Already, China has announced an additional tariff of 34% on imports from the US, matching the US’s latest reciprocal tariff, along with restrictions on access to rare earth minerals.
“The tit-for-tat tariffs bring the two countries closer to a full-blown trade war,” says Koh. “The EU has warned of swift retaliation, including actions against services exports from US technology companies.”
The US has imposed a reciprocal tariff of 10% on imports from Singapore, much lower compared to neighbouring countries. However, Singapore banks will be affected by the punitive reciprocal tariffs imposed on Malaysia (24%), Thailand (37%), Indonesia (32%), Vietnam (46%), India (27%), Taiwan (32%) and China (34%).
Many companies’ China +1 strategy are in tatters, says Koh. “We estimated [a] weighted effective reciprocal tariff at 15.9% for DBS, 17.3% for OCBC and 17.3% for UOB based on their geographical footprint. All three banks are similarly affected.”
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Banks’ asset quality will be affected by the slowdown in trade, which will create turmoil and job losses in the manufacturing sector, says Koh. He trims his 2026 net profit forecasts for DBS and OCBC by 13% after factoring in higher credit costs and anaemic loan growth.
UOB Global Economics & Markets Research (GEMR) has cut its forecast for US GDP growth from 1.8% to 1.0% for 2025.
UOB GEMR has gauged the probability of a US recession to have risen to 40%, compared with 20% to 25% previously.
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Based on preliminary assessments, the current forecast for Singapore GDP growth of 2.5% could be cut by 0.5 to 1.5 percentage points, says Koh. Asean countries, such as Malaysia, Thailand and Indonesia, will also be negatively affected.
Singapore will be affected by a slowdown in trade globally and regionally. According to UOB GEMR, final demand from the US accounted for 8.3% of domestic value-added in Singapore, which is high relative to other Asean countries.
Dividends under threat
Koh thinks the banks’ ability to pay “generous” dividends is “under threat”.
He expects DBS to maintain dividend per share (DPS) at 60 cents in 4Q2025. Meanwhile, he expects OCBC's DPS to be stable at 100 cents in 2025. “We might have to revise our DPS forecast lower if downward pressure on economic growth intensifies going forward,” Koh adds.
Koh has cut his FY2026 net profit forecasts by 13% to $9.317 billion for DBS and $6.766 billion for OCBC on higher credit costs from an expected uptick in non-performing loans from the manufacturing sector and lower loan growth overall.
As at 3.12pm, DBS shares are trading $4.27 lower, or 9.86% down, at $39.03; while OCBC shares are trading $1.30 lower, or 7.82% down, at $15.32.
Table: UOBKH
