Meanwhile, United Overseas Bank(UOB) will see its net income increase by 1.1% y-o-y in 1QFY2025, albeit its slowest pace of growth since 2QFY2024, Yeap notes.
Lower NIMs expected
The effects of the rate cuts by the US Federal Reserve (US Fed) made in 2024 may continue to seep into domestic interest rates. Since the beginning of 2025, the three-month Singapore overnight rate average (SORA) has already declined from 3.02% to 2.55% as at the end of March, Yeap points out.
As such, the rate cuts may lead to softer net interest margins (NIMs) across all three banks, which may weigh on interest income.
With cuts to OCBC and UOB's flagship savings account rates only taking effect after May 1, the analyst also sees funding cost pressures continuing to compress margins in the near term.
For the 1QFY2025, Yeap estimates DBS's NIM to drop by two basis points y-o-y to 2.12%. UOB's quarterly NIM is expected to come in at 1.96%, six basis points lower y-o-y. OCBC's NIM is likely to drop by 15 basis points y-o-y to 2.12%.
Improving loan demand may mitigate bottomline
See also: CGSI and OIR cautious of balance sheet, keep ‘hold’ on Suntec REIT following 1QFY2025 results
However, with loan momentum remaining resilient in 1Q2025, the analyst believes improving loan demand may offset some of the pressure from the narrowing NIMs "at least for now".
"Overall loan growth rose 5.3% year-on-year in January and 4.9% in February, supported by gains across both consumer and business segments. This likely reflects ongoing resilience in the domestic economy despite uncertainties surrounding US tariffs," Yeap notes.
That said, downside risks to financing needs are likely to persist over the coming months, depending on the trajectory of US trade policy negotiations, he adds.
Banks expected to maintain growth momentum in fee and commission income
All three banks are expected to maintain a "healthy growth momentum" for their net fee and commission income in 1QFY2025, which may also help offset pressures from expectations of softer net interest income (NII).
In his note, Yeap posits that the heightened market volatility may bring about stronger demand for wealth management services as investors seek advisory support and opportunities to buy into market dips.
The volatile markets may also provide a boost to the banks' trading income, he adds.
For more stories about where money flows, click here for Capital Section
DBS, OCBC and UOB are likely to post "solid gains" with increases of 7.7%, 11.3% and 10.5% y-o-y respectively.
Expected increase in loan loss provisions
Amid the macroeconomic uncertainty, Yeap believes all three banks may increase their loan loss provisions.
"[This reflects] the banks' prudence in preparing for heightened uncertainties stemming from Trump's tariffs, which may directly pressure the banks' earnings," he says.
"Given the optimistic tone sustained over recent quarters, market participants will be watching closely for reassurances that the banks remain confident in their business resilience despite complicated trade dynamics and heightened global growth risks," he adds.
The analyst expects DBS to increase its loan loss provisions by 63% y-o-y to $135 million. This is followed by UOB, which is expected to increase its provisions by 37.4% y-o-y to $163 million. Meanwhile, OCBC is expected to increase its provisions by 4.7% y-o-y to $169 million.
Share price performances
Year to date, all three banks underperformed the broader Straits Times Index (STI), coming off from its outperformance in the previous year. Fund flow data from the Singapore Exchange(SGX) shows that there were sustained institutional net outflows from the financial sector year to date, with concerns over the US tariffs prompting profit-taking after the banks' strong performance in 2024.
"This trend suggests some caution toward the near-term outlook for financial stocks, with trade restrictions in the export-reliant Asian region heightening risks of an earnings slowdown and rising bad debts," Yeap writes.
"While there is some optimism that trade agreements could be formalised overthe coming weeks, the absence of any meaningful tariff rollbacks may still pose downside risks to global growth prospects, potentially driving further institutional outflows from the sector," he adds.
Technical analysis
Looking at the charts, Yeap notes that shares in DBS are seeing resistance at the $43 level while its daily Relative Strength Index (RSI) has returned to its midline, bringing its technical conditions to a more neutral stance from previous oversold levels.
Should there be a "decisive break" above the $43 level, the $44.75 level is the next one to watch, says Yeap.
On the downside, a breach below DBS's 200-day moving average (MA), which remains a key support to watch, could potentially push its share price towards the S$39.70 level and reinforcing the broader downward bias.
For OCBC's shares, the $16.52 level is the one to watch if shares manage to break above its April 25 high at the $16.16 level. Defending its 200-day MA will be key, says Yeap.
"Meanwhile, its daily RSI is hovering near the midline, indicating more neutral momentum," he writes.
"With the share price consolidating over the past days, a breakdown below the $15.76 range support could pave the way for a deeper pullback toward the broader upward trendline support around the $15.40 level," he adds.
Finally, UOB's share price seems to be reflecting similar patterns compared to OCBC's, says Yeap, adding that reclaiming the MA line may be "crucial" in the next few days.
"For now, its daily RSI has returned to the 50 level, suggesting a shift to more neutral momentum after previously oversold conditions," he writes. "Failure to break back above the 200-day MA could see the share price drift lower toward the $33.38 support level, followed by the broader trendline support around $31.78 next in focus."
All three banks will report their quarterly results in early May. UOB will announce its results on May 7, while DBS and OCBC will post their results on May 8 and 9 respectively.
As at the mid-day break, shares in DBS are trading 44 cents higher or 1.05% up at $42.52. Shares in OCBC are trading 9 cents higher or 0.56% up at $16.07. Shares in UOB are trading 23 cents higher or 0.67% up at $34.59.
