RHB upgrades Singapore banks on wealth momentum, resilient fee income; names its top picks

[SINGAPORE] RHB has upgraded its rating on the three Singapore banks to “overweight” from “neutral”, citing their continued wealth momentum and resilient fee income generation.

The brokerage believes there is also renewed interest in the lenders due to a change in interest-rate expectations, it said in a report on Thursday (May 28).

Singapore banks “appear to be enjoying renewed investor interest amid a shift in rate expectations, continued strong wealth momentum and fee income generation”, RHB analysts noted.

They also cited the lenders’ “fairly comfortable outlook ahead... despite uncertainties from the Middle East conflict”.

RHB named OCBC and DBS as the top picks for their positive earnings momentum, robust wealth-management franchises, “solid” balance sheets, as well as “reasonable” valuations and dividend yields. 

The brokerage raised its target price for OCBC to S$26.20 from S$24.70, and that for DBS to S$66.10 from S$64.

But it remained “neutral” on UOB , and kept its target price on the stock at S$41.30.

The three local banks delivered a “very decent” start to the 2026 financial year, said RHB’s analysts, with sector net profit rising 1 per cent year on year in the first quarter.

They noted that stronger non-interest income more than offset the pressure on net interest income caused by lower benchmark rates.

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The lenders’ financial results broadly met the brokerage’s expectations, with DBS’ ordinary and capital return dividends also in line with consensus estimates.

The local bank sector’s fee income rose 11 per cent year on year amid higher customer activity. This, in turn, had a positive impact on wealth management fees – which grew 29 per cent over the same period – as well as treasury customer sales, RHB said.

It also noted that sector deposit growth remained robust at 9 per cent year on year, supporting total asset growth of 10 per cent and loan growth of 5 per cent.

The analysts said the banks maintained strong liquidity positions, with the sector loan-to-deposit ratio improving to 76.3 per cent from 79 per cent in the year-ago period.

They added that expectations for US interest rates have changed, with markets now expecting the Federal Reserve to keep rates unchanged this year and hike in 2027 instead.

This has pushed up Singapore Overnight Rate Average benchmarks, which “should help to alleviate net interest margin pressure”, the analysts said.

“Singapore banks are among the best proxies to such rate plays,” they added.

Striking a more positive tone

RHB noted that the Singapore banks generally retained their 2026 guidance, with DBS striking a more positive tone following better hedging opportunities in Q1 and changing expectations surrounding US interest rates.

The lenders now also project one cut or none to the US federal funds rate – compared with forecasts for two cuts previously – amid inflationary pressures linked to the Middle East conflict.

While their direct exposure to the region remains limited, RHB noted that they monitoring potential second and third-order effects.

The brokerage said that OCBC and UOB booked additional management overlays in Q1 as precautions, while DBS’ S$2.4 billion general provision overlays “should sufficiently cover any potential emerging risks”.

On the wealth-management front, DBS noted that activity slowed briefly in early April due to geopolitical tensions, but the momentum has since recovered.

UOB, meanwhile, aims to double its wealth income by 2030, supported by a pipeline of product launches and new initiatives.

In addition, DBS and OCBC remain flexible on capital returns, flagging that unused share buyback allocations could be returned to shareholders through dividends instead.

RHB raised its earnings forecasts for DBS and OCBC by about 2 per cent a year from 2026 to 2028, mainly on stronger non-interest income expectations.

At the sector level, the analysts project net profit to grow 6 per cent in 2026, supported by improving pre-provision operating profit and a normalisation in credit costs.

They added that the local banks continue to benefit from “flight-to-quality” inflows into Singapore dollar assets, which have supported healthy deposit growth and liquidity levels across the sector.