DBS rises more than UOB and OCBC after record profit. Still a better buy?

What happened?

The share prices of Singapore banks have been fairly strong so far this year.

DBS is trading close to an all-time high of $35.69, after completing its bonus issue and announcing a record first quarter profit. 

OCBC is also trading at close to an all-time high reporting a record first quarter net profit. 

As we shared earlier, both DBS and OCBC are Singapore blue chip stocks which managed to grow their profits in the first quarter of 2024.  

DBS and OCBC have gained 17.7% and 11.4% respectively so far this year, outperforming UOB which has a more modest gain of 7.2%. 

Nevertheless, Singapore banks have outperformed the Straits Times Index (STI), which has risen by 3% year-to-date.

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 Singapore banks first quarter profit 

The conclusion we draw from 1Q24 earnings report:

• Net profit are likely to be higher in FY24. This will allow room for higher dividend per share at UOB and OCBC as they keep to the 50% payout ratio.
• Funding costs will play a bigger role in shaping NIM, while asset pricing remains tight as the banks compete for quality customers
• Asset quality remains benign. NPL remains low and stable. NPA formation is muted except for a slight bump at OCBC.
• Fee and trading income’s share of total income is growing. Rising wealth management AUM, relatively more stable interest environment and buoyant equity markets have raised customers’ investment appetite and trading gains.

#1 - All three banks are likely to have a stronger FY24

After posting a 14.8% growth in 1Q24, DBS expects higher profit for FY24. This would be driven by modest growth in net interest income, and a stronger growth from wealth management and treasury sales.

UOB expects to achieve positive growth in total income. Credit provisions are likely to remain stable compared with FY23, with credit costs at the lower end of 25-30 basis points. With the roll-off of Citi integration cost in 2H24 (F23: S$350 million), it could see higher net profit for FY24.

Wealth management and trading income propelled OCBC’s total income higher by 8.2% in 1Q24. Wealth management AUM grew by S$10 billion to S$273 billion, which would fuel fees and trading income as more funds are channelled into investments. This segment could potentially drive OCBC to report higher FY24 profit.

#2 - Funding cost shapes NIM outlook

DBS’s net interest margin (NIM) increased from 2.13% in the previous quarter to 2.14%, due to repricing of fixed rate assets previously booked at lower rates. About S$16 billion was repriced in 1Q, with S$22-26 billion in the remaining quarters, and S$54 billion over 2025 and 2026. This could lift its average lending rates. 

DBS guides for flat to moderate decline in FY24 NIM (from 4Q23 NIM of 2.13%). The bank intends to focus on longer duration loan assets which might yield lower rates but sustain interest income. It also sees risk that deposit rates stay high.

UOB’s NIM in the first quarter was at 2.02%, as it competes for good quality customers. Overall NIM was stable as they made up for the shortfall through investing in higher-yielding long duration products in their securities book.

UOB believes margin could improve in 2Q if its recent cuts in fixed deposits rates can hold. 

On the reverse, OCBC NIM fell to 2.27% from 2.29% in 4Q23. It guides for FY24 NIM to land at the higher end of 2.2-2.25%, if rate cuts are less than expected. 

#3 - Asset quality remains benign, slight bump at OCBC

Credit costs were low. Provisions for impaired loans were lower at 10 basis points for DBS, and 20 basis points for UOB. Both were down year-on-year and quarter-on-quarter. 

OCBC was an exception with credit cost of 18 basis points, compared with 5 basis points in 1Q23 and zero in 4Q23. Non-performing assets were 4.8% higher over 4Q23, but management maintains that there is no systemic risk. NPA coverage is adequate at 146%.

#4 - Higher fee income from wealth management and trading

Non-interest income has grown faster than net interest income, and now accounts for 32.8% of total income for OCBC, 33.0% for UOB and 36.9% for DBS.

All three banks grew assets under management (AUM), which generates fees from wealth management, loans, credit cards and trading income. During 1Q24, OCBC grew AUM by S$10b, DBS S$6b, and UOB S$3b.

What would Beansprout do?

Overall, it seems like Singapore banks are likely to see stronger net profit in 2024. 

DBS’ total income growth, which is guided to grow by a high single-digit, is underpinned by asset repricing, and strong momentum in non-interest income through wealth management and treasury sales. It expects a higher net profit in FY24.

UOB’s FY24 net profit could potentially be higher, due to the roll-off of Citi integration costs (FY23: S$350 million), a stable NIM if the cut in FD rates can hold, and higher trading income.

OCBC could grow FY24 net profit from lower costs and a bigger AUM buildup. The privatisation of Great Eastern, if successful, could add a marginal S$90 million to net profit.

Across the three banks, DBS has a stronger growth in core earnings, and is less reliant on growth in trading income which is market-dependent.

Find out how much dividends you would have received as a shareholder of DBS in the past 12 months with the calculator below.  

The higher profit will allow room for higher dividend per share for the Singapore banks. UOB and OCBC’s absolute dividend per share may rise as they adhere to the 50% payout ratio. DBS has also indicated that it will pay at least S$2.16 per share for FY24.

Across the banks, DBS is still expected to offer the highest dividend yield of 6.1%, above OCBC’s dividend yield of 5.8% and UOB’s dividend yield of 5.6%.

This means that despite DBS’s stronger performance compared to UOB and OCBC so far this year, there might still be reason for income investors to prefer DBS over the other two banks. 

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Related links: 

• DBS share price and analysis
• DBS dividend history and upcoming dividend dates
• UOB share price and analysis
• UOB dividend history and upcoming dividend dates
• OCBC share price and analysis
• OCBC dividend history and upcoming dividend dates