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

Key Points

• DBS 1Q26 beat expectations, with net profit at SGD 2.93 billion and total income at a record SGD 5.95 billion, confirming earnings resilience despite rate pressure.

• Asset quality remained strong, with NPL ratio stable at 1.0% and provisions well below the guidance range, preserving earnings quality and balance sheet strength.

• NII declined 5% year on year as SORA fell to 1.07%, but stabilised sequentially, indicating the margin compression cycle is nearing its trough.

• Wealth management is the primary growth engine, with fees up 25% year on year to SGD 907 million, supported by sustained safe-haven inflows into Singapore.

• A near 6% forward yield, SGD 8 billion capital return plan, and target price of SGD 63 with 7.1% upside anchor the investment case as recovery unfolds.

A strong quarter that lifts the full-year trajectory

DBS delivered a clear earnings beat in 1Q 2026, lifting the full-year trajectory. Net profit came in at SGD 2.93 billion, up 1% year on year and 24% quarter on quarter, while total income reached a record SGD 5.95 billion, ahead of consensus and supportive of a potential upgrade to full-year guidance.

Lower rates continued to weigh on interest income, but the offset from other segments is now decisive. The Singapore Overnight Rate Average (SORA) averaged 1.07% in the quarter, down from 2.54% a year ago, compressing net interest income by 5% year on year to SGD 3.49 billion and narrowing NIM to 1.89%. Total income still expanded to a new high, reflecting a clear shift in the earnings mix, with non-interest income now taking over as the primary growth driver and fully offsetting margin compression from rate normalisation.

Asset quality reinforces the strength of the quarter and supports earnings durability. The Non-Performing Loan (NPL) ratio held at 1.0% for the third consecutive quarter, while allowance coverage stood at 131%.

Table 1: Financial performance summary (YoY % change)

NII stabilisation gaining traction amid easing funding costs and NIM support

As highlighted in our previous Singapore banks update, the SORA is likely approaching its cyclical trough, with the drag on margins showing signs of easing. As a result, NIM is no longer contracting at the pace seen in 2025. On a day-adjusted basis, group NII was broadly flat quarter-on-quarter, even as average SORA declined a further 12bps to 1.07%, from 1.19% in 4Q 2025.

Figure 1: DBS Group NIM stabilising as SORA compression slows

Management has aligned its base case with this shift and has turned more constructive on the earnings outlook. DBS had previously assumed two US Federal Reserve rate cuts in 2026, this assumption has now been removed, with rates expected to remain at current levels through the year.

Funding dynamics further reinforce this stabilisation. Deposits grew 9% year-on-year to SGD 630 billion, with the CASA ratio holding at 55%, anchoring a low-cost funding base even as asset yields adjust. Full-year guidance calls for high single-digit deposit growth, and the Q1 trajectory remains consistent with that path.

Looking ahead, although NII may not act as a growth driver in 2026, downside risk has narrowed meaningfully, with the step-down seen in 2025 unlikely to repeat. With the steepest phase of rate compression likely behind us and NIM approaching a floor, any stabilisation or modest uptick in rates would provide incremental support to NII. Against this backdrop, management noted on the earnings call that the bank has a “good shot at getting close to 2025 levels” of net profit, an upgrade from prior guidance of “slightly below.” The revision reflects greater confidence in income resilience despite lingering macro uncertainty.

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

Wealth management is the core earnings engine, supported by sustained safe-haven inflows

Wealth management is the defining driver for this quarter. Gross wealth management fees reached a record SGD 907 million, rising 25% year on year, supported by stronger investment product sales and continued bancassurance traction.

Flow dynamics remain firmly supportive and are strengthening further. Singapore’s position as a preferred wealth hub for regional and global capital has been building since 2022 and is now accelerating as geopolitical fragmentation deepens. Recent US Iran tensions have raised geopolitical risk in the Gulf, prompting expectations of renewed safe-haven capital flows. Singapore is emerging as a key destination for Asian and global wealth relocating out of the region. Its AAA sovereign rating, strong rule of law, and political stability underpin its role as a destination for flight-to-quality flows.

Policy reinforces this positioning and shapes return expectations. Following Monetary Authority of Singapore (MAS) tightening in April, the managed appreciation path of the Singapore dollar embeds currency strength into total returns, reinforcing the appeal of SGD-denominated assets for global wealth allocation.

DBS is well positioned to capture a share of these safe-haven wealth inflows. At the franchise level, DBS Private Bank was named World’s Best Private Bank at the Euromoney Private Banking Awards 2026, marking the first time an Asia-headquartered institution has received this top global accolade. This enhances its global brand equity, which becomes particularly valuable as high-net-worth clients reallocating capital from geopolitically unstable regions subject providers to heightened scrutiny on safety, stability, and credibility. Meanwhile, management confirmed that direct credit exposure to the Middle East remains limited, with stress tests indicating the credit portfolio remains resilient despite heightened uncertainty linked to the Iran conflict.

Scale is now approaching a level that creates its own momentum. Assets under management reached SGD 492 billion, with net new money of SGD 10 billion for the quarter. At the current pace, DBS may reach the SGD 500 billion AUM milestone by mid-2026, ahead of its original end-2026 target. At current SORA levels, the marginal profitability of investment product AUM appears to have edged above that of cash AUM — a notable reversal from the high-rate environment of 2022–2024. Against this backdrop, with 58% of AUM now allocated to investment products, the evolving mix could become an increasingly supportive driver of earnings in 2026.

Management had previously guided for mid-teens wealth fee growth in 2026. Against the 25% growth delivered in Q1 and the persistence of safe-haven inflows, this target is well supported by Q1 data, with scope for further upside if current flow trends are sustained.

Capital return visibility strengthens the income case

The income proposition is compelling and increasingly visible. At SGD 0.81 per share for 1Q 2026, annualised to SGD 3.24, DBS offers a forward yield approaching 6% at current share prices. This compares favourably with Singapore Savings Bonds and fixed deposits, while retaining exposure to earnings growth and potential capital appreciation.

Committed capital return plans provide an additional layer of support. DBS has outlined SGD 8 billion of excess capital to be returned by 2027, comprising SGD 5 billion in additional dividends and a SGD 3 billion share buyback programme. As of end 2025, only 12% of the buyback, or about SGD 360 million, has been executed. The remaining SGD 2.64 billion implies continued reduction in share count, supporting per-share earnings and dividend accretion over time.

Balance sheet buffers create further upside to distributions. DBS holds SGD 3.89 billion in general provisions, built prudently through the rate upcycle. With the NPL ratio stable at 1.0%, new Non-Performing Asset (NPA) formation contained, and specific provisions running at 14 basis points, conditions are in place for partial write-backs. Management has indicated that such releases remain possible if macro conditions hold steady. Should write-backs occur, they would flow directly through to net profit, expanding dividend capacity without requiring incremental earnings growth.

We remain constructive on DBS

DBS has demonstrated balance sheet strength, resilient profitability, and improving capital returns against a backdrop of rate compression and heightened geopolitical uncertainty. The Q1 2026 results validate our earlier thesis that the bank is positioned to benefit from NIM stabilisation alongside sustained wealth management momentum and safe-haven inflows. The quarter marks a firm start to earnings recovery in 2026, with current drivers showing durability into the rest of the year.

We remain constructive on DBS and maintain our target price of SGD 63, based on our FY2028 estimates, implying around 7.1% upside from the closing price on 6 May 2026. A forward yield near 6% provides steady income support, anchoring returns as the earnings recovery continues to unfold.

Table 2: Valuation table for DBS

Figure 2: DBS’ 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.