SG banks Q3 2024 Round-up: Earnings deliver yet another positive surprise

Overview

The Singapore banks’ Q3 results continue to surprise in a positive way, with earnings delivering its usual beat of consensus forecasts. DBS’ net profits grew 15% from a year ago to S$3.03 billion, UOB’s net profit grew 16% year-on-year (YoY) to S$1.61 billion, while OCBC’s net profit grew 9% YoY to S$1.97 billion.

As we tread in an interest rate cutting environment, there are some views that the banks’ earnings growth may slow from previous quarters, but this had not been the case with the Q3 results, at least for UOB and DBS. The earnings resilience displayed among the banks should translate to ongoing traction for their share prices ahead.

Net interest income resilient, non-interest income offered strong earnings boost

The past quarters have seen Singapore benchmark lending rates rolling over, so there is little surprise to see some taper in the banks’ net interest margin as well. But thus far, the pace of taper remains gradual, which along with steady loan growth and deposit cost management, helped to mitigate some of the interest rate headwinds. UOB and DBS’ net interest income managed to eke out a low single-digit growth, while OCBC declined 1% from a year ago.

The bulk of the optimism may lie in the banks’ non-interest income. The momentum in wealth management activities continues to support overall performance, as the banks continue to enjoy strong inflows from the region. UOB and DBS saw record highs in net fee income.

Singapore banks offer both a growth and income story for investors

From the Q3 results, provisions for loan losses remain limited, which means that the banks continue to foresee a healthy economic backdrop in the region. The banks retain their strong capital buffers, with all three banks seeing an improvement in Common Equity Tier 1 (CET1) ratio. This offers room for the banks to pursue inorganic growth expansion when the opportunities arise, and also deliver stable or even increasing returns to shareholders.

For now, the above-5% dividend yield for the banks offers an attractive income proposition. DBS’ board had also established a new share buyback programme of $3 billion, which is a testament to their strong capital position and robust earnings generation.

Trump presidency may offer an uncertain outlook for now

With Trump being the upcoming US president and high likelihood for his inflationary policies to be passed (higher spending, tax cuts, tariffs, immigration control), we have seen expectations for Federal Reserve (Fed)'s interest rate cuts in 2025 being pared to an overall 100 basis point (bp) of cuts. As US interest rate come down at a more gradual pace, Singapore as an interest rate taker may see similar reaction and that may be a positive for the banks’ net interest margin.

On the flipside, the risks may come with any secondary impact from US tariffs on China, given the region’s economic dependence on trade with China and the US. The overall impact may be hard to grasp for now, as supply chain diversification may still benefit some more than the others. While more clarity awaits, it seems that investors are happy to bask in optimism around current earnings.

Technical Analysis: DBS surged to record post-earnings

DBS share price has surged to a new record, breaking above the upper trendline resistance of a broader wedge formation. Its daily relative strength index (RSI) continues to trade above its mid-line, having found support at the 50 level on previous two occasions, which keeps the broader upward trend intact. A break above the S$42.48 level could leave the S$45.46 level on watch as the next Fibonacci extension level to overcome.