How can Singapore’s big banks offset weaker lending margins?

Net interest income at DBS, OCBC, and UOB is expected to fall this year.

Singapore’s three biggest banks are increasingly relying on wealth management to support income growth as falling interest margins pressure their traditional lending businesses.

Net interest income at DBS Bank Ltd., Oversea-Chinese Banking Corp. Ltd. (OCBC), and United Overseas Bank Ltd. (UOB) is expected to fall this year as lower interest rates compress margins, according to a May report by CreditSights, Inc.

Net interest margins at all three banks dropped in the first quarter from a year earlier. DBS’ group net interest margin fell 23 basis points to 1.89%, whilst OCBC’s and UOB’s declined to 1.76% and 1.82%, respectively.

Margins are expected to remain under pressure after the Monetary Authority of Singapore tightened monetary policy in April, CreditSights said.

At the same time, the banks are seeing stronger wealth-related fee income and affluent customer activity, according to a separate May report by RHB Bank Berhad.

“DBS saw some slowdown in its wealth momentum in early April due to the Middle East conflict, but this has since picked up,” RHB’s Singapore research team said.

The banks are pursuing different wealth strategies. CreditSights said DBS is focusing more on domestic wealth demand and expanding wealth centres in Singapore, whilst OCBC is targeting wealth flows between ASEAN and China, as well as Singapore and Hong Kong.

UOB is concentrating on regional growth and expects stronger momentum after integrating Citibank’s consumer banking operations in Malaysia, Thailand, Indonesia, and Vietnam. The lender earlier said it aims to double wealth income by 2030, RHB said.

Singapore authorities are also moving to boost the city-state’s appeal as a wealth management hub. MAS said in May it plans to reduce the average time needed to open a private banking account from six weeks to less than a month.

Questions to ponder