As DBS, OCBC and UOB Unveil Q4 Earnings, Investors Eye More Share Buybacks and Special Dividends

Analysts said that investors are closely monitoring the capital management plans of Singaporean banks, expecting these banks to report another series of resilient performances in the fourth quarter of 2024.

These banks will release their fourth-quarter and full-year results for 2024 in February. DBS Bank will announce on February 10, United Overseas Bank on February 19, and Oversea-Chinese Banking Corporation on February 26.

Analysts said that the lenders likely maintained their strong asset quality and excess Common Equity Tier 1 levels, which leaves room for capital returns to shareholders.

Thilan Wickramasinghe, Head of Singapore Research at Maybank Securities, said, "We expect management to be more focused on optimizing the balance sheet, including potential special dividends and announcements of larger share - buyback programs."

He added that DBS Bank and United Overseas Bank could offer special dividends and provide clearer explanations of their share-buyback plans.

Although OCBC has lagged in terms of the clarity of capital returns so far, Wickramasinghe pointed out that this situation could change in the upcoming reporting season.

Andrea Choong and Lim Siew Khee, analysts at Galaxy International, said that DBS Bank might announce a special dividend of S$0.50 per share and increase its dividend per share of common stock (DPS) to S$0.60, in addition to the S$3 billion share - buyback program announced when the third - quarter results were released.

Analysts at CGS pointed out that United Overseas Bank has an excess capital of approximately S$2.5 billion, which could be used for a share - buyback program or special dividends – meaning earnings per share of around S$1.50.

As for Oversea-Chinese Banking Corporation, the CGS team noted that the bank is more inclined to return capital through dividends rather than share buybacks. With an excess capital of around S$3.6 billion, its earnings per share could be as high as S$0.80.

However, Sam Wong and Chen Shujin, analysts at Jefferies Equity Research, said that lenders may want to link short - term capital returns to long - term growth rather than just providing one - off surprises.

The Jefferies team is "more excited" about the banks' long-term return on equity (ROE) and growth potential than about near - term capital returns.

The analysts said, "We believe that the market is underestimating the long-term ROE potential of Singaporean banks if they execute their overseas strategies properly."

According to Jefferies' 2025 outlook, improvements in the lenders' overseas franchises could increase the ROE of DBS Bank, United Overseas Bank, and Oversea-Chinese Banking Corporation by 0.7, 0.5, and 0.4 percentage points respectively.

The Jefferies analysts said that the scarcity value of lenders is also underestimated considering the risks in other markets.

In addition, they added that the total shareholder return of these banks, at 5%-7%, also leads domestic sectors such as Singaporean real - estate investment trusts.

Robust Earnings

Wickramasinghe of Maybank said that with the help of improved credit growth and resilient net interest margins (NIM), the lenders' earnings quarter-on-quarter should be basically flat to positive.

He said that overall, net interest income should improve due to better loan volumes and margins.

He pointed out that the loan growth of the Singaporean banking system hit a two-year high in November 2024. These banks also mentioned an improvement in credit demand, especially in the ASEAN region, as well as in the technology, media, and telecommunications, and renewable energy sectors.

He added, "Credit demand should expand from high-quality, low-margin large-corporate loans to more SMEs (small and medium-sized enterprises) and long-term capital expenditures."

Meanwhile, the CGS team said that although the 25-basis-point interest rate cut in September may put slight pressure on the return on assets, the 50-basis-point interest rate cut in the US in November may only be more evident in the first half of 2025.

CGS analysts said that fourth-quarter earnings may be seasonally weak due to increased leisure travel and year-end celebrations, and decreased business activities.

According to Singapore's fourth - quarter 2024 GDP report, the growth of the finance and insurance industry was driven by the strong performance of banks, fund management, and payment companies.

However, the Singapore Exchange Research Department said that a major downside risk in 2025 is the potential limitation on the growth rate due to lower - than - expected global monetary policy easing.

Nevertheless, the research team at RHB said that Singaporean banks could be the most defensive choice among regional banks as they are best positioned to withstand a strong US dollar and higher-for-longer interest rates.

The RHB team said that while the strong performance of bank stocks in 2024 may mean more moderate returns in 2025, the dividend yield remains attractive, and is further supplemented by capital management initiatives.

Michael Makdad, a senior equity analyst at Morningstar, said that he sees no reason to expect a change in the trend of earnings growth.

A smaller decrease in US interest rates should mean a smaller decrease in local interest rates, thus supporting the NIM of Singaporean lenders.

With the rise in the stock market and the long-term demand of wealthy individuals in Asia, the wealth management fees of these three companies are also growing faster than expected.

In addition, Makdad said that credit costs are benign, and there are not many distressed borrowers except in a few sectors such as office buildings.

According to SGX Research, these three banks now account for 54.3% of the Straits Times Index. As of February 4, the counter rose by 2.5%, and the total return in 2024 was 41.4%.