Singapore banks face margin squeeze despite strong results: Moody’s

Looking ahead to 2025, Moody’s said banks may expect mid- to high-single-digit loan growth.

Singapore’s three largest banks—DBS, OCBC, and UOB—posted strong financial results in 2024, maintaining stable net interest income despite a slight decline in net interest margins (NIM) from 2.2% in 2023 to 2.1% in 2024, according to Moody’s

In its report, Moody’s said this highlights the banks' resilience in a challenging economic landscape, with growth in wealth management fees and trading income offsetting the impact of narrowing margins.

Despite pressure on lending margins, the banks maintained stable net income as a percentage of assets, with DBS outperforming its peers.

The strength of non-interest income sources, including wealth management, credit card fees, and loan-related charges, helped sustain profitability.

Looking ahead to 2025, Moody’s said banks may expect mid- to high-single-digit loan growth, supported by robust fee income and limited rate cuts. Credit costs remain low, with projections set at 20-30 basis points for the year.

Whilst asset quality remained strong in 2024, analysts caution that property-related risks in Greater China could pose challenges.

Real estate loans accounted for 26-29% of total gross loans, with UOB showing the highest non-performing loan (NPL) ratio in real estate lending.

Nonetheless, NPL ratios for all three banks remained relatively low, with DBS at 1.1%, UOB at 1.5%, and OCBC improving from 1% to 0.9%.

In 2025, payout ratios are expected to climb to 60-70%, as banks balance strong capital reserves with shareholder returns.

Funding and liquidity remained key credit strengths, with CASA (current and savings account) deposits rising to 52% of total deposits. The liquidity coverage ratio (LCR) stood between 140-147%, well above regulatory requirements.

Deposit growth is expected to keep pace with loan growth in 2025 to ensure continued financial stability.