Stable banking sector sees limited upside from NIM-driven earnings

Wealth management and treasury income will remain key drivers of non-interest income (non-II) in FY25F

The banking sector is expected to remain stable, but the earnings upside from stronger net interest margins (NIMs) in FY25F appears already factored into valuations.

CGSI stated that wealth management, and to a lesser extent treasury income, will remain key drivers of non-interest income (non-II) in FY25F as customers begin deploying cash assets under management (AUM) amid shifting interest rates and macroeconomic conditions.

It also projected net profit changes for Singapore banks in FY25F to range from approximately -5% to +3% year-on-year.

The higher-for-longer interest rate scenario is expected to support net interest margins (NIMs) in FY25F, though it may slightly dampen credit demand.

Despite this, YoY improvement is anticipated, with banks projecting mid-to-high single-digit loan growth in FY25F, compared to low single-digit growth in FY24F.

CGSI also expects Fee income to see steady improvement, particularly in credit card revenues for DBS and UOB, following their acquisitions of Citi retail portfolios, as well as from market-related activities.

Cost-to-income (CTI) ratios are likely to remain in the 41-42% range as banks continue to focus on cost discipline.

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