Brief Overview
Singapore banking shows encouraging momentum with interest rates rising for the fourth consecutive month and loan growth reaching 10% year-on-year for the first time since COVID. Phillip Securities Research maintains an ACCUMULATE recommendation on the sector, highlighting that volume growth is now compensating for what interest margins cannot deliver. The firm has raised target prices for DBS to S$85.00 and OCBC to S$33.20.
Investment Positives
The strongest positive driver is Singapore loan growth reaching 10% year-on-year for the first time since COVID, with July 2026 showing 9.96% year-on-year growth. This volume expansion is becoming the key growth engine for banks, effectively replacing the contribution that interest margins previously provided.
OCBC is demonstrating confidence in this trend by raising its loan growth guidance, signalling management’s optimism about sustained lending momentum. The current account savings account (CASA) segment shows robust growth at 12% year-on-year, providing banks with a stable funding base.
Interest rate trends are stabilising favourably, with 3-month SORA rising for four consecutive months to 1.14% in August. Whilst this represents only a 1 basis point month-on-month increase, it marks the smallest year-on-year decline in 21 months at 58 basis points below the previous year’s level.
The analyst has raised profit after tax and minority interest estimates by 1% and increased return on equity projections by 0.7%, reflecting improved operational performance expectations. Banks’ financial year 2026 estimated dividend yields remain attractive at 3.9%, with buybacks and capital return dividends supporting return on equity.
Challenges
The key limitation is that net interest margins are stabilising rather than recovering meaningfully. Whilst SORA has risen for four consecutive months, it remains 58 basis points below year-ago levels, constraining margin expansion potential.
The CASA ratio has eased to 20.4% of deposits despite absolute growth, indicating some pressure on the funding mix. Additionally, deposit pricing pressures persist, evidenced by UOB raising its 12-month promotional rate by 10 basis points to 1.40% in August, suggesting that deposit pricing has stopped falling and competitive dynamics remain challenging.
Outlook
The analyst expects 3-month SORA to hold around current levels through the second half of 2026 estimated, providing stability for planning purposes. The sector outlook centres on volume-driven growth compensating for margin constraints, with banks positioned to benefit from sustained loan demand whilst managing funding costs.
Recommendation & Target Price
Phillip Securities Research maintains an ACCUMULATE recommendation on Singapore banks. The firm has raised target prices, setting DBS at S$85.00 (previously S$79.00) and OCBC at S$33.20 (previously S$31.70), based on higher loan growth expectations and improved profit estimates. The analyst prefers DBS for its fixed dividend per share policy and raised financial year 2026 estimated guidance, and OCBC for its wealth momentum and remaining capital return potential.
Frequently Asked Questions
Q: What is driving the positive outlook for Singapore banks?
A: Loan growth has reached 10% year-on-year for the first time since COVID, with volume now compensating for what interest margins cannot deliver.
Q: How are interest rates affecting bank margins?
A: 3-month SORA has risen for four consecutive months to 1.14% but remains 58 basis points below year-ago levels, causing net interest margins to stabilise rather than recover meaningfully.
Q: What changes have been made to bank valuations?
A: Target prices have been raised for DBS to S$85.00 from S$79.00 and OCBC to S$33.20 from S$31.70, based on higher loan growth and 1% increased profit estimates.
Q: How attractive are bank dividends currently?
A: Banks' financial year 2026 estimated dividend yields remain attractive at 3.9%, supported by buybacks and capital return dividends that enhance return on equity.
Q: What is happening with bank deposit trends?
A: CASA grew 12% year-on-year, though the CASA ratio eased to 20.4% of deposits, and deposit pricing has stopped falling with competitive pressures evident.
Q: Which banks does the analyst prefer and why?*
A: The analyst prefers DBS for its fixed dividend per share policy and raised financial year 2026 estimated guidance, and OCBC for its wealth momentum and remaining capital return potential.
Q: What is the interest rate outlook?
A: 3-month SORA is expected to hold around current levels through the second half of 2026 estimated, providing rate stability for the banking sector.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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