UOB, OCBC, and DBS have low earnings downside risk and offer attractive dividends.

Singapore banks– and in particular, their stocks– may be a good place to hide from the market volatility brought about by the 2024 US elections and shifting expectations from the US Federal Reserve's next moves.

UOB, OCBC, and DBS have low earnings downside risk, with even the possibility of earnings and margins rising, RHB said in a report.

"Earnings downside risk looks low, with the flat earnings expected for the sector next year already taking into account the four US Federal Funds Rate (FFR) cuts and given steps by banks to protect net interest income (NII)," said RHB's Singapore Research team on a report published on 25 November 2024.

With swap prices indicating a less aggressive FFR cut cycle, there could be upside to their net interest margins (NIM) and earnings, the report added.

The expected NIM squeeze in 2025 should be cushioned by loan growth momentum, healthy fees, and normalisation of the banks' credit cost run rates.

Their dividend yields are also attractive with a dividend yield of 5.6% for FY2025, RHB said.

Of the banks, DBS offers dividend safety, given its guidance for a fixed step-up in absolute dividend per share (DPS).

Should earnings in 2025 turn out to be better than expected, OCBC Bank (OCBC) and UOB offer a better potential for a higher DPS.

Overall, Singapore banks' profit after tax & minority interests (PATMI) is projected to increase by between 1% to 2% in FY2024 to FY2026, with a 'decent' 7% YoY PATMI increase expected for FY2024.