Singapore's largest banks are likely to face pressure on margins as the global interest rate cycle eases, but they are poised to sustain steady net incomes as the country continues to attract global capital.
Net interest margins (NIMs) at all three large Singapore banks — DBS Group Holdings Ltd., United Overseas Bank Ltd. and Oversea-Chinese Banking Corp. Ltd. — are expected to edge lower over the next two years, according to estimates by at least three analysts on Visible Alpha, a part of S&P Global Market Intelligence. The three banks will report their full-year 2024 earnings in February, and they are expected to show net income growth. DBS, Southeast Asia's biggest bank by assets, is forecast to post a net income of S$11.30 billion in 2024, an increase from S$10.29 billion in 2023, according to Market Intelligence and Visible Alpha data.
Singapore's banks are likely to sustain their profits and performance in 2025, Glenn Thum, senior research analyst at Phillip Securities Group, told Market Intelligence in an email.
"The main driver being the continued growth in fee income, particularly wealth management income as the banks' assets under management continues to grow from the vibrant capital markets," Thum said.
The lenders posted strong earnings in the July-to-September quarter of 2024, with wealth management business driving profits. DBS reported a net income of S$3.03 billion in the September quarter, its highest on record.
Still, Singapore's economy could be vulnerable to any potential increase in tariffs from the incoming US administration. President-elect Donald Trump has vowed to increase tariffs for several trading partners, including China. Global interest rates are expected to ease during the year, though the pace of cuts may slow after the US Federal Reserve signaled fewer moves in 2025.
The main challenge for banks in 2025 would be lower interest rates, according to Thum of Phillip Securities Group. "While expectations have been lowered for fewer rate cuts, lower interest rates could still impact the banks' main revenue segment, their net interest income (NII) and more importantly their NIMs," Thum said.
"Singapore banks are unique as they have ample excess deposits which they are able to place back into interest earning assets in order to maintain their NII. Whether or not they are able to manage their excess deposits well will be an indicator of their profits this year," Thum added.
Singapore's Ministry of Trade and Industry has forecast GDP growth of approximately 3.5% in 2024 and between 1.0% and 3.0% in 2025. In a Jan. 14 report, Nomura analysts assigned a 55% probability to the Monetary Authority of Singapore easing its currency policy in 2025, as the central bank likely considers the current stance restrictive amid the risk of Trump's tariffs.
Outgoing CEO DBS CEO Piyush Gupta expects Singapore's outbound business to hold up even under a Trump administration. He noted that the primary concern would be legal and regulatory risks arising from sanctions and other policies.
"On interest rates, if there are fewer cuts because a Trump administration would be more inflationary from immigration policies, tariffs and deficit spending, it will [obviously] help our NIM. It will also help our fixed-rate asset repricing, which we are currently assuming will have minimal benefit next year," Gupta said during the bank's third-quarter results announcement on Nov. 7, 2024.
"On the other hand, higher rates could have an impact on global growth. We have not [forecast] very strong loan growth for next year in any case — just 4%-5%. It is possible that loan growth becomes a bit less," Gupta added.
OCBC CEO Helen Wong sees opportunities in a potential US trade conflict, as it aligns with the bank's initiative to cater to Asian clients.
"Geopolitical tension will be more fierce, I think," Wong said during the bank's Nov. 8, 2024, earnings call. "You just have to look at what's the impact of that and then how we capture opportunity."