SINGAPORE: Singapore banks flagged margin pressure for 2026 as falling interest rates weigh on profitability, with DBS Group posting a smaller-than-expected earnings dip while United Overseas Bank (UOB) took a hit from hefty provisions.
DBS, Southeast Asia's biggest lender, said it expects 2026 net profit to be slightly below this year's after reporting a 2% drop in third-quarter earnings to S$2.95 billion ($2.28 billion), beating analysts' estimates of S$2.72 billion.
Total income rose 3% to a record S$5.93 billion, supported by wealth and deposit growth, even as its net interest margin, a key profitability gauge, fell to 1.96% from 2.11% a year earlier.
The DBS board declared a total dividend of 75 Singapore cents per share for the quarter, up from 54 cents a year ago, comprising an ordinary dividend of 60 cents and a capital return dividend of 15 cents.
"As we enter the coming year, we will continue to navigate the pressures of declining interest rates with nimble balance sheet management and our ability to capture structural opportunities across wealth management and institutional banking," DBS CEO Tan Su Shan said in a statement.
Slides showed DBS expects 2026 total income to be around 2025 levels, with group net interest income slightly lower and wealth income growing by mid-teens.
UOB, Southeast Asia's third-largest bank, reported a 72% plunge in July-September net profit to S$443 million ($342 million) from S$1.61 billion a year earlier, missing the mean estimate of S$1.35 billion.
The bank booked S$1.36 billion in credit allowances, including S$615 million in pre-emptive provisions, to strengthen its buffers amid economic uncertainty and sector-specific stress in markets such as Greater China and the U.S. The move lifted coverage on performing loans to 1% and pushed total credit costs to 134 basis points for the quarter.
"We proactively set aside general allowances to significantly enhance provision coverage, backed by our strong capital base," UOB CEO Wee Ee Cheong said, adding that the dividend plans remain intact.
UOB expects 2026 net interest margin at 1.75%-1.80%, below 2025's projected 1.85%-1.90%, alongside low single-digit loan growth and total credit costs of 25-30 basis points.
Its net interest margin fell to 1.82% in Q3 from 2.05% a year earlier.
Both banks' results come after mixed results from global peers last week.
HSBC posted a 14% drop in third-quarter pretax profit after a $1.4 billion litigation charge tied to the Bernard Madoff fraud, while Standard Chartered beat estimates with a 3% rise in profit, helped by record wealth income and strong markets activity. ($1 = 1.2942 Singapore dollars) - Reuters
