DBS, OCBC to log higher net profits, muted loan growth for Q4: analyst

DBS may hike its quarterly dividend by 6 cents to return surplus capital.

Two of Singapore’s biggest banks are expected to report higher profits but softer net interest and non-interest income for Q4 2023, according to UOB Kay Hian.

DBS and OCBC will release their financial reports in February 2024, where they are expected to report single-digit increases in their net interest income (NII), at 7% year-on-year (yoy) for DBS and 3% yoy for OCBC, said UOB Kay Hian analyst Jonathan Koh, CFA, MSc Eco.

Koh expects DBS to report a net profit of S$2.36b, 1% higher compared to Q4 2022 but 9% lower than its Q3 2023 profit levels.

OCBC, meanwhile, is forecasted to report S$1.65b in net profit for the quarter.

“Non-interest income, such as wealth management fees and net trading income, are likely to be seasonally softer,” Koh said.

DBS is also forecasted to hike its quarterly dividend by 6 Singapore cents, or 12.5%, to 64 cents for the Q4 period. This would be its way of returning “suprlus capital” to shareholders, Koh noted.

“DBS could consider potential capital management exercise to return surplus capital to shareholders over three years given that Final Basel III Reforms are already finalised and would be implemented starting 1 July 2024,” Koh wrote in the commentary report.

OCBC, meanwhile, is expected to maintain its dividend payout ratio at 50%.

Subdued loan growth
Both DBS and OCBC will likely report muted loan growth and a slight moderation of NIM.

DBS’s NIM is expected to slightly moderate in Q4, with loan growth at just 1.4% during the quarter due to weakness in corporate loans and repayments by customers. 

OCBC’s loan growth will be 1.1% yoy but flat sequentially in Q4, said Koh, as heightened geopolitical uncertainties dampen customers’ appetite for business.

OCBC’s NIM is expected to remain stable at 2.26%; whilst net income is expected to grow 3% yoy in 4Q23 (3Q23: 17% yoy).

ASEAN growth = SG banks’ growth
The ongoing reorientation of supply chain strategies by global corporations across Southeast Asia will benefit OCBC and UOB, who have franchises across the region.

Many multinational companies, who have adopted the China+1 strategy, are planning to set-up alternative production facilities within the region, Koh noted. 

Notably, Malaysia, Thailand, Indonesia and Vietnam are seeing growth in foreign direct investments.  

“OCBC and UOB benefit from the reorientation of supply chain due to their extensive network within ASEAN countries,” Koh said.