Non-interest income anchors banks as US rates weigh

Lending is supported by corporate, wealth, and mortgage loans.

Singapore banks are expected to face continued pressure on net interest margins in 2026 from potential US policy rate cuts, according to a report by RHB.

Despite this, lending momentum is expected to remain healthy, supported by non-trade corporate loans, wealth management financing, and mortgages.

"That said, non-II and, specifically, wealth fees, should anchor operating income growth again this year," it said.

RHB said banks remain vigilant over commercial real estate (CRE) exposures but have not observed systemic asset quality issues. Credit costs are expected to remain stable or normalise in 2026, indicating confidence in existing provision buffers.

A December report from DBS Insights Direct also said Singapore banks are expected to maintain strong momentum, supported by high dividend yields, solid capital positions, and ongoing fund inflows.

Additional sector inflows are also expected as Singapore’s second batch of EQDP funds, totalling $2.85 b, rolls out in 2026, adding to cumulative inflows that started in 2024.

Meanwhile, net interest income is expected to fall in FY2026, but banks are offsetting margin pressure through aggressive deposit repricing, with strong deposit growth cushioning the impact. Wealth management inflows should stay strong as assets continue moving to Singapore. 

RHB said full-year earnings forecasts show only a slight downward revision of 1% for 2026 profit after tax and minority interest (PATMI), whilst 2027 projections remain largely unchanged.

Analysts expect a 5% year-on-year rebound in sector profits, driven mainly by higher non-II and lower credit costs.

Singapore banks reported broadly in line with expectations in 4Q25, with PATMI up 1% quarter-on-quarter but down 6% year-on-year.

Loan provisions fell sharply, cushioning weaker operating income, while loans grew 5% YoY despite FX headwinds.

Deposits rose 8% YoY, with current account and savings account balances up 14% thanks to positive investor sentiment and favorable liquidity conditions

Despite a modest operating environment and geopolitical uncertainties, DBS and OCBC remain top picks, with DBS favored for its higher dividend yield of around 6% and stronger dividend visibility.

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