DBS vs OCBC: Which bank will perform better in 3Q23?

Both banks are expected to post year-on-year growths during the quarter.

Major banks, DBS and OCBC are expected to deliver better earnings in 3Q23, powered by healthy YoY growth in net interest income, modest QoQ recovery in wealth management and disciplined cost containment.

Comparing the two banks, DBS is likely to post a higher net profit of $2.5b in 3Q23. The expected profit translates to a 13% YoY increase, but a 4% QoQ drop.

“The sequential uptick in net interest margin (NIM) and fees was offset by credit costs normalising higher,” UOB Kay Hian said.

OCBC, on the other hand, is likely to record a 7% YoY and 1% QoQ growth in its net profit. UOB Kay Hian predicts the bank to record a net profit of $1.7b in 3Q23.

“On a YoY basis, healthy growth in net interest income was partially offset by lower contribution from insurance and higher credit costs,” UOB Kay Hian.

Looking at the resiliency of the bank’s net interest margin (NIM), UOB Kay Hian expects a muted loan growth of 0.2% QoQ in 3Q23 for DBS due to “weakness in non-trade corporate loans.”

“NIM expansion was moderated by the outflow of Current Account and Savings Account (CASA) in Singapore and moderation of  Hong Kong Interbank Offered Rate (HIBOR) in Hong Kong during August and September,” UOB Kay Hian said.

UOB Kay Hian also expects a muted loan growth of 0.2% QoQ in 3Q23 for OCBC  “as corporate customers are cautious on business expansion and trade loans remain weak.”

“We expect NIM to expand by 20bp YoY but remain flat QoQ at 2.26%. Compounded Singapore Overnight Rate Average (SORA) 3M inched marginally higher by 7bp to 3.71% in 3Q23 despite a 25bp hike in the Fed funds rate to 5.25% in July 2023,” UOB Kay Hian said.

In terms of asset quality, UOB Kay Hian said DBS’s remains benign, whilst OCBC’s remains stable.

Commenting on DBS, UOB Kay Hian said: “We expect non-performing loans (NPL) formation to remain benign and NPL ratio to be stable at 1.1%. DBS has accumulated ample management overlay for general provisions of S$2.1b set aside previously during the COVID-19 pandemic. We expect total provisions of $180m and credit cost of 17bp in 3Q23.”

On OCBC, UOB Kay Hian said: “We expect the NPL ratio to be stable at 1.1%. OCBC is expected to review its macroeconomic variable (MEV) model for general provisions due to heightened geopolitical tensions caused by conflict in the Middle East. We have factored in credit costs of 25bp in 3Q23, which is higher than management’s guidance of 15-20bp for 2023.”