Singapore banks adopt cautious H2 outlook: CGS

Slower loan growth and higher credit risk are expected to weigh on performance, the firm said.

Singapore banks are signalling a more cautious outlook for the second half of 2025, according to CGS International's Sector Flash Note dated 7 August.

The firm has maintained its Neutral rating on the sector, citing a shift toward conservative full-year guidance across the major banks.

Slower loan growth and higher credit risk are expected to weigh on performance, although strong liquidity and weaker-than-expected rate transmission from the US could provide some upside.

DBS Group posted a 2Q25 core net profit of $2.82b, up 1% YoY but down 3% QoQ. The result came in slightly ahead of CGS and Bloomberg consensus forecasts.

Despite a 7 basis point compression in net interest margin (to 2.05%), net interest income remained resilient at $3.65b. Deposit growth was solid at 2% QoQ, and management reported strong inflows in July.

DBS also wrote back $17m in general provisions, bringing total provisions to $133m, and indicated that earlier buffers may remain adequate for now.

UOB, meanwhile, reported a 2Q25 core net profit of $1.34b, down 3% both YoY and QoQ, and below expectations. NIM fell 9 basis points to 1.91%, and net interest income declined 3% to $2.34b. Credit cost rose to 32 basis points, driven largely by a single U.S. commercial real estate exposure.

UOB reintroduced full-year guidance, but revised it downward: loan growth expectations were cut from high single digits to low single digits, and fee income growth was lowered from double digits to the high single-digit range.

Operating expenses fell slightly, but the cost-to-income ratio rose to 44.3% due to continued investment in IT and infrastructure.

In terms of valuation, CGS International notes that DBS trades at 12.3 times forward earnings with a 2.01x price-to-book ratio and a 6.26% dividend yield for FY25.

UOB is seen as offering the highest yield at 6.80%, though its profitability metrics lag behind DBS. OCBC sits in between, with a projected 10.4x P/E, 1.30x P/B, and 6.16% yield. DBS remains CGS International’s top pick, supported by its consistent performance and strong dividend visibility through FY27.