Loan growth & higher fees prop up Singapore banks’ earnings in Q1

DBS’ and OCBC’s DPS are likely to rise in H2.

Singapore’s DBS and OCBC delivered strong earnings across the board in Q1, thanks to loan growth picking up and a surge in non-interest income.

Loan growth rose 2% across the big three banks–including UOB–in Q1 compared to the same period in 2023, according to data compiled by UOB Kay Hian (UOBKH). This positions the banks to meet their guidance for single-digit loan growth in 2024, UOBKH analyst Jonathan Koh said.

Net interest margins were largely unchanged at 2.14% for DBS, 2.27% for OCBC, and 2.02% for UOB.

Net fee incomes grew during the quarter, notably for DBS, whose fee income rose by 23% compared to OCBC and UOB growing by 5%. This comes on the back of strong growth in wealth management fees: DBS’ wealth management fees rose by 47%, whilst OCBC’s wealth management fees expanded 20%.

Treasury sales and trading income also surged for DBS and OCBC, helping drive up non-interest incomes to grow by 24% (DBS) and 31% (OCBC), respectively.

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“Treasury customer sales reached record levels as companies rushed to hedge interest rate risk, triggered by the change in interest rate outlook to “higher for longer”. Markets trading income also saw a growth,” Koh noted.

In the near future, Koh and UOBKH sees the US Federal Reserve dancing two rate cuts in the second half of 2024. 

“Domestic interest rates in Singapore are likely to remain elevated for slightly longer but will start receding in 4Q24, in tandem with rate cuts in the US,” Koh said.

DBS is expected to raise its quarterly distribution per share (DPS) to 60 Singapore cents per share by Q4, representing an 11% increase. An elevated payout ratio of 67% for 2025 is also in the books, UOBKH said.

OCBC is forecasted to raise its final dividend to 44 Singapore cents in H2, representing a 5% increase. One future notable project that the bank may embark on is the redevelopment of the OCBC Centre, OCBC Centre South, and OCBC Centre East.