Singapore Bank Earnings

Further recovery expected in fees and commissions income

Since 3Q 2023, the banks’ net fees and commission income have marked a turnaround, with the recovery momentum expected to be presented in the upcoming reporting quarter as well. For the quarter, market conditions remain conducive to support appetite for risk-taking, with the risk-on environment likely to prop up wealth management demand.

Resilient consumer spending and investment activities may also contribute to stable fee streams. Another quarter of record fee income is likely to be the story for DBS, which may be well-received by investors. In Q2 2024, all three banks outlined a positive outlook on credit demand and expected resilience in their fee-based revenue streams into Q3.

Concerns from the banks’ management team were revolving around potential downward pressures on NIMs, but we believe peaking banks’ NIMs have already been priced to a large extent and recent calls for more patience in Fed’s easing process are likely to offer some resilience to NIM’s tapering.

Limited build-up in loan loss provisions to reflect economic resilience

As usual, the banks’ loan loss provisions will be on watch to offer an early signal of how banks view the future of the economy. Expectations are for limited build-up in their loan loss provisions, with DBS and OCBC to reflect year-on-year decline. Thus far, the banks have been exercising prudence in its loan loss provisions, while non-performing loan (NPL) ratios have been healthy as well.

The banks’ ability in absorbing potential financial shocks have been well-assured by their strong Common Equity Tier 1 (CET1) ratio, which range between 14% and 15% and stand comfortably above the regulatory minimum set by the Monetary Authority of Singapore (MAS).

Fund flow data shows broad institutional net inflows over past months

The Singapore Exchange (SGX) fund flow data has revealed broad net institutional outflows for the financial sector, amounting to close to S$1.5 billion since March this year. This points to improving sentiments towards Singapore banks in general, reflecting institutions’ confidence around the banks’ stronger-than-expected net interest income, resilient credit quality, non-interest income recovery and attractive dividends.

The dividend yield for DBS stands at 5.1%. OCBC’s dividend yield stands at 5.6%, while UOB stands at 5.3%.

DBS share price: Technical analysis

DBS share price is standing less than 2% from a new record high, which suggests that investors have high hopes for upcoming results to deliver. The broader trend remains on the upside, with its share price trading within a broader wedge formation, while its daily relative strength index (RSI) trades above its mid-line as a sign of buyers in control. The only reservation may be the lower highs in the momentum indicators, which creates the risks of a near-term bearish divergence.

Any retracement may leave the S$38.53 level on watch as immediate support to hold, while on the upside, any break to a new record high may leave buyers to eye the S$41.30 level next based on a Fibonacci extension level.

UOB share price: Technical analysis

For UOB, any retracement may leave the S$31.38 level on watch as potential support, with a previous horizontal resistance-turned-support in place. The S$33.30 level will serve as a crucial resistance to overcome, having weighed on prices on at least two occasions since July this year. A move above the S$33.30 level may point to a new higher high as a validation of the broader upward trend, leaving the S$36.20 level next.