DBS, OCBC to see net profits dip, loan growth soften in Q1

“Softer NIM but resilient asset quality.”
 
Two of the largest banks in Singapore are expected to report a year-on-year (yoy) drop in net profits for the first quarter, although their asset quality will remain resilient according to UOB Kay Hian.

In a note, UOB Kay Hian projected DBS Group Holdings to see its first-quarter net income decline by 3% yoy to $2.5b, which will still represent a 10% rebound when compared to its net profit in the fourth quarter of 2023.

Oversea-Chinese Banking Corporation (OCBC) is also forecasted to book a 3% yoy decline in net profit to $1.8b for the first quarter. On a quarterly basis, the estimated bottom line will represent a 12% increase from the previous three months.

The two lenders are seen reporting softer net interest margin (NIM) in the first quarter largely due to the sharp decline in the three-month Hong Kong Interbank Offered Rate (HIBOR). Loan growth will also stay muted for the banking giants as companies borrow less amid a high-interest rate environment.

DBS and OCBC are estimated to see loan growth inch up by just 0.8% and 1.4% yoy, respectively.

Net interest income for DBS is also projected to ease to a 4% yoy growth in the first quarter from 4.7% in the previous three months, while OCBC’s net interest income could pick up by 4% yoy from 3.2% previously.

Despite rising interest rates, UOB Kay Hian expects the banks to keep the quality of their assets stable. DBS’s non-performing loan (NPL) formation will likely stay benign with a stable NPL ratio of 1.1% for the first quarter.

“DBS has accumulated ample management overlay for general provisions of S$2.2b set aside previously during the COVID-19 pandemic. We expect DBS to set aside total provisions of S$213m and incur credit cost of 20bp in 1Q24,” UOB Kay Hian said in the note.

OCBC’s NPL ratio is also expected to remain steady at 1%.

“[OCBC’s] management aims to deliver incremental revenue of S$3b cumulatively over 2023-25, driven by… Asian wealth, trade and investment flows, new economy, and sustainable financing,” it added.

UOB Kay Hian maintained an “overweight” rating for Singapore’s largest banks.

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