Singapore’s major banks are bracing for a decline in profits for the second quarter of 2025, with net interest income (NII) expected to fall by 1.1-1.9% due to lower interest rates and subdued loan growth, according to CGS International report. The Singapore overnight rate average (SORA) dropped by 50 basis points quarter-on-quarter to 2.04%, whilst the Hong Kong interbank offered rate (HIBOR) saw a steeper decline of 200 basis points to 1.88%.
The banks’ net interest margins (NIMs) are anticipated to compress by 5-7 basis points, with OCBC experiencing an 11 basis point drop in the previous quarter. Non-interest income (Non-II) is also likely to have softened following the US Liberation Day in April, impacting wealth management fees and trading income.
Despite these challenges, DBS remains a preferred choice due to its dividend per share (DPS) growth, which supports a yield of 6.6-7.6% for the financial years 2025-2027. The bank is expected to report a net profit of S$2.79 billion for Q2 2025, a slight decrease of 3.7% quarter-on-quarter.
OCBC and United Overseas Bank (UOB) are also expected to report declines in net profits, with OCBC facing a 5.2% drop and UOB a 5.3% decrease. The banks’ exposure to weaker ASEAN economies could lead to higher specific provisions (SPs), although pre-emptive general provisions (GPs) from the first quarter should mitigate drastic changes in credit costs.
Looking ahead, the banks face an uncertain economic outlook with limited growth catalysts. However, potential sector upside risks include stronger-than-expected loan growth and a recovery in interest rates, which could support NIMs. Conversely, further deterioration in non-interest income and an increase in SPs pose downside risks.
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