According to a report by IG, DBS and OCBC are expected to report lower net income year-on-year (y-o-y) in the first quarter of fiscal year 2025 (1QFY2025). On the other hand, UOB’s net income is projected to grow, albeit at a slower pace of 1.1% in 1QFY2025.
The downgrade in net income for DBS and OCBC is attributed to several factors, including higher loan loss provisions, compressed net interest margins (NIMs), and slower fee income growth. The Singapore banking sector has been facing challenges due to the ongoing economic uncertainty, which has led to a decline in business confidence and credit growth. As a result, banks have been increasing their loan loss provisions to cushion against potential credit losses.
DBS, in particular, is expected to report a lower net profit due to its significant exposure to the credit market and higher loan loss provisions. OCBC, on the other hand, is likely to be impacted by the slower fee income growth and compressed NIMs. The bank’s wealth management and insurance businesses are expected to be affected by the market volatility and lower investment yields.
In contrast, UOB’s net income is expected to grow, albeit at a slower pace of 1.1% in 1QFY2025. The bank’s diversified business model, which includes a strong franchise in Southeast Asia, is expected to cushion the impact of the economic uncertainty. UOB’s loan portfolio is also considered to be more resilient, with a lower proportion of high-risk loans.
The slower growth in net income for UOB is attributed to the higher loan loss provisions and compressed NIMs. However, the bank’s strong capital position and diversified business model are expected to support its growth in the long term. Overall, the Singapore banking sector is facing challenges due to the economic uncertainty, but UOB’s diversified business model and strong capital position are expected to help it navigate the tough environment.
The report by IG highlights the importance of banks’ ability to manage their risk exposure and maintain a strong capital position in times of economic uncertainty. The Singapore banking sector is expected to remain challenging in the near term, but banks with a diversified business model and strong capital position are likely to be better equipped to navigate the tough environment.