In a report dated July 16, JP Morgan dampened animal spirits among local banks. It is recommending that investors trim OCBC and UOB. “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’s overseas direct investment-related rules a possible catalyst for a sharper correction. Singapore Exchange 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 in DBS’s 2Q2026 net profit, flat y-o-y and down 4% q-o-q. net interest income (NII) is forecast to grow by 2% q-o-q as DBS focuses more on NII rather than net interest margin (NIM). Non-performing loans (NPL) are expected to remain stable at 1.0%, reflecting DBS’s pivot towards secured lending and portfolio derisking, with credit costs at 18 basis points (bps).
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 remain flat, with asset quality remaining intact. JP Morgan is forecasting 42 cents per share in dividends, reflecting a 50% payout of 1H2026 earnings per share (EPS).
JP Morgan has the Street’s lowest net profit estimate for UOB of $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.
See also: DBS at $100: here is how it could get there
Safe-haven Singapore
Other analysts have sounded a more positive note. In a report dated July 13, UBS points out that Singapore continues to be viewed as a safe-haven market. Currency and macroeconomic stability, political continuity and attractive dividend yields have attracted capital inflows. Within the market, banks have been key beneficiaries given their size, liquidity and index weight, UBS notes. The three local banks account for around 50% of the Straits Times Index (STI), with DBS having an outsized impact of 25%. As a result, the local banks have captured a meaningful share of liquidity inflows.
See also: Banks' rally pushes market cap of DBS just whisker off $200 bil mark
Wealth management has become a more important part of the investment case. “Strong asset under management (AUM) growth has supported fee income, helping offset NIM pressure. Wealth management is also capital-light and structurally higher-return than traditional lending, supporting group ROE over time. The business is benefiting from the same safe-haven inflows that are supporting the broader market, creating a reinforcing cycle of AUM growth, fee growth and stronger profitability,” UBS reasons.
Wealth management momentum should remain supportive, with DBS and OCBC expected to deliver strong wealth management fee growth of around 40% y-o-y, UBS says. In the past month, all three banks have announced wealth management initiatives.
On July 1, OCBC launched OCBC WoW (whole-of-wealth), an app featuring avatars Wendy and Wayne who interact with customers on their wealth journey. During a media briefing at the launch, group CEO Tan Teck Long announced that OCBC plans to onboard 600 relationship managers, while Sunny Quek, group managing director, global consumer financial services at OCBC, is looking to double consumer banking wealth management revenue by 2029.
According to Jonathan Koh, banking analyst at UOB Kay Hian, OCBC’s private banking arm, Bank of Singapore (BOS), is sharpening its focus on ultra-high-net-worth (HNW) clients in Southeast Asia and North Asia, in line with the expansion of OCBC’s WoW ecosystem. “It has revamped its compensation framework for greater transparency to attract more prospective relationship managers. BOS has achieved its target of 500 private banking relationship managers by 2025. It aims to grow AUM contributed by ultra HNW clients by 30% by 2028,” Koh says in his report.
On July 3, UOB’s head of group retail, Susan Hwee, told Dow Jones that the private bank plans to onboard more relationship managers, bringing the total to 450 by 2030 from the current 280. During its 1QFY2026 results briefing, UOB group CEO Wee Ee Cheong indicated that UOB’s wealth management income is expected to double from 2025 levels by 2030.
Then, on July 14, DBS announced a new AUM target of $1 trillion by 2030; the expansion of frontline advisors and platform engineers by an additional 600; and the planned opening of 18 new wealth centres.
Tip-toeing around forecasts
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Should analysts be bolder in their forecasts? In a report dated July 6, Jaydan Vantarakis, banking analyst at Macquarie, says his forecasts are above consensus. For 2Q2026 overall, he is expecting “a 4% y-o-y movement in pre-provision operating profit (PPOP) and net profit, with non-interest income materially higher than a year ago”. He is forecasting NII for the three banks to be flat or slightly higher q-o-q, given the flattening of the Singapore overnight rate average (Sora) curve.
