DBS, UOB, OCBC’S Q1 outperformance lifts optimism for 2024 profits

The three local banks also post strong fee income for the quarter, boosted by their wealth management segments

THE chief executives of the three local banks – DBS, UOB and OCBC – were noticeably more optimistic at their respective earnings briefings for the first quarter ended March, after the lenders posted betterthan-expected results.

While market volatility and geopolitical uncertainties remain, the banks’ Q1 performance lifted their outlook for the rest of 2024. Higher-for-longer interest rates also contributed to the optimism about net interest incomes.

DBS’ Q1 net profit rose 15 per cent to S$2.95 billion, beating the S$2.5 billion consensus forecast in a Bloomberg survey of five analysts. UOB’S earnings dipped 1.6 per cent to S$1.49 billion, but was ahead of the mean estimate of S$1.43 billion from three analysts polled by LSEG. OCBC’S net gain rose 5 per cent to a quarterly high of S$1.98 billion, surpassing the S$1.85 billion consensus forecast in a Bloomberg survey of three analysts.

The banks dialled back on rate cut expectations for the year.

DBS CEO Piyush Gupta and OCBC CEO Helen Wong expect two cuts in 2024, compared with their initial forecasts of five and three cuts, respectively. UOB CEO Wee Ee Cheong also expects fewer rate cuts ahead.

Against this backdrop, analysts said the key areas to watch are higher-for-longer rates and the wealth management segment. Thilan Wickramasinghe, head of Singapore research at Maybank Securities,

said higher-for-longer interest rates should keep net interest margins (NIMS) – which came in better than expected in Q1 – wellsupported.

DBS’ NIM was up slightly at 2.14 per cent, from 2.13 per cent a quarter earlier, supported by fixed asset repricing. UOB’S NIM was unchanged from the previous quarter at 2.02 per cent, as active management of excess liquidity had buffered lower loan margins.

Meanwhile, OCBC’S NIM fell two basis points on quarter to 2.27 per cent, as higher asset yields outpaced the rise in funding costs.

Fee income beat expectations

The banks also posted strong fee income in the quarter, boosted by

their wealth management segments.

Q1 net fee income for DBS was up 23 per cent on year at S$1.04 billion. Wealth management fees rose 47 per cent to S$536 million, amid a stronger market sentiment and an expanded asset under management (AUM) base.

DBS’ consistent AUM inflow for the past two years and into Q1 should give significant dry powder for further wealth growth, said Wickramasinghe.

UOB’S net fee income was also up, at 5.1 per cent to S$580 million, buoyed by a stronger showing in loan-related fees and the wealth segment.

The lender is looking to move clients towards higher-fee wealth products from fixed deposits, which bodes well for further growth in this segment, said Wickramasinghe. He added that wealth management appears to be a bright spot for DBS and UOB.

As for OCBC, fee income rose 6 per cent to S$479 million amid growth in wealth management fees, driven by increased customer activities.

Citi analyst Tan Yong Hong noted that the bank reversed three successive quarters of AUM decline – its AUM rose 1 per cent to S$273 billion, while net new money for the quarter was around S$6 billion.

He said OCBC’S results were largely driven by trading income, which was up 45 per cent to S$370 million on the back of record customer flow income and improved non-customer flow income.

Despite the lender’s good performance, the market appeared more positive about its announcement to privatise its insurance arm, Great Eastern, Tan added.

OCBC on Friday said it planned to acquire the remaining 11.56 per cent of Great Eastern that it does not own, with the aim of delisting the insurer.

Nevertheless, Tan expects the possible benefits of acquiring all the shares to have already been priced in.

Better targets

On the back of a strong first quarter, the lenders have raised their forecasts for their 2024 performance.

DBS’ Gupta expects group net interest income to be modestly better than 2023 levels, and guided for commercial book non-interest income growth to be in the mid- to

high-teens in terms of percentage.

As a result, total income could be one or two percentage points higher than the bank’s previous guidance of a mid-single digit, he said.

With DBS’ strong capital levels, Maybank’s Wickramasinghe also expects the lender will have potential to pay more dividends ahead.

As DBS is likely to accrue more capital than it pays out, there will likely be further capital management actions including potential special dividends, he said.

Meanwhile, UOB maintained its 2024 guidance of positive growth in total income, amid a low singledigit loan growth and double-digit fee growth.

But Citi’s Tan noted that UOB’S

Q1 results summarised stable NIM, cost discipline and asset quality, which should improve overall investor sentiments on the stock.

Tan is focusing on NIM upside for UOB, as a result of funding cost management, as well as cost discipline after the lender completes the integration of Citi’s Thailand retail portfolio.

As for OCBC, Wong expects 2024’s NIMS to reach the higher end of its 2.2 to 2.5 per cent target range, while return on equity will also likely be at the higher end of its 13 to 14 per cent target.

Tan noted that OCBC has lowered its NIM’S sensitivity to interest rate changes, while its loan growth guidance was also kept conservatively lower.