Navigating NIMs: DBS and UOB in the Age of Margin Compression

🌟🌟🌟DBS and UOB reported their Q3 25 earnings on Thursday with DBS $DBS(D05.SI)$  soaring to an all time high.  Net Profit surged 16% to SGD 2.63 billion.  This was powered by wealth inflows and treasury strength.   Its dividends rose to 75 cents per share, rewarding shareholders.

UOB $UOB(U11.SI)$   fell with a 4% drop after its earnings release.  Its Net Interest Margin (NIM) slipped from 2.02% to 1.95% and fee income remained flat.  The market whispered : compression is here.

The Compression Era: What is Changing?

Rate Normalisation : As global interest rates ease, the golden spread between lending and deposit narrows.  NIMs, the lifeblood of traditional banking are under siege.

Global Minimum Tax :  DBS flagged this as a drag on future profit.  Cross border complexity is rising.

Muted Loan Growth : UOB's cautious lending reflects a broader slowdown.  The age of aggressive expansion is giving way to strategic defence.

Diverging Strategies between DBS and UOB

Fee Income:  DBS is up 24% YoY while UOB is flat.

Dividends : DBS raised its dividends to 75 cents per share paid quarterly, while UOB held at 85 cents or share paid half yearly.

NIM Trend : DBS experienced a slight dip and is still resilient while UOB has a sharper decline.

Strategic Focus : DBS's focus is to  diversify, digitise and be defensive.  UOB plans to consolidate and cautiously expand.

2026 Outlook : DBS forecasts lower profits but has strong buffers.  UOB guides to margin pressure with muted upside.

DBS: The Reinvention Leader

DBS has a track record of growth as it has delivered an impressive 166% return from 2020 to 2025 outperforming its rival banks and the Straits Times Index.

DBS has diversified income streams.  Its strength in wealth management, treasury and digital banking positions it well for a lower rate environment.

DBS maintains a robust CET1 ratio and has raised dividends consistently, now at 75 cents per share. 

DBS has a strategic edge with its regional expansion in India, Taiwan and Indonesia.  It also has digital innovation such as AI driven banking, which will support its long term scalability.

Outlook:  DBS is well positioned to thrive, especially if it continues pivoting toward fee based income and regional growth.

UOB:  The Conservative Compounder

Dividend Stability :  Despite a 72% drop in Q3 25 profit due to pre emptive provisions, UOB maintained its dividend payout.

Risk Management :  UOB's decision to set aside almost SGD 1 Billion in extra allowances is seen as buying insurance against future shocks.

Regional Integration : UOB's acquisition of Citibank's ASEAN consumer business enhances its footprint in Malaysia, Thailand, Indonesia and Vietnam.

Valuation Appeal : Historically UOB trades at a discount to DBS, offering value for income focused investors.

Outlook: While UOB may lag in growth, it offers defensive strength and steady compounding, especially for long term dividend seekers.

Concluding Thoughts 

I am a long term investor in both DBS and UOB because I believe in the resilience of Singapore's financial core, the quiet power of compounding and the enduring value of dividends backed by discipline.

As we enter the age of margin compression and global tax shifts, I do not expect smooth sailing.  However I have confidence that DBS and UOB will navigate with prudence, capital strength and a deep understanding of the region they serve. 

As Warren Buffett likes to say "It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

This captures the essence of long term investing by focusing on quality stocks, not just valuation.  By investing in DBS and UOB and holding them long term, I let the magic of compounding happen over time. 

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