Singapore banks face headwinds, but DBS pulling ahead: Analysts

Net interest margin pressure a challenge for rest of 2025; outlook more positive for DBS

- Sheila Chiang

Net interest margin (NIM) pressures and potential higher credit costs could continue to challenge Singapore's banking trio – DBS Bank, OCBC Bank and UOB – for the rest of 2025, analysts said.

Still, most of them expect NIM to decline at a slower pace in the second half of the year, supported by lower pressure on the Singapore Overnight Rate Average (Sora) and a possible recovery in the Hong Kong Interbank Offered Rate (Hibor).

They also pointed to DBS as a bright spot, given that it was the only local bank that reported a year-on-year rise in second-quarter net profit and guided for higher group net interest income (NII) – the difference between total interest income and interest expenses – in 2025 despite lower interest rates.

The banks' first-half net profits were lower year on year primarily due to sharp declines in Sora and Hibor. This squeezed NIMs – the difference between what banks earn on loans and what they pay on deposits.

CreditSights senior analyst Karen Wu said NIM pressure remains the major headwind for Singapore banks in the second half.

"Hibor has only had a modest rebound since end-June… while the Sora decline also has yet to show signs of moderation," she said in an Aug 8 note.

She added that loan growth will be muted and NII will decline, noting that only DBS has a positive outlook for NII among the trio.

While RHB expects 2025 NII to decline from NIM compression, it does not expect the compression magnitude to be as drastic in the second half of 2025, compared with the first half.

"NIM guidance from banks and second-quarter 2025 NIM levels suggest the impact from US federal funds rate cuts in the second half of 2025 may not be too significant," an RHB analyst said.