All three banks’ net interest income (NII) comprises more than 60% of their total income. The local banks’ investment banking and trading income is comparable to that of some of the largest banks in the US. To a certain extent, banks are likely to have some form of fixed-rate hedges that protect them from too drastic a fall in interest rates.
Nonetheless, Citi remains bullish on DBS Group Holdings because of the way it manages its “book”. DBS is expected to report a net profit of $2.8 billion in 3QFY2025 ended Sept 30, with the impact on NII offset by wealth-related non-interest income through fees and commercial non-interest income. The consensus forecast based on a Bloomberg poll is $2.784 billion. This would represent a decline of 6.7% y-o-y compared to the $3.027 billion recorded in 3QFY2024. In 2QFY2025, DBS reported a net profit $2.824 billion.
“We forecast market-trading and commercial non-interest income to be below 3QFY2024 levels, but for fees to grow 9% y-o-y. These drive our revenue to be 2% ahead but offset by higher operating expenses and marginally higher provisions,” the Citi report says. It adds that FY2026’s outlook is likely to be similar to FY2025, with potential upside from provisions, and lower operating expenses on lower headcounts.
DBS group CFO Chng Sok Hui has said the banking group’s general provisions overlay was at $2.6 billion as at end-June, with total allowance reserves at $6.44 billion and $4.11 billion in general allowance reserves.
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The consensus forecast for Oversea-Chinese Banking Corp’s (OCBC) 3QFY2025 ended Sept 30 net profit as per the Bloomberg poll is $1.794 billion. In 2QFY2025, OCBC reported a net profit of $1.816 billion, compared to its 3QFY2024 net profit of $1.974 billion.
Citi says its estimate for OCBC is likely to be underpinned by “benign” provisions of 20 basis points (bps). In 1HFY2025, OCBC had a dividend payout ratio of 50% which translated into a dividend per share of 41 cents.
As per Bloomberg’s earnings estimate, United Overseas Bank (UOB) is expected to report a net profit of $1.343 billion in 3QFY2025 ended Sept 30. Citi is expecting UOB’s net profit for the third quarter to come in at $1.4 billion. In 2QFY2025, UOB reported a net profit of $1.338 billion, and in 3QFY2024, net profit was $1.639 billion.
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During UOB’s 2QFY2025 results briefing, its management had articulated that it planned to increase its general provisions.
“We estimate a one-off $360 million provision based on 80 bps of performing loans (currently 68bps),” the Citi report says.
A UOB Kay Hian unrated report on UOB concurs. “UOB intends to top up general provisions from 80 bps to 90 bps of gross loans, which represents additional general provisions of $343 million. Management is weighing options to spread the additional general provisions over several quarters or to take the full hit in a single quarter. Recognising the required additional general provisions by the end of 2HFY2025 would remove the overhang. Thus, total credit costs for 2025 would be higher than the previous guidance of 25 bps to 30 bps,” the UOB Kay Hian report dated Oct 22 states.
The report adds that UOB’s management sees a healthy loan growth momentum in 3QFY2025, driven by the technology sector and trade loans.
However, three-month compounded Sora fell by 60 bps q-o-q to 1.46% in 3QFY2025, which is likely to impact UOB’s 3QFY2025 NIM negatively. The exit NIM at the end of the second quarter was 1.84%.
“NIM compression could be more severe in 3QFY2025 compared with 2QFY2025, when UOB saw NIM narrowing by 9 bps q-o-q. On a full-year basis, NIM could be at the bottom end of its previous guidance of 1.85%–1.90% for 2025,” UOB Kay Hian warns.
Elsewhere, Citi reckons that DBS’s fixed rate hedges could cushion its NIM by 15 bps. These are likely to roll off over the next three to four years, which could be offset by easing cost of funds, asset growth, and wealth fees income.
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All three banks announced capital management initiatives last year. CFO Chng of DBS has stated that DBS is committed to a total dividend per share, including its capital return, of $3 per share for this year and next. DBS also announced a $3 billion share buyback programme last year, of which it has completed around 12.4%.
In addition to its dividend payout of at least 50% of net profit, OCBC announced a $2.5 billion capital return to shareholders over two years via special dividends and share buybacks. The capital return comprises special dividends amounting to 10% of the banking group’s net profit for FY2024 and FY2025, with the balance via share buybacks over two years, subject to market conditions.
UOB announced a $3 billion capital return programme comprising a special dividend of 50 cents per share over two tranches in 2025 to commemorate the bank’s 90th anniversary ($800 million), and a new share buyback programme of $2 billion over the next three years (2025-2027).
UOB Kay Hian estimates UOB bought back and cancelled $480 million worth of shares as of the end of September, which represents 24% of the $2 billion target.
DBS and UOB will announce their 3QFY2025 results on Nov 6, and OCBC will report on Nov 7.