The three banks have guided for mid-single-digit loan growth, and analyst forecasts have not deviated from the guidance. “Trends in their home market have been strong. As in other markets, there appears to have been a strong increase in working capital utilisation in Singapore since the onset of the Middle East conflict, with businesses drawing on facilities to fund inventory build-up in anticipation of higher costs,” Vantarakis says in his report.
Notably, system loan growth has been above average. Total loans grew by 8.7% y-o-y in June following a 10.5% y-o-y growth in May. The banks have between 44% and 60% of their loan portfolios in Singapore (loans are booked where credit risks reside), with DBS most exposed and OCBC the least.
In general, analysts expect net interest margins (NIM) to have bottomed in 2Q2026. The three-month Sora declined by 7 basis points (bps) in the second quarter, compared with 16 bps to 60 bps in previous quarters, according to the UBS report dated July 13.
However, there are a few moving parts for 2Q2026 NIM. UBS says that deploying excess liquidity in high-quality liquid assets (HQLA) remains dilutive to NIM but accretive to NII. UBS also notes that OCBC’s May reduction in its flagship savings rate should help lower funding costs. In addition, DBS’s fixed-rate asset repricing remains a NIM drag, although higher rate expectations since 1Q2026 suggest the impact may be less severe than initially expected, UBS suggests.
Overall, with stable to growing NII, and higher fee income growth from wealth management,
Macquarie has raised its EPS for the sector by 1%, 6% and 7% for 2026, 2027 and 2028, respectively. Higher growth expectations have been incorporated into ROE projections and valuation models, driving higher target prices.
Lower cost of equity, higher valuations
Akash Rawat and Benjamin Tan, banking analysts at UBS, have raised their price targets for the banks by 25%, “driven primarily by lower cost-of-equity assumptions reflecting the decline in market-implied equity risk premiums (ERPs) in recent months.”
DBS’s dividend discount model (DDM)-based price target is raised to $72.50 (from $58) by the duo, implying a 2.9 times FY2027 price-to-book (P/B) ratio. DBS’s higher price target is driven by a combination of 2% to 4% EPS upgrades for FY2026 and FY2027, a 100 bps reduction in the cost of equity assumption to 9.7% and a higher sustainable ROTE (return on tangible equity) assumption of 20% from 19%. “The lower cost of equity is broadly in line with the decline in the market-implied cost of equity over the last three months,” the UBS analysts write in their report.
For OCBC, UBS has raised the price target to $27.50 (from $21), implying a 1.8 times FY2027 P/B ratio. As with DBS, the higher price target reflects a lower cost-of-equity assumption and a higher sustainable return profile. “Specifically, our target is driven by 1% to 2% EPS upgrades for FY2026 and FY2027, a 100 bps reduction in our cost of equity assumption to 9.7%, and a higher sustainable ROTE assumption of 14.0% (from 13.5%).”
UOB’s price target is raised to $45.0 (from $37.8), implying 1.3 times FY2027 P/B. Similar to DBS and OCBC, the higher target reflects a lower cost-of-equity assumption and a modestly stronger earnings outlook. “Our target is driven by 1% to 2% EPS upgrades for FY2026 and FY2027, a 100 bps reduction in our cost of equity assumption to 11.2%, and a higher sustainable ROTE assumption of 13.5% (from 13.0%),” Rawat and Tan write.
Rawat and Tan point to DBS as their top pick in the sector, supported by superior capital returns. “While its valuation of 2.75 times P/B may appear optically demanding on an absolute basis, adjusting for its structurally higher ROE implies an equity risk premium broadly in line with OCBC; we believe the valuation premium remains justified,” the duo write in their report.
UOB remains the cheapest of the three Singapore banks on both price-to-book and implied ERP metrics, according to Rawat and Tan. “The key question is whether this valuation gap can narrow over time. In our view, this will depend largely on UOB’s ability to accelerate growth in its wealth management franchise and close the gap with peers,” the duo say in their report.
