“This is setting up the sector for a degree of profit booking and rotation. Net interest income guidance should move up for Singapore banks on the back of rates and loan growth, while net new money growth should be robust. Flows should help treasury and fees. These are known and likely discounted. Higher costs (delivery and guidance) as well as NPL (non-performing loan) formation and credit costs are possible drivers of weakness,” the JP Morgan report says.
One of the key drivers of re-rating for Singapore (and select APAC) banks this year is a shift in multiples from the ratio of dividend yield to dividend yield spread (over bond/interbank) to PE/PEG (price-to-earnings ratio divided by price-to-earnings ratio growth), JP Morgan reasons. The increase in regular dividends per share, specials, buyback and bonus was almost fully known/discounted by end-2025 as this had started in 2022, the report says.
According to the report, the ‘new’ shift appears to be balance sheet growth (especially loans with the industry at +10.5% y-o-y in Ma 2026), combined with a positive rate outlook as the Fed delivered a hawkish hold. “This shift in the driver of multiples could be sustained for a while, which is a risk to our cautious sector view. Yet, the recent sharp rerating suggests that any negative data points in the upcoming results will be used to trim/book gains, while any positive data will be assumed to be largely discounted,” the July 16 report explains.
“UOB remains our highest conviction underweight”
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“UOB remains our highest conviction underweight in the sector on asset quality risks, especially those linked to Greater China commercial real estate (CRE) loans. OCBC and DBS risks are more valuation related, with China overseas direct investment-related rules a possible catalyst for a sharper correction. SGX remains one of the best flow-led stocks to own. We expect positive guidance and a shift in dividend policy at the bourse,” JP Morgan says.
Individually, JP Morgan is forecasting $2.8 billion for DBS’s 2Q2026 net profit, flat y-o-y and down 4% q-o-q. NII is forecast to grow by 2% q-o-q as DBS focuses more on NII vs NIM. NPL is expected to remain stable at 1.0%, reflecting DBS’s pivot towards secured lending and portfolio derisking, with credit costs at 18 basis points.
OCBC is forecast to report 2Q2026 net profit of $1.8 billion, up 1% y-o-y but down 7% q-o-q with 2% q-o-q NII growth. Provisions are anticipated to be flat, with asset quality remaining intact. JP Morgan is forecasting 42 cents in dividends per share, reflecting a 50% payout on 1H2026 EPS.
JP Morgan has the lowest "Street" net profit estimate for UOB, at $1.36 billion, up 1% y-o-y but down 6% q-o-q. It is forecasting NII of $2.4 billion, up 1% q-o-q. “On asset quality, Greater China exposure remains a key overhang along with more recent risks around Indonesia loans. We pencil in NPL rising to 1.54% with annualised credit cost of 36bps, +13bps q-o-q and coverage holding stable at 81%,” JP Morgan says.
