RHB bullish on DBS, OCBC, but expects more volatility in banking sector amid geopolitical tensions

[SINGAPORE] Singapore banks are expected to face a “modest operating environment” in the months ahead, although the recent rise in geopolitical tensions has likely injected further volatility into the sector’s outlook, said RHB in a Tuesday (Mar 10) note.

Against this backdrop, RHB named DBS and OCBC as its top picks, with DBS “slightly ahead” due to better dividend-per-share visibility and a higher dividend yield of about 6 per cent. It also said it prefers banks with stronger asset-quality metrics amid the uncertain environment.

As for UOB , the brokerage said that there could still be “lingering concerns” over its asset quality and provision buffers even though its forecasted net income for FY2026 is expected to chalk up the strongest rebound as credit cost normalises.

The brokerage maintained its “neutral” stance on the banking sector, with a “buy” rating for DBS and OCBC. A rating for UOB was not given in the report.

RHB’s target price of S$63.50 for DBS was almost 14 per cent higher than the counter’s Wednesday closing price of S$55.72. Meanwhile, the brokerage’s target price of S$23.45 for OCBC was 12.4 per cent higher than the closing price of S$20.86 on Wednesday.

Overall, RHB said that the local banks met its expectations.

However, it noted that DBS results came in at the lower end of the estimate range due to the lender facing deviations below the operating income line. DBS posted a sharp quarter-on-quarter drop caused by lower fees and treasury and investment income.

Dividend wise, both DBS and OCBC met estimates, though UOB was “a slight miss”. 

UOB’s dividend per share fell 39 per cent year on year to S$0.71 in Q4 FY2025, from S$1.17 in the corresponding year-ago period.

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Meanwhile, DBS’ dividend per share climbed 35 per cent to S$0.81, from S$0.60, while OCBC’s increased by 2 per cent to S$0.58, from S$0.57. 

Local banks lagging 

RHB noted that while Singapore banks started 2026 on a modest note, they still fall behind regional peers. 

“While the sector’s year-to-date total returns is in positive territory, it has lagged that of peers in markets such as Thailand and Malaysia while domestically, the sector is trailing the broader market index,” RHB noted.

It highlighted that DBS in particular was a “laggard” due to a combination of Q4 FY2025 results being at the “lower end of expectations”. It also had a comparatively softer set of results compared to peers, stoking concerns of potential earnings downgrades.

UOB’s year-to-date total returns remained muted despite the earnings rebound.

OCBC was the only local bank that outperformed RHB’s expectations, posting a positive year-on-year growth in net profit for Q4 2025, alongside a positive outlook for its wealth business.

“In addition, management’s preference to utilise the balance of its S$2.5 billion capital return plan for special dividends over share buybacks given current valuation levels should be well received by long term shareholders,” noted the report.

Sector outlook

RHB lowered its FY2026 net profit consensus by 1 per cent for the sector but its FY2027 earnings forecasts stayed “relatively unchanged”. Earnings forecasts for DBS were lowered by 2 per cent and 1 per cent for FY2026 and FY2027, respectively.

Following FY2025 results, UOB’s FY2026 net profit is forecast to decrease by 1 per cent, while OCBC’s FY2027 forecast earnings were raised by 1 per cent.

Earnings of the banking sector are expected to rebound by 5 per cent year on year for FY2026, underpinned by lower credit cost of 23 basis points, and continued non-interest income growth.

Potential upside risks to banks’ earnings include a stronger-than-expected net interest margin if the US Federal Reserve cuts rates, as well as milder pressure on the Singapore Overnight Rate Average (Sora), which is the key benchmark interest rate in Singapore.

Earnings could also be supported by robust wealth management activity and treasury flows that lift fee income, alongside lower-than-expected credit costs.

On the downside, weaker loan growth could weigh on the sector, while non-interest income from treasury and markets activities may soften. A surge in liquidity inflows could also push Sora lower than expected, placing additional pressure on margins.