DBS capital return plans remain bright spot even with weaker earnings ahead: analysts

[SINGAPORE] DBS will likely report weaker earnings in 2026, but analysts are still positive on the lender, given its high capital returns and potential for further special dividends.

On Monday (Feb 9), DBS posted a 10 per cent fall in net profit to S$2.26 billion for the fourth quarter ended Dec 31, 2025.

Excluding the S$100 million set aside for corporate social responsibility commitments, net profit would have been S$2.36 billion. This missed the S$2.59 billion consensus forecast in a Bloomberg survey of six analysts.

Meanwhile, Q4 dividend payout stood at S$0.81 per share – comprising an ordinary dividend of S$0.66 per share and a capital return dividend of S$0.15 per share – compared with S$0.60 per share for the year-ago period.

In 2026, DBS will likely continue enhancing shareholder returns through its S$3 billion share buyback programme, said CGS International (CGSI) analysts Tay Wee Kuang and Lim Siew Khee.

This comes as the bank has only bought back and cancelled around S$371 million worth of shares since it announced the programme in November 2024, they noted.

If the lender does not complete its share buyback mandate, there could be room for special dividends, said Thilan Wickramasinghe, head of research at Maybank Securities.

Morningstar equity analyst Kathy Chan said DBS’ high share price may make it harder to buy back shares.

The counter ended 0.7 per cent or S$0.39 lower at S$57.80 on Tuesday.

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Chan thinks DBS’ shares are slightly overvalued; its 2026 price-to-book ratio of 2.4 is above its 10-year historical average of 1.4.

Nevertheless, her 2026 dividend forecast of S$3.24 per share implies an “attractive” dividend yield of 5.6 per cent, which could continue to support the share price, she said.

2026 forecasts

While DBS’ Q4 performance was behind expectations, largely from weaker trading, it is recovering so far in 2026, Wickramasinghe said.

The bank is “well-placed” to benefit from continued liquidity flows to Singapore, which should limit the decline in interest income, while boosting fees, especially in wealth management and capital markets, he added.

Decline in net interest margin could also be limited if loans are set to rise 5.5 per cent in 2025, compared to 3.3 per cent in 2025, according to Wickramasinghe’s forecasts.

But the CGSI analysts pointed out that, despite 2025’s record wealth assets under management of S$488 billion and net new money inflow of S$39 billion that drove wealth management fees, the lender lacks near-term earnings growth catalysts.

For 2026, DBS sees total income at around 2025 levels and net profit to come slightly below 2025 levels.

Net interest income will likely be lower due to lower interest rates and a strong Singdollar, but this can be mitigated by a strong growth in deposits and volumes, the bank said.

Citi analyst Tan Yong Hong said this likely reflects some conservatism, given expectations of mid-single-digit deposits and loans growth.

As for commercial book non-interest income, the lender expects high-single-digit growth, led by mid-teens growth in its wealth management business.

Meanwhile, DBS forecasts a cost-to-income ratio in the low 40 per cent range and specific provisions within 17 to 20 basis points (bps) of loans, with the potential for further general provision write-back.

This came as DBS’ specific provisions in Q4 jumped to 36 bps, from an average of 13 bps for the rest of 2025, although the overall impact was muted due to write-backs in general provisions.

The uptick was largely due to the “prudent downgrade” of a previously watch-listed real estate exposure in Hong Kong.

Fitch Ratings analysts Tania Gold and Willie Tanoto expect DBS’ non-performing loans (NPL) ratio to tick up as Hong Kong’s commercial real estate challenges persist.

Nevertheless, the analysts noted that DBS’ coverage of 197 per cent, including collateral and S$2.4 billion of additional general provisions, can provide “significant buffers”.

Maybank Securities’ Wickramasinghe also noted potential for further write-backs due to improving NPLs – the ratio fell to 1 per cent in 2025 from 1.1 per cent in 2024 – which should keep credit charges in check.