SG banks 2Q 2024 Round-up: Stability as the key takeaway

Broad Overview

The Singapore 2Q bank earnings has officially concluded with the release of DBS’ earnings. Year-to-date, the share prices for all three banks have witnessed a stellar rally, which outperformed the broader index. Amid the recent global market sell-off, the Straits Times Index (STI) is in the red by 1.3% year-to-date, while the banks’ performance still manage to hold above water at a 4-8% gain (DBS +7.8%, UOB +6.5%, OCBC +4.0%).

Here are the key takeaways from the recent banks’ results:

Net profit eased from previous record high, but beat estimates

DBS’ 2Q earnings has beaten market estimates, which may not be too much of a surprise given that we have seen an outperformance from its peers (UOB, OCBC) just last week. In the lead-up to the banks’ results, expectations are that the results may bring little fireworks, with net profits expected to ease off its record high in the previous quarter.

That has largely played out across the trio, but the earnings beat of market consensus by a significant margin still pointed to the banks’ resilience. While earnings may likely peaked, any taper may be expected to be gradual as OCBC and UOB mostly stuck to their initial earnings guidance for 2024, while DBS has raised its full-year profit guidance.

Net interest margin resilient, recovery in non-interest income continues

With the easing interest rate outlook, scrutiny has been on the banks’ net interest margins (NIM), which appears to be holding up relatively well. In the case of OCBC, despite a 6 basis point (bp) moderation in NIM, strong asset growth offered some cushion, overall turning in a net-positive for its net interest income. Loan growth has been stable at the low single-digit as well, which is line with the banks’ estimates, and suggests a recovery in lending demand.

Greater eye-opening performance may come from the recovery in the non-interest income, which is highly watched as a much-needed cushion against any easing in its main interest income. All three banks have delivered, with double-digit year-on-year growth for the third straight quarter.

Net fee income were robust, with improving market conditions providing an uplift for wealth management and investment banking activities. A combination of stable net interest income and non-interest income recovery could see earnings hold up over coming quarters, which may offer some support for share prices, although a break above previous record high may still seem unlikely.

Dividend remains attractive

The dividend yield for the local banks currently remains attractive at the range of 5-6%. Capital buffers have been healthy to weather economic risks, while asset quality has been resilient as well, with non-performing loan ratio stable around the 1% range.

Ongoing market volatility and geopolitical tensions are raised as key risks to monitor, but with the banks being one of prudence, loan loss provisions continue to see a steady build-up.

Technical Analysis: Straits Times Index (STI) back at trendline support

With the local banks accounting for more than 45% weightage for the STI, there is little doubt that their share price performance will have a significant impact on the index’s performance. Following a more than 7% sell-off since last week, the index is now back to retest a key upward trendline support at the 3,200 level, which may raise the odds of a near-term bounce. This comes as its daily relative strength index (RSI) attempts to moderate from current oversold levels.

Failure for the trendline support to hold may pave the way for the index to retest the 3,152 level next. On the upside, the 3,300 level will likely serve as immediate resistance to overcome, which marked the high of its sell-off on Monday.