Singapore Banks See Share Slump; DBS Still Analyst Pick
Singapore's three major banks collectively shed over US$22 billion in market value last week. Analysts remain divided on Q3 earnings prospects, though DBS retains favourable ratings.
Singapore Banks Face Q3 Earnings Scrutiny
Singapore's three largest banks, DBS, OCBC, and UOB, collectively saw their market value decline by over US$22 billion last week. This downturn began on 7 October, following Citi's downgrade of OCBC to a "sell" rating and its reiteration of a "sell" call on UOB.
Analysts now suggest the lenders' third-quarter earnings might fall short of market expectations, citing potential margin compression from higher interest rates and pressure on debt holdings from rising bond yields.
Despite these concerns, the lending environment remains "favourable," with the Monetary Authority of Singapore reporting a 16% year-on-year increase in loan growth for August.
DBS Maintains Positive Outlook
DBS has emerged as a preferred stock among analysts, even after the recent sector-wide sell-off. CGS International (CGSI) analysts Tay Wee Kuang and Tan Jie Hui upgraded DBS to "add" from "hold" on Monday, raising its target price to S$79.50 from S$77.10.
They forecast a 2.9% year-on-year rise in DBS' non-interest income for Q3, driven by a 7.4% growth in wealth-management fees from new money inflows. Citi also holds a "buy" rating on DBS, setting a target price of S$86.80, and views the bank as an "Asia wealth proxy" benefiting from deposit inflows.
Divergent Views on UOB and OCBC
Analyst sentiment for UOB and OCBC presents a mixed picture. Macquarie Group's Jayden Vantarakis rates UOB as "outperform" with a S$45.29 target price, noting its 30% price-to-earnings discount. In contrast, Citi's Tan Yong Hong maintains a "sell" rating and a S$38 target price for UOB, projecting a 9% quarter-on-quarter profit reduction to S$1.35 billion for Q3.
For OCBC, Maybank Securities analysts Thilan Wickramasinghe and Amirul Rusydy hold a "buy" call with a S$37.23 target price, highlighting the bank's "whole-of-wealth" strategy, which includes its insurance subsidiary Great Eastern.
The upcoming Q3 earnings reports will be crucial for assessing the banks' performance. UOB is scheduled to release its results on 4 November, followed by DBS on 5 November, and OCBC on 6 November.
Investors will closely examine net interest margins (NIMs) and non-interest income figures, especially given CGSI's forecast for a 2.4% year-on-year decline in DBS' net interest income. Macquarie's Vantarakis expects DBS to meet expectations this quarter, partly due to its estimated 4.4% annualised dividend yield. These reports will provide clarity on the impact of interest rate movements and loan growth trends across the sector.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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