartered, which maintain meaningful lending presence in key Gulf hubs, DBS, OCBC and UOB have not disclosed any material Gulf Cooperation Council (GCC) loan books. This suggests that direct downside risks from the region remain contained.

Figure 2: Limited Middle East exposure for Singapore banks

*Note: Exposure percentages for HSBC and Standard Chartered sourced directly from bank geographic segment disclosures and J.P. Morgan analyst estimates. Singapore bank figures are iFAST upper-bound estimates; Middle East is not a separately disclosed geographic segment for DBS, OCBC, or UOB.

At the same time, the indirect impact is more constructive. Global uncertainty is driving capital reallocation, and Singapore continues to stand out as a key beneficiary.

The city-state’s strong rule of law, currency stability and pro-business regulatory framework underpin its position as a global wealth hub. Historically, periods of geopolitical stress, including US–China tensions, have supported strong inflows into Singapore, benefiting banks through rising wealth balances and client activity.

Recent developments suggest this pattern is repeating. Investors are increasingly allocating to Singapore assets amid rising geopolitical risks, while wealth managers’ report growing relocation enquiries and expect incremental inflows from regions such as the Gulf if tensions persist.

For the banks, this translates directly into growth in wealth management, which is already the fastest-growing segment of the business. This is particularly important as wealth income is capital-light, recurring, and less sensitive to interest rates.

DBS stands out as the key beneficiary. Its global brand recognition, strong credit ratings, and leading private banking platform position it as the “first call” for clients seeking to shift assets into Singapore. The bank is guiding for mid-teens growth in wealth management fees in 2026, providing a durable earnings engine.

That said, the impact may not be uniform. OCBC’s private banking arm has been expanding its Middle East connectivity, which could introduce some sensitivity to regional dynamics. However, during periods of geopolitical stress, the dominant effect is typically a shift in capital flows rather than a contraction in activity, suggesting the overall impact remains supportive.

Why DBS remains our top pick

Singapore banks have already proven their resilience through a difficult rate cycle. With rates stabilising and credit costs normalising, the earnings outlook is improving.

At the same time, structural drivers, particularly wealth management and safe-haven capital inflows, are becoming more prominent.

For investors, the setup is increasingly constructive: a combination of income stability and gradual earnings recovery.

Within the sector, DBS remains our top pick.

First, it has the strongest wealth management franchise. AUM reached SGD 488 billion at end-2025, supported by solid net new money inflows, indicating sustainable, client-driven growth.

Income visibility is another key differentiator. The increase in ordinary dividends, alongside a committed capital return component, brings annualised dividends to SGD 3.24 per share, providing a clear and attractive income profile.

Looking ahead, the divergence becomes clearer in the 2026 outlook. DBS is guiding for broadly stable credit costs, with potential upside from provision write-backs. In contrast, OCBC and UOB are guiding for higher or normalising credit costs. This gives DBS a more stable earnings trajectory and reduces downside risk to forecasts.

Table 2: Credit costs comparison among 3 banks

Operationally, DBS also maintains an edge. Its cost-to-income ratio is in line with OCBC and better than UOB, supported by continued investment in technology and AI. This is not just about efficiency today, it also strengthens operating leverage over time.

That advantage feeds through to profitability. DBS delivered a return on equity of 16.2% in 2025 and continues to guide for structurally strong returns.

Putting it all together, DBS is best positioned to benefit from both cyclical recovery and structural growth.

For investors seeking a balance of income, resilience, and long-term compounding, it remains the most compelling choice among Singapore banks.

Table 3: Valuation table for DBS

Table 4: Valuation table for OCBC

Table 5: Valuation table for UOB

Figure 3: DBS’ share price vs earnings per share

Figure 4: OCBC’s share price vs earnings per share

Figure 5: UOB’s share price vs 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.