DBS, UOB and OCBC raise dividends in 1H24. Which is a better buy?

What happened?

Singapore banks' share prices have been fairly volatile in in recent weeks. 

This was partly driven by sell-off in global stocks earlier this month, due to growing concerns about a recession in the US. 

The share prices of DBS, UOB, and OCBC were also impacted by their latest results.

It is hence not a surprise that when I did a poll in the Beansprout community recently about which stocks to feature in the Weekly Market Review, the Singapore banks appeared at the top of the list. 

Earlier, we shared that DBS' share price has performed better than UOB and OCBC in the first half of 2024 due to the strong earnings it has reported. 

DBS' share price continues to perform well after its latest earnings, rebounding from $32.75 on 6 August to close at $35.56 on 16 August. 

With the recovery in DBS' share price, the stock would have gained 17.9% year-to-date. This would exceeded OCBC's share price index of 10.8%, UOB's share price increase of 6.8%, and the Straits Times Index (STI) gain of 3.8% so far this year. 

Let us dive deeper into the recent results of the Singapore banks to find out what is driving the divergence in the share price of DBS, UOB and OCBC.

What you need to know about DBS, UOB and OCBC 1H24 earnings

Singapore banks' 1H24 earnings reports have taken the edge off concerns over interest rates and slowing growth. Key highlights were:

• DBS outperformed on all fronts. It posted the strongest growth in total income and net profit. It raised net profit guidance to a mid- to high-single digit growth. The company also guided towards a dividend per share of at least S$1.14 in 2H24.

• Non-interest income was the key growth driver for DBS and OCBC. DBS grew fee income from credit card and wealth management. For OCBC, higher trading income offset weaker fee income from wealth management. There is room for the banks to continue to grow their asset under management, which may lead to a further increase in non-interest income’s share of total income.

• Loans growth remains tepid at low single digit. UOB surprised with a 0.03%-point expansion in net interest margin in 2Q24 to 2.05%, driven by higher loan margins and stable deposits despite a cut in FD rate in 2Q. DBS enjoyed a 0.06%-point increase in net interest margin from commercial loan book from asset repricing. OCBC’s net interest margin fell due to tighter yields and a skew towards high-quality assets.

• Asset quality remains healthy. Non-performing loans ratios improved with low credit costs. 1H24 credit costs for UOB (25 basis points) and OCBC (21 basis points) were in line with guidance. DBS’ credit cost for impaired loans further improved to 8 basis points.

• Dividends were raised.  DBS paid an unchanged dividend of S$0.54 per share in 2Q, in line with guidance. UOB and OCBC raised dividend per share with unchanged 50% payout ratios. Assuming same dividend per share for 2H24, this translates to annual yield of 6.3% for OCBC, 5.9% for UOB and 6.4% for DBS.

Mixed performance by DBS, UOB and OCBC

Singapore banks reported a mixed set of performance in 1H24 and in 2Q24. DBS was a strong beat on all fronts. OCBC’s net profit grew on lower credit provisions year-on-year. UOB’s 1H24 was flat year-on-year.

Tepid loans growth 

Loans growth was low, ranging from 2.2% to 2.7% year-on-year. DBS’ loans were flat in 2Q over 1Q. All three banks are guiding for low single digit loans growth in 2024, pointing to very conservative lending policy.

Net interest margin expanded except for OCBC

The growth in net interest income was driven mainly by net interest margin (NIM) expansion. 

DBS’s NIM from commercial book rose 0.06%-point in 2Q24 to 2.83%, with continued repricing of fixed-rate assets.

UOB’s loans NIM also edged up 0.04%-point to 2.51% in 2Q24, driven by higher loan margins and stable deposits despite a cut in FD rate in 2Q. The higher CASA ratio helps to lower the cost of funds (Figure 5).

The overall NIM for DBS (2.14%) and UOB (2.05%) was brought down by lower margin from trading. 

OCBC’s NIM fell 0.07%-point to 2.20% in 2Q24 (Figure 4), due to tightening loan yields and a skew towards high quality low-yielding assets. Management has guided for NIM at 2.20%-2.25% for FY24. With 1H24 NIM at 2.23%, this suggests that FY24 NIM could land at the lower end of the range.

Non-interest income’s share of total income continued to grow

Non-interest income was the key growth driver in 1H24 for DBS and OCBC, increasing by 20.2% and 14.8% year-on-year respectively.

DBS enjoyed higher fee income from credit cards and wealth management, aided by the contribution from Citi acquisition from late 3Q23. For OCBC, higher trading income drove earnings growth.

Across all three banks, net interest income’s share of total income has reduced over the years (Figure 6). Non-interest income now accounts for 31-35% of total income.

Fee income will continue to take a bigger share of total income with larger assets under management. All three banks gathered more AUM in 1H24. 

Credit costs stayed low

Asset quality remains healthy, with stable or declining non-performing loan (NPL) ratios. Credit cost on impaired loans have improved over the quarters. This dialled down the concern of the impact on credit costs with a slowdown in growth.

Strong capital ratios support sustainable dividend

The improved earnings and strong asset quality has helped to sustain healthy CET1 ratios.  Strong ROEs would support sustainable dividend.

Dividends were raised

UOB and OCBC raised dividend per share by 3.5% and 10% in 1H24 compared with 1H23, as they kept payout ratio at around 50%.

DBS adhered to its previous guidance of a dividend of 54 cents per share for 2Q24. It will pay S$2.22 per share in dividend for FY24 if it does not pay a special dividend.

Singapore banks offer decent dividend yield

DBS' stronger share price performance compared to UOB and OCBC appears to be driven by a few factors.

Firstly, DBS reported the strongest growth in net profit in 1H24 across the three banks. 

DBS also raised its guidance for net profit to grow at mid- to high single digit. It expects net interest income to grow at mid-single digit and non-interest income at mid-to-high teens. This suggests a lower year-on-year growth in 2H24, compared with 1H24’s 10.4%. Fee income is likely to do the heavy-lifting, underpinned by larger wealth management AUM and full-year contribution from the acquisition of Citi Taiwan that was completed in late 3Q23.

On the other hand, UOB maintained its guidance of a positive growth in total income, and double-digit fee income growth. 

All three banks expect a low-single digit loans growth and credit cost to remain stable. DBS guided 10-15 basis points credit cost for impaired loans. UOB guided for overall credit costs to come in at the lower end of 25-30 basis points. OCBC expects 20-25 basis points.

DBS offers a higher dividend yield compared to UOB and OCBC. Assuming the same dividend per share in 2H24 for UOB and OCBC, and S$1.14 per share for DBS, the annual dividend yields are 6.4%, 5.9% and 6.3% for DBS, UOB and OCBC respectively.

Hence, we would still consider Singapore banks for their dividend yields. 

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Recent reports:

• DBS share price rebounds after 2Q earnings. Our Quick Take
• OCBC reports higher profit and dividends - Our Quick Take
• UOB reports 1% rise in profit and dividend hike - Our Quick Take
   

Related links: 

• DBS share price and share price target
• DBS dividend history and dividend forecast
• UOB share price and share price target
• UOB dividend history and dividend forecast
• OCBC share price and share price target
• OCBC dividend history and dividend forecast