The three largest Singaporean banks — DBS Bank Ltd. (DBS, Aa1/Aa1 stable, a11), OverseaChinese Banking Corp Ltd (OCBC, Aa1/Aa1 stable, a1) and United Overseas Bank Limited (UOB, Aa1/Aa1 stable, a1) — reported another year of strong profitability in 2024, largely powered by robust growth in fee income led by wealth management, and higher trading income, while net interest income remained broadly stable as a decline in net interest margins (NIM) was offset by a rebound in loan growth.

Full-year NIM narrowed slightly to an average of 2.1% in 2024 from 2.2% in 2023. At the same time, other key credit fundamentals remained strong. Asset quality was sound and we expect a moderate increase in problem loans and credit costs in 2025, from low levels in 2024. Core capital levels were robust, with the common equity tier 1 (CET1) capital ratios at 15.1% to 15.4%, on a Basel III fully phasedin basis. The banks' strong 2024 results position them well against the macroeconomic and market challenges likely to arise in 2025 from US trade tariffs, and sector-specific exposures, such as commercial real estate (CRE).

Profitability will remain stable

Full-year net income as a percentage of assets for 2024 remained largely unchanged for the three banks compared to the previous year, with DBS continuing to outperform the other two. We expect the banks' profitability to remain broadly stable in 2025. The decline in NIM will be modest because of fewer rate cuts and will be offset by mid- to high-single-digit loan growth. At the same time, robust fee income from wealth management, card and loan-related fees will support growth in non-interest income. Provisions as a percentage of gross loans averaged 20 basis points (bps) across the three Singaporean banks in 2024, largely unchanged from a year earlier. We expect credit costs to remain low despite a slight uptick, as they normalise from cyclically low levels. The banks are guiding credit costs of around 20 to 30 bps for 2025.

Asset quality remains solid, although property-related exposures in Greater China remain a key risk. The three banks maintained sound asset quality in 2024. As of 31 December 2024, the nonperforming loan (NPL) ratios for DBS and UOB remained stable at 1.1% and 1.5%, respectively, while that of OCBC improved slightly to 0.9% from 1.0% a year earlier. We expect a moderate increase in the banks’ NPL ratios in 2025, driven by their significant exposures to real estate, which accounted for 26% to 29% of gross loans in 2024. In particular, the banks' CRE exposures in mainland China (A1 negative) and Hong Kong SAR, China (Aa3 negative) remain a key credit risk. All three banks posted higher NPL ratios in their real estate exposures, with UOB underperforming the other two banks. While the deterioration in the quality of real estate loans will likely be limited, as banks focus their lending on top-tier private developers and state-owned enterprises, there is potential for large new NPLs and stage 2 loans to surface because of the persistent stress in the Greater China property markets. At the same time, the banks maintain ample provisioning coverage, with loan-loss reserves averaging 126% of problem loans, which will help cover new NPLs.

Capital will remain strong despite moderation from high levels

The CET1 ratios for the three Singaporean banks averaged 15.3% and 16.5%, respectively, on a Basel III fully phased-in and transitional basis, as of end December 2024, an increase from 14.6% a year earlier. The increase was largely attributable to significant profits and the capital-positive impact of final Basel III rules in Singapore. The banks have announced higher capital distributions through a combination of special dividends and share buybacks over the next few years. As such, we expect capital levels to decrease moderately from high levels in 2025 because of the higher capital distributions, as well as potential acquisitions. Dividend payouts for DBS and OCBC rose to 55% and 60% of net income, respectively, from 49% and 53% in 2023, while UOB’s payout ratio remained largely unchanged at 50%. For 2025, we expect the banks’ dividend payouts to increase to around 60% to 70%.

Funding and liquidity remain key credit strengths

The three Singaporean banks maintain strong funding and liquidity positions. As of 31 December 2024, the banks’ average current and savings account (CASA) deposits increased to 52% of total deposits from 50% in 2023, as CASA outflows to higher-yielding fixed deposits and treasury bills have eased. We expect a modest improvement in the CASA ratio in 2025, supported by higher CASA inflows. At the same time, we expect liquidity to remain stable, as deposit growth keeps pace with loan growth. The banks reported robust all-currency liquidity coverage ratios of between 140% and 147% as of 31 December 2024, well above the minimum regulatory requirement of 100%.

Moody's Ratings report redisseminated by The Asian Banker