She adds that this is attributed to the gentler sequential decline in the three-month Singapore overnight rate average (Sora) overnight index swap (OIS), coupled with the ongoing repricing of the banks’ flagship current accounts, wholesale, as well as fixed deposits.
“We believe these factors will culminate in a turning point for the NIM downtrend,” Lim writes in her Jan 29 note.
After a strong 3QFY2025, the analyst also believes non-interest incomes are likely to soften due to seasonal impact.
“With softness in loan growth potentially translating to softer loan-related fees, and seasonally weaker trading and wealth management fees, we believe non-interest income will experience a q-o-q decline,” she says.
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However, UOB is expected to see a reprieve in fee-related incomes as the higher redemption costs from its Thailand card business in 3QFY2025 normalises in 4QFY2025, she adds.
While shares in all three banks have performed well, with 5% to 10% gains, the analyst sees more room to grow as dividends and Singapore dollar (SGD) stable capital returns remain attractive.
In 4QFY2025, Lim expects largely stable credit costs, save for UOB’s credit costs, which are still expected to be elevated at 25 basis points (bps) to 30 bps compared to its peers.
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All three banks’ shares are also expected to benefit from the ongoing fund inflows, given the SGD’s defensive characteristics and Singapore’s status as a safe haven. Further deployment from the first batch of Equity Market Development Programme (EQDP) funds, alongside the fresh deployment of the second batch of funds, are continued tailwinds for the sector, Lim adds.
Among the banks, Lim is bullish on OCBC. The analyst upgraded the bank to “buy” in November and has increased its target price to $23 in her latest report, from $19.80 previously.
Since her upgrade, OCBC has outperformed its peers and gained some 18%.
“We believe a potential re-rating continues to be in the works should management unveil clear commentary on capital returns on a forward-looking basis, with upside from the current 50% dividend payout ratio policy,” she says.
While UOB’s outsized provisions in the previous quarter should provide some respite for its 4QFY2025 credit costs, Lim is not confident that the bank’s asset quality woes are over, amid ongoing restructuring and extension of real estate-related loans.
The analyst has a “hold” call on UOB with a target price of $33.90.
DBS, UOB and OCBC will release their 4QFY2025 and FY2025 results on Feb 9, 24 and 25, respectively.
As at 3.32pm, shares in DBS, UOB and OCBC are trading at $59.13, $38.32 and $21.26 respectively.
