Periodic/Sector reports
Banking: 2Q26 Results Round-up: Sustainable Momentum On Rising Affluence And Wealth Creation Within Asia
OVERWEIGHT (Maintained)
Analyst
Highlights
- DBS Group Holdings’ (DBS) and Oversea-Chinese Banking Corp’s (OCBC) 2Q26 results beat our expectations. United Overseas Bank’s (UOB) results were slightly above consensus estimates.
- DBS and OCBC have outperformed in wealth management, treasury income and asset quality. OCBC has an added boost from insurance.
- Maintain OVERWEIGHT. Our top pick is OCBC (BUY/Target: S$33.35) for its strategic shift to accelerate growth. OCBC is more sensitive to growth in wealth management, which accounted for 63% of its fee income. We also like DBS (BUY/Target: S$80.00) for its 2027 dividend yield of 4.6%.
Analysis
- Net interest income grew sequentially. All three banks experienced NIM compression as lower benchmark interest rates reduced asset yields, with
NIM declining to 1.87% at DBS (-2bp qoq) and 1.70% at OCBC (-6bp qoq) in 2Q26. Loan growth picked up to 8.2% yoy at DBS and 12.3% yoy at OCBC,
driven by digital infrastructure, energy, power & utilities sectors. Net interest income grew 2.5% qoq at DBS and 1.9% qoq at OCBC. Balance sheet
expansion has become increasingly important as the rate cycle normalises.
- Wealth management as primary earnings engine. DBS reported a 42% increase in wealth management fees and a record wealth AUM of S$516b (+16% yoy) in 2Q26. OCBC delivered 39% growth in wealth fees and AUM of S$350b (+13% yoy). UOB’s wealth fee growth was more modest at 1% yoy. The results underscore how Singapore banks are increasingly leveraging their regional wealth platforms to generate recurring fee income and reduce dependence on interest-rate cycles.
- Growth in non-interest income becoming more broad-based and diversified. DBS benefitted from strong treasury customer flows (+42% yoy) and trading income (+12% yoy). OCBC produced exceptionally strong growth from insurance (+69% yoy), trading income (+85% yoy). OCBC’s treasury customer flow income grew 60% yoy. UOB's underlying fees and trading income were softer but supplemented by gains from the divestment of its stakes in Novena Square and 230 Orchard Road. Overall, the sector demonstrated an increasing ability to generate earnings from customer treasury activities, investment products, insurance and capital markets.
- Asset quality trends remained resilient. DBS reported muted NPL formation of S$155m and maintained an NPL ratio of 1.0%. OCBC retained the strongest asset quality metrics among the three banks, with an NPL ratio of 0.9% and loan-loss coverage of 163%. In contrast, UOB experienced a significant rise in NPL formation of S$902m due to a single Greater China real estate exposure, resulting in a higher NPL ratio of 1.6%. Asset quality across Singapore banks remains well controlled, but Greater China commercial real estate continues to represent a key area of credit risk.
Highlights
- DBS Group Holdings’ (DBS) and Oversea-Chinese Banking Corp’s (OCBC) 2Q26 results beat our expectations. United Overseas Bank’s (UOB) results were slightly above consensus estimates.
- DBS and OCBC have outperformed in wealth management, treasury income and asset quality. OCBC has an added boost from insurance.
- Maintain OVERWEIGHT. Our top pick is OCBC (BUY/Target: S$33.35) for its strategic shift to accelerate growth. OCBC is more sensitive to growth in wealth management, which accounted for 63% of its fee income. We also like DBS (BUY/Target: S$80.00) for its 2027 dividend yield of 4.6%.
Analysis
- Net interest income grew sequentially. All three banks experienced NIM compression as lower benchmark interest rates reduced asset yields, with
NIM declining to 1.87% at DBS (-2bp qoq) and 1.70% at OCBC (-6bp qoq) in 2Q26. Loan growth picked up to 8.2% yoy at DBS and 12.3% yoy at OCBC,
driven by digital infrastructure, energy, power & utilities sectors. Net interest income grew 2.5% qoq at DBS and 1.9% qoq at OCBC. Balance sheet
expansion has become increasingly important as the rate cycle normalises.
- Wealth management as primary earnings engine. DBS reported a 42% increase in wealth management fees and a record wealth AUM of S$516b (+16% yoy) in 2Q26. OCBC delivered 39% growth in wealth fees and AUM of S$350b (+13% yoy). UOB’s wealth fee growth was more modest at 1% yoy. The results underscore how Singapore banks are increasingly leveraging their regional wealth platforms to generate recurring fee income and reduce dependence on interest-rate cycles.
- Growth in non-interest income becoming more broad-based and diversified. DBS benefitted from strong treasury customer flows (+42% yoy) and trading income (+12% yoy). OCBC produced exceptionally strong growth from insurance (+69% yoy), trading income (+85% yoy). OCBC’s treasury customer flow income grew 60% yoy. UOB's underlying fees and trading income were softer but supplemented by gains from the divestment of its stakes in Novena Square and 230 Orchard Road. Overall, the sector demonstrated an increasing ability to generate earnings from customer treasury activities, investment products, insurance and capital markets.
- Asset quality trends remained resilient. DBS reported muted NPL formation of S$155m and maintained an NPL ratio of 1.0%. OCBC retained the strongest asset quality metrics among the three banks, with an NPL ratio of 0.9% and loan-loss coverage of 163%. In contrast, UOB experienced a significant rise in NPL formation of S$902m due to a single Greater China real estate exposure, resulting in a higher NPL ratio of 1.6%. Asset quality across Singapore banks remains well controlled, but Greater China commercial real estate continues to represent a key area of credit risk.
OVERWEIGHT (Maintained)
Analyst
IMPORTANT NOTICE - DISCLOSURES AND DISCLAIMERS
This report is provided subject to, and must be read together with, the full Disclosures / Disclaimers available at the following link: https://research-api.uobkayhian.com/assets/disclaimer/df64a6ea-7980-447c-ae9e-fd19b93257dc, which are incorporated by reference into this report. In particular, this report is intended for general circulation and informational purposes only and does not constitute personal investment advice or a recommendation to buy or sell any investment product or security. You should independently evaluate the information and, where necessary, seek advice from a qualified financial adviser regarding the suitability of any investment. Analyst certifications required under applicable regulations, including SEC Regulation AC (where relevant), are included in this report. By accessing, receiving or using this report, you acknowledge that you have read, understood and agreed to be bound by the Disclosures / Disclaimers, as may be amended, supplemented or updated from time to time.
