- Strong Fundamentals Yet High Valuations: Singapore banks boast robust dividends and solid earnings, but their elevated share prices suggest limited room for further upside.
- UOB Offers Relative Value: Among the big three, UOB stands out with lower valuation multiples and promising growth from its Citi portfolio integration.
- Risks Temper Enthusiasm: Interest rate uncertainty and loan growth moderation could pressure earnings, making selective investment key for 2025.
Singapore’s banking stocks have been investor favorites for their robust dividends, resilient earnings, and solid capital management. However, as share prices for DBS Group Holdings Ltd (SGX: D05) (DBSM.SI), Oversea-Chinese Banking Corp (SGX: O39) (OCBC.SI), and United Overseas Bank Ltd (SGX: U11) (UOBH.SI) trend higher, many are wondering: is there still value to be found in these blue-chip stalwarts, or has the market priced in all the upside?
Let’s dive into the dynamics at play and whether Singapore banking stocks remain a compelling buy in 2025.
Strong Fundamentals Driving Share Price Gains
Singapore’s major banks have enjoyed strong earnings momentum, supported by:
- Stabilizing NIMs: Efforts to manage funding costs have limited NIM compression, even amid shifts in deposit mix.
- Resilient Fee Income: Wealth management continues to be a bright spot, as high-net-worth individuals deploy cash into investments for higher yields.
- Robust Capital Management: Banks have announced significant shareholder return initiatives, such as DBS’s S$3 billion share buyback program and UOB’s plans to return excess capital through dividends or buybacks.
These factors have pushed valuations higher, with DBS trading at a lofty level of around 1.7 times its FY25F price-to-book (P/BV), while UOB and OCBC are at around 1.1 times and 1.2x times their P/BV, respectively.
Have the Stocks Become Too Expensive?
Here’s the dilemma for prospective investors: while the banks boast attractive fundamentals, much of the good news may already be baked into their share prices. Elevated valuations mean the margin for error is smaller, especially if economic conditions or interest rate expectations shift unfavorably.
- DBS Group Holdings: At 1.7x P/BV, DBS is trading near historical highs. Its strong dividend yield (~6%) and S$3 billion buyback program are appealing, but the premium valuation suggests limited room for upside unless the bank delivers significant earnings surprises.
- UOB: With its integration of Citi’s retail portfolio in Southeast Asia progressing well, UOB has the potential to maintain strong returns on equity (~14%). At 1.1x P/BV, it offers relatively more value, particularly if fee income and loan growth outperform.
- OCBC: Trading at 1.2x P/BV, OCBC appears reasonably priced compared to DBS but still on the high side historically. Its focus on dividends rather than buybacks makes it a favorite for income investors, but upside may hinge on faster recovery in wealth management activity.
Key Risks to Watch
While Singapore banks are fundamentally sound, there are risks that could pressure their elevated share prices:
1. Interest Rate Uncertainty: The market currently expects fewer U.S. Fed rate cuts in 2025, which could stabilize NIMs but limit further expansion.
2. Loan Growth Moderation: While mid-to-high single-digit loan growth is expected in 2025, a slower economic recovery could temper demand for credit.
3. Valuation Headwinds: With limited room for further multiple expansion, any earnings miss or adverse macroeconomic developments could result in share price corrections.
Should You Still Buy in 2025?
The answer largely depends on your investment horizon and risk appetite. If you’re looking for steady dividends and exposure to a resilient sector, Singapore banks remain a reliable choice. However, investors seeking significant capital appreciation may find better opportunities elsewhere, given the current high valuations.
For value-conscious investors, UOB stands out as a relatively cheaper option with strong growth potential from its expanding fee income and capital management initiatives. DBS and OCBC, while pricier, still offer attractive dividends and proven stability, making them suitable for long-term holders.
In summary, Singapore banking stocks may not be the screaming bargains they once were, but their strong fundamentals and shareholder-friendly policies ensure they remain a solid part of any diversified portfolio. The key is to focus on the bank with the best combination of value and growth potential—without overpaying in today’s elevated market.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.
