Singapore’s banking sector is adopting a cautious stance for the remainder of 2025, as revealed in CGS International’s latest Q2 results briefing. DBS Group and United Overseas Bank (UOB) both reported mixed outcomes, with DBS showing resilience in net interest income (NII) despite a 7 basis point compression in net interest margin (NIM) to 2.05%. Meanwhile, UOB’s NIM fell by 9 basis points to 1.91%, slightly below expectations.
DBS’s Q2 net profit was bolstered by lower provisions, with a core net profit of S$2.82 billion, a 1% year-on-year increase. The bank’s management highlighted a decoupling between the US Federal Reserve’s rates and local rates, impacting forecasts. DBS holds S$90 billion in floating-rate assets, and every 1 basis point change could affect NII by S$5 million. Despite this, strong deposit inflows in July suggest potential for NII growth through strategic deployment into loans and non-loan assets.
UOB, on the other hand, is focusing on managing its general provisions, with a specific provision of 32 basis points linked to a single US commercial real estate account. The bank’s Q2 net profit of S$1.34 billion fell short of expectations, attributed partly to a change in accounting policy affecting joint ventures and associates. UOB has revised its full-year guidance, lowering expectations for loan and fee income growth.
The sector faces potential risks, including increased loan loss provisions and slower loan growth in the second half of 2025. However, DBS remains a top pick for its dividend yield visibility from 2025 to 2027. As the year progresses, banks will need to navigate these challenges whilst capitalising on liquidity inflows to sustain growth.
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