Fee-led growth, compelling total returns: Singapore banks after 1H26

• 1H26 results confirm a fee-led earnings transition, with wealth management and trading income increasingly offsetting continued NIM pressure.

• NII is showing early signs of stabilisation as three-month compounded SORA begins to firm, easing the pressure from lower rates.

• DBS and OCBC delivered record net profit of SGD 6.01 billion and SGD 4.19 billion, supported by stronger and more diversified fee income despite continued NIM pressure.

• UOB's Greater China NPL ratio rose to 4.8% from 3.5% in 1Q26, highlighting a key credit risk while its broader earnings recovery remains less convincing.

• DBS remains our top pick, offering the strongest combination of earnings quality, capital returns and an annualised forward yield of around 4.6% over the next three years.

1H26 earnings confirm the sector’s fee-led transition

The 1H26 reporting season confirmed the earnings transition we anticipated entering the year, with non-interest income moving decisively to the centre of the sector’s growth, while the drag from lower rates begins to ease. DBS and OCBC both delivered record net profit of SGD 6.01 billion and SGD 4.19 billion respectively, as wealth-led fee income and resilient trading more than offset continued pressure on net interest margins. UOB closed the season on a softer note: net profit rose 3% to SGD 2.92 billion, but pre-provision operating profit fell 4% and total income declined 1%, with headline earnings supported by provision releases, higher associate income and one-off divestment gains rather than stronger core operating momentum. The divergence highlights the key takeaway from the half: the sector’s earnings base is becoming more durable and diversified, but the quality and underlying momentum of growth now vary across the three banks.

Figure 1: All three banks delivered YoY net profit growth in 1H26, with OCBC leading the way

Related articles:

DBS 1H26: Strong earnings, attractive dividend, valuation catches up

OCBC 1H26: Record quarter, wealth-led growth shines, but valuation raises the bar

UOB 1H26: Earnings stabilising, but a broader recovery is still needed

Net interest income shows early signs of a cyclical inflection

The clearest change from the first quarter is that net interest income is showing early signs of an inflection. NII fell around 3% year-on-year across all three banks in 1H26, with NIMs down 18 to 25 basis points, but the sequential trend has turned positive. Group NII rose 2% quarter-on-quarter at both DBS and OCBC as balance-sheet growth outpaced the final phase of margin compression, marking the first sequential increase after a year of declines. UOB was the exception, with NII easing 1% sequentially as its NIM slipped a further eight basis points to 1.74%.

The shift reflects a rate backdrop that has firmed rather than continued to weaken. Three-month compounded SORA has risen for three consecutive months since May, reaching around 1.15% at end-July, while the Federal Reserve’s latest projections no longer treat rate cuts as the base case — a marked shift from the one-to-two cuts that the banks had assumed entering 2026. This has also influenced management guidance: DBS now expects NII to remain close to 2025 levels, while OCBC guides for a slight decline based on an assumed average SORA of around 1.2%. UOB’s 1H26 NIM of 1.78% also remains within its 1.75%–1.80% guidance range. Should SORA continue to rise above management assumptions, the realised outcome could provide even greater upside to second-half NII across the sector.

Figure 2: Net interest margin compression continues year-on-year, but the pace is moderating

Non-interest income leads, but the quality of growth diverges

Non-interest income, particularly wealth management, remained the sector’s primary growth engine, but the quality and durability of that growth increasingly distinguish the three banks. The structural tailwind is shared: Singapore’s position as a global wealth hub, supported by political neutrality, a strong rule of law, AAA sovereign ratings and a gradually appreciating currency policy, continues to attract safe-haven capital. As private banks and the wealth-management ecosystem becomes more competitive, local banks with larger private-banking franchises and more established capabilities are better positioned to capture these flows.

DBS grew wealth management fees 33% to a record SGD 1.83 billion, with wealth AUM surpassing SGD 500 billion, supported by a broad-based mix of fee, treasury and markets income. OCBC lifted wealth management income 27% to a record SGD 3.29 billion, now accounting for 41% of total income. However, part of the jump in second-quarter non-interest income reflected market-sensitive investment income at Great Eastern Holdings, while non-customer flows accounted for 60% of the sequential increase in trading income, which may not be sustained at the same pace. UOB’s wealth income grew a respectable 16%, but overall net fee income fell 2% as a 19% decline in loan-related fees and softer investment-banking activity outweighed record wealth fees, prompting management to lower full-year fee guidance to low-single-digit growth.

