DBS and OCBC expected to deliver steady Q1 net profits

Their net interest margins will ease as a result of their Hong Kong loans.

Singapore’s DBS and OCBC are expected to deliver steady net profits in Q1, although lower than the same quarter in 2023, reports UOB Kay Hian.

UOBKH analyst Jonathan Koh expects DBS’ net profit to come at $2.49b in Q1– 10% higher than in Q4 2023, but 3% lower than last year.

Singapore’s biggest bank by assets will report a mild pick-up in loan growth in Q1, with a marginal 0.8% growth compared to Q1 2023.

“Industry statistics saw corporate loans expand 1.6% month-on-month in February 2024, which suggest that weakness in corporate loans and repayments by customers have eased,” Koh said in a report.

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However, DBS’ net interest margin (NIM) will ease 4 basis points (bp) to 2.09%, dragged down by lower margins from its Hong Kong dollar-denominated loans, which account for 11% of its total loans. This is a result of the Hong Kong Interbank Offered Rate (HIBOR) decreasing 43 basis points (bp) to 4.72% in Q1.

Contribution from wealth management is expected to rise 10% from a year ago to $400m, a result of “initial euphoria over potential rate cuts earlier during the quarter,” Koh said.

Bad loans are expected to remain “benign” during the quarter, with DBS likely to set aside total provisions of $213m and incur credit cost of 20bp in Q1.

OCBC is expected to tread the same path: net profit will rebound compared to Q4 2023 but will be lower than a year ago.

OCBC’s net profit is expected to rise 12% quarter-on-quarter (QoQ) but drop 3% year-on-year (YoY) to $1.82b for Q1.

However, unlike DBS, OCBC is expected to report muted loan growth with a marginal 1.4% YoY rise. This is a result of some companies deleveraging, in response to the higher interest rates, Koh said.

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OCBC’s NIM will also ease 6bp to 2.23%. Hong Kong dollar-denominated loans account for 13% of its total loans.

Net interest income will grow 4% to Q1, whilst fee income will rise 7% YoY to S$487m.

OCBC’s NPL ratio will remain stable at 1%, factoring in an expected 22bp credit cost in Q1.

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