Singapore banks face softer earnings as NIMs stay under pressure

DBS also noted growing focus on Singapore banks’ Hong Kong exposures.

Singapore banks are expected to report another quarter of weaker earnings as net interest margins (NIMs) remain under pressure, according to DBS Insights Direct.

Short-term Singapore dollar (SGD) rates have stayed low due to excess liquidity, prompting DBS economists to revise down their three-month SORA overnight index swap (OIS) forecast to 1.3% from 2.0%. 

The bank said this is likely to accelerate NIM compression in the third quarter of 2025, except for OCBC. 

Average 3MSORA OIS rates fell by 61 basis points quarter-on-quarter, and whilst system deposits grew 1.8% since June, aggressive deposit repricing has not been enough to offset the pressure on margins.

DBS also noted growing focus on Singapore banks’ Hong Kong exposures as lenders there expedite recovery efforts and asset disposals. 

It expects further recognition of non-performing loans (NPLs) and credit losses in the second half of 2025, particularly for OCBC and UOB. 

OCBC reportedly has higher exposure to mid-tier commercial real estate in Hong Kong, whilst UOB is said to have extended a $1.3 billion loan to Shimao for a residential project in the city.

Wealth management performance improved in the third quarter, with stronger market sentiment driving growth in assets under management and a higher share of investment products. 

This followed a weaker second quarter affected by post-Liberation Day slowdowns.

Despite slower loan growth and low benchmark rates weighing on net interest income, DBS said Singapore banks’ asset quality remains stable. 

It expects share prices to stay supported by ongoing share buybacks and dividend yields ranging from 4.1% to 6.7%, providing steady returns even as quarterly profits soften.