DBS and OCBC are also investing to defend and extend their wealth franchises, increasingly through artificial intelligence. DBS has integrated a generative-AI assistant into digiWealth to guide retail clients ahead of human advisers, credits AI with a 20% increase in high-net-worth onboarding and is targeting SGD1 trillion in wealth AUM by 2030. OCBC is committing more than SGD 1 billion annually to AI, digital and data capabilities while adding 600 relationship managers. Its planned acquisition of HSBC’s affluent-banking business in Indonesia, targeted for 2Q27, would also lift OCBC Indonesia’s AUM by around 25%.

Figure 3: Non-interest income grows across all three banks, with wealth management the key driver

Asset quality remains contained, but UOB’s Greater China exposure warrants attention

Asset quality remained well contained across the sector, with NPL ratios broadly stable at 1.0% for DBS, 0.9% for OCBC and 1.6% for UOB, while credit costs stayed within or below management guidance. The key exception is Greater China credit risk, which we identified as the sector’s clearest watchpoint in our 1Q26 update and which has since become more pronounced at UOB. UOB’s Greater China NPL ratio rose to 4.8% from 3.5% in 1Q26, while NPA coverage on the portfolio fell to 42% from 57% following the downgrade of a closely monitored real-estate account.

Table 1: 1H26 credit costs remained within or below guidance across the sector

	DBS	OCBC	UOB
2026 guidance (bps)	17–20	20–25	25–30
1H26 credit cost (bps)	15	18	27
NPL ratio	1.00%	0.90%	1.60%
Source: DBS, OCBC, UOB presentations, iFAST compilations Data as of 30 June 2026

DBS remains our top pick as income and earnings delivery take centre stage

The 1H26 results reinforce a constructive earnings outlook, but with the sector having rallied strongly both ahead of and following results, the investment case now rests more on income and earnings delivery than further multiple expansion. DBS trades at around 3.0x forward price-to-book, compared with roughly 2.2x for OCBC and 1.3x for UOB, with all three trading above their respective 10-year historical averages. This suggests that much of the near-term upside from improving fundamentals is already reflected in valuations.

We prefer DBS and OCBC over UOB, whose earnings improvement remains more reliant on provision releases and one-off gains than core revenue growth. A broader recovery for UOB would also require a firmer recovery in fee income and continued containment of Greater China credit risks. Between DBS and OCBC, near-term price upside appears modest for both, shifting the focus towards total returns. DBS offers the strongest income profile, combining its ordinary dividend with capital-return dividends for a forward yield of around 4.6%. OCBC’s fully phased-in CET1 ratio fell 1.2 percentage points to 14.0%, at the lower end of its target range. While its SGD 2.5 billion capital-return programme remains on track for completion in 2026, the thinner capital buffer limits the scope for further special returns, thereafter, leaving a forward yield of around 3.5%. On this basis, DBS remains our top pick as the sector’s core income and total-return play.

Overall, we remain constructive on the sector’s earnings trajectory and total-return proposition, while recognising that near-term price upside may be more limited following the strong rally. We therefore favour a selective approach to entry for investors yet to build a position.

Table 2: Valuation table for DBS

DBS (SGX: D05)
	2025A	2026E	2027E	2028E
EPS	3.9	4.1	4.6	5.2
EPS Growth	-3.0%	7.0%	12.0%	12.5%
P/E Ratio (X)	19.6	18.3	16.4	14.5
Book Value/Share	24.3	25.3	26.7	28.1
P/B Ratio (X)	2.3	3.0	2.8	2.7
Dividend Yield	4.0%	4.3%	4.5%	5.0%
Target Price (SGD)				77.4
Upside Potential (Excluding dividends)				2.4%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 24 Aug 2026

Table 3: Valuation table for OCBC

OCBC (SGX: O39)
	2025A	2026E	2027E	2028E
EPS	1.6	1.8	2.0	2.3
EPS Growth	-2.4%	9.5%	12.5%	12.3%
P/E Ratio (X)	19.0	17.3	15.4	13.7
Book Value/Share	14.0	15.8	17.9	20.2
P/B Ratio (X)	1.4	2.0	1.7	1.5
Dividend Yield	3.2%	3.5%	3.2%	3.6%
Target Price (SGD)				32
Upside Potential (Excluding dividends)				3.5%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 24 Aug 2026

Table 4: Valuation table for UOB

UOB (SGX: U11)
	2025A	2026E	2027E	2028E
EPS	2.8	3.3	3.7	4.1
EPS Growth	-26.3%	21.7%	10.1%	11.1%
P/E Ratio (X)	14.8	12.2	11.1	10.0
Book Value/Share	30.2	32.7	35.3	38.2
P/B Ratio (X)	1.1	1.2	1.2	1.1
Dividend Yield	5.6%	4.1%	4.5%	5.0%
Target Price (SGD)				42.2
Upside Potential (Excluding dividends)				3.5%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 24 Aug 2026

Figure 4: Three banks’ share price and earnings per share

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.