DBS Considers Increasing Quarterly Dividend by 6 Cents to Allocate Surplus Capital
According to UOB Kay Hian, two major banks in Singapore, DBS and OCBC, are anticipated to announce higher profits for the fourth quarter of 2023, albeit with softer net interest and non-interest income.
Analyst Jonathan Koh from UOB Kay Hian predicts that DBS and OCBC will both report single-digit increases in their net interest income (NII), with DBS expected to see a 7% year-on-year (yoy) rise and OCBC a 3% yoy increase.
Koh estimates that DBS will reveal a net profit of S$2.36 billion for the quarter, marking a 1% increase compared to the same period in 2022 but a 9% decline from its Q3 2023 profit levels. Meanwhile, OCBC is projected to report a net profit of S$1.65 billion for the quarter.
Koh anticipates that non-interest income, including wealth management fees and net trading income, may experience a seasonal softening during this period.
In terms of dividend payouts, DBS is expected to raise its quarterly dividend by 6 Singapore cents, or 12.5%, to 64 cents for the Q4 period. Koh suggests that this increase is a means for DBS to return “surplus capital” to its shareholders.
Koh further notes that DBS could explore potential capital management exercises over the next three years to return surplus capital to shareholders, particularly in light of the Final Basel III Reforms set to be implemented starting from July 1, 2024.
On the other hand, OCBC is anticipated to maintain its dividend payout ratio at 50%, in line with its previous practices.
Subdued Loan Growth Forecasted for DBS and OCBC
In the upcoming quarter, both DBS and OCBC are projected to witness subdued loan growth and a slight moderation in Net Interest Margin (NIM).
DBS is anticipated to experience a slight moderation in NIM for Q4, primarily attributed to the modest loan growth of 1.4% during the quarter. This subdued growth is attributed to weaknesses in corporate loans and customer repayments.
Similarly, OCBC’s loan growth is expected to be modest, with a year-on-year increase of 1.1% but remaining flat sequentially in Q4.
This stagnation is influenced by heightened geopolitical uncertainties, which have subdued customers’ inclination towards business ventures.
Despite these challenges, OCBC’s NIM is forecasted to maintain stability at 2.26%. Net income is also anticipated to exhibit growth of 3% year-on-year in Q4 2023, marking a slight moderation from the 17% year-on-year growth recorded in the previous quarter (Q3 2023).
Jonathan Koh, an analyst at UOB Kay Hian, highlights these trends, indicating a cautious outlook for both banks in terms of loan growth and NIM performance.
DBS’s Performance:
DBS is expected to encounter a modest NIM moderation, with loan growth at a mere 1.4% during the fourth quarter.
This subdued growth primarily stems from sluggishness in corporate loans and higher customer repayments.
Despite these challenges, DBS remains resilient, maintaining its position as a leading financial institution in the region.
OCBC’s Performance:
Similarly, OCBC’s loan growth is projected to be modest, with a year-on-year increase of 1.1%, remaining flat sequentially in Q4. Geopolitical uncertainties have contributed to this stagnation, dampening customers’ appetite for business activities.
However, OCBC’s NIM is anticipated to hold steady at 2.26%, reflecting its robust operational performance despite external headwinds.
Challenges and Opportunities:
While both DBS and OCBC face challenges such as subdued loan growth and NIM moderation, they also present opportunities for growth and innovation.
By leveraging their strong financial positions and extensive networks, both banks can explore new avenues for revenue generation and customer engagement.
Future Outlook:
Looking ahead, DBS and OCBC will continue to navigate a dynamic operating environment marked by geopolitical uncertainties and evolving market dynamics.
By remaining agile and adaptive, both banks can capitalize on emerging opportunities while effectively managing risks to drive sustainable growth and value creation for their stakeholders.
ASEAN Economic Growth Boosts Prospects for Singaporean Banks
The strategic reconfiguration of global supply chains throughout Southeast Asia presents a significant opportunity for OCBC and UOB, both of which have established footholds across the region.
Numerous multinational corporations, as part of their “China+1” strategy, are considering establishing alternative manufacturing facilities within Southeast Asia.
Countries such as Malaysia, Thailand, Indonesia, and Vietnam are experiencing an influx of foreign direct investments, indicating a burgeoning economic landscape.
Jonathan Koh highlighted the extensive network of OCBC and UOB within ASEAN countries as a key advantage.
He emphasized that these banks are poised to benefit from the shift in supply chain dynamics, leveraging their presence to facilitate financial transactions and banking services for multinational corporations operating within the region.
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