Singapore’s three local banks chalked up record-breaking profits last year on the back of higher interest rates, but uncertainties around rate cycles and global growth may crimp earnings moving forward, analysts said.

DBS – the first of the three local lenders to release earnings results on Feb 13 – said its fourth-quarter net profit soared 69 per cent year-on-year to hit a new record of S$2.34 billion. This blew past analysts’ estimates of S$2.16 billion and marked a second straight quarter of record-breaking profits.

For the full year, net profit grew 20 per cent to S$8.19 billion – also a record performance.

UOB and OCBC followed up with their report cards last week.

UOB’s core net profit for the fourth quarter rose 37 per cent to S$1.4 billion, beating analysts’ forecast of S$1.2 billion. Including one-off expenses such as the acquisition of Citi’s consumer banking businesses in parts of Asia, quarterly net profit was S$1.15 billion, up 13 per cent from a year ago.

For the full year, core net profit increased 18 per cent to S$4.82 billion, while net profit gained 12 per cent to S$4.57 billion after taking into account the one-off expenses. Both are new record highs.

Over at OCBC, fourth-quarter net profit rose 34 per cent from a year ago to S$1.31 billion, missing a S$1.6 billion estimate based on analysts polled by Bloomberg

Full-year net profit was up 18 per cent to a new high of S$5.75 billion.

After ending 2022 on “a solid note”, the three banks are set to improve their profitability further in 2023, said Mr Eugene Tarzimanov, vice-president and senior credit officer at Moody’s Investors Service. 

“Yet the pace of change will be less significant than last year because of growing funding and operating costs,” he added.


Rising interest rates have been a boon for local lenders, as seen from the double-digit growth in net interest income – earnings on loans minus deposit costs – and net interest margins last year.

But with the US Federal Reserve on track for smaller interest-rate hikes this year, banks will start seeing slower earnings growth on this front, said IG’s market strategist Yeap Jun Rong.

Funding costs are also catching up amid the continued competition for deposits, which may see growth momentum in net interest margins “start to come off notably”, said Mr Thilan Wickramasinghe, head of research at Maybank Securities in Singapore.

Top executives at the banks have flagged a cautious outlook.

OCBC, for instance, is guiding a net interest margin of about 2.1 per cent this year versus 1.91 per cent for 2022 and 2.31 per cent in the latest quarter.

Speaking at the bank’s results briefing last week, group chief executive Helen Wong said global interest rates may plateau and even taper in the second half of 2023.

“I don’t want to paint too rosy a picture as we go into the rest of the year,” she was quoted as saying in an article by The Business Times.

There could also be challenges in loan growth amid fears of a global recession, although the reopening of China may “provide some tailwinds”, said Mr Wickramasinghe.

Mr Pramod Shenoi, co-head of Asia-Pacific research at CreditSights, noted that each bank has its focus areas when it comes to loan growth. For example, DBS is banking on its large corporate pipeline, while OCBC and China are optimistic about China’s reopening and the region’s growth prospects.

Still, loan growth “is likely to be difficult and competition is likely to be more intense, thereby not allowing rate rises to be passed through as expecting and capping net interest margins,” he added.

A mixed outlook also lies ahead for the banks’ fee income from wealth and retail segments.

Wealth management fees have been muted given choppy markets. Mr Wickramasinghe said this would pick up when the market outlook becomes clearer, but that may happen only later in the year.

Higher fee income from credit cards may also be likely as more people resume overseas travel.

“But if consumers get more cautious with an uncertain economic environment, or interest rates being higher for longer and affect discretionary spending, then card spending may not see too much growth too,” said Mr Shenoi.

Asset quality is the other headwind for banks moving forward, experts said.

“Corporates and consumers are facing high input costs and high interest rates. This is impacting margins and disposable income, so asset quality pressure and delinquencies need to be closely watched going forward,” said Mr Wickramasinghe.


Following their respective earnings results, shares of the banking trio have come off their highs set earlier in the year.

Shares of DBS slipped 0.17 per cent, or S$0.06, to finish at S$34.34 on Monday (Feb 27). OCBC gained 0.24 per cent, or S$0.03, to S$12.70, while UOB rose 0.3 per cent, or S$0.09, to end the trading day at S$29.94.

“I think the general downside reaction in share prices to the banks’ results reflects some concerns on whether this stellar performance can continue through 2023,” said Mr Yeap.

But this may be temporary, going by the target prices of analysts.

For example, brokerage UOB Kay Hian has a target price of S$45.80 for DBS, while RHB Group Research sees DBS’ stock hitting S$42.

For UOB, CGS-CIMB has a target price of S$33.30 and OCBC Investment Research sees the stock’s fair value at S$34.

The local banks also remain “a stable dividend play” for shareholders, especially after having upsized their dividend payouts following the upbeat fourth-quarter results, said Mr Yeap.

DBS, which pays its dividends quarterly, recommended a final dividend of S$0.42 per share and a special dividend of S$0.50 per share.

UOB and OCBC pay their dividends half-yearly. The former has declared a higher dividend of S$0.75 per share for the half-year period, while OCBC also raised its final dividend to S$0.40 per share.

OCBC also said it would target a 50 per cent dividend payout ratio going forward, as a signal that the lender will increase returns to shareholders.

“Local banks have a stellar history of maintaining their dividends even during times of an economic downturn, with the exception of the COVID-19 period due to an authorities’ dividend cap,” Mr Yeap said.

“With the recent bump higher in dividends from all three banks, dividend yields are higher than its five-year historical average,” he added.

Source: CNA