Singapore banks: Sell-off tests the rally, but fundamentals hold

Singapore banks experienced sharp sell-offs over the past two trading sessions following analysts’ downgrades, but the scale of the correction reflects how far the stocks had already rallied. All three banks had delivered strong year-to-date gains before the sell-off, led by OCBC with a share price increase of more than 60%.

As highlighted in our 1H26 update, valuations had already moved well above historical norms following the August earnings releases. DBS, OCBC and UOB were trading at roughly 4, 5 and 2 standard deviations above their respective 10-year historical averages on a forward price-to-book basis. With much of the earnings strength already reflected in share prices, the valuation cushion for further near-term upside had narrowed. Against this backdrop, Citi’s downgrade for OCBC, which cited expectations of flat year-on-year 3Q26 earnings and a fully phased-in CET1 ratio declining by around 70 basis points quarter-on-quarter to 13.3%, reinforced concerns over near-term earnings and capital headroom. These risks had already been flagged in our previous update, but the downgrade was enough to trigger more pronounced profit-taking given the elevated valuations. Rising oil prices and global bond yields near multi-decade highs further amplified the risk-off move.

Related articles:

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

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

Earnings momentum remains intact as rates turn and wealth inflows hold up

Bank fundamentals nevertheless remain solid, supporting our constructive view on earnings. Net interest margins appear to be stabilising, while net interest income is receiving firmer support as three-month compounded SORA rose from its May low to around 1.23% in early October. The Federal Reserve’s 25-basis-point rate hike to 3.75–4.00% on 16 September, its first since 2023, also reinforces the higher-for-longer rate environment. This could lift net interest income above the levels implied by previous management guidance, which was based on a lower-rate trajectory.

Figure 1: 3-month compounded SORA has risen from its May low

Non-interest income remains the sector’s larger growth engine, with wealth management driving much of the momentum. All three banks delivered strong wealth-management income growth in 1H26, supported by continued asset gathering and investment activity. OCBC generated SGD 11 billion of net new money in 1H26, while DBS’ wealth AUM surpassed SGD 500 billion and UOB’s high-net-worth AUM rose to SGD 204 billion. These inflows are expanding the asset base that supports wealth-management fees.

The underlying inflows also have a structural underpinning. Singapore’s political neutrality, strong rule of law, AAA sovereign rating and gradually appreciating currency policy continue to support its appeal as a wealth hub. On 5 October, MAS Chairman Gan Kim Yong said private banking client assets in Singapore had risen about 50% over the past five years, including 15% between 2024 and 2025, reflecting continued confidence in Singapore as a wealth hub. Singapore’s appeal is also extending to the next generation of wealthy families. Savills’ Next Generation Wealth Hubs Index ranked Singapore sixth globally and first in Asia-Pacific among destinations for next-generation high-net-worth individuals, citing its concentration of wealth, established business networks and growing role as a regional technology and private-capital hub. This should support demand for wealth preservation, investment management and intergenerational planning as more wealth passes to younger clients.

Taken together, improving net interest income and sustained wealth inflows provide support for bank earnings despite the recent share price correction. Wealth management remains an important source of non-interest income growth, although the mix and quality of income remain important differentiators across the three banks.

Target prices unchanged and neutral stance maintained, with DBS still our top pick

We leave our target prices unchanged at SGD 77.4 for DBS, SGD 32 for OCBC and SGD 42.2 for UOB, and maintain our neutral stance on Singapore bank shares. The recent sell-off has not changed the fundamental drivers behind these targets, with a gradual recovery in net interest income, continued wealth-led fee growth and resilient asset quality supporting the earnings outlook.

The 3Q26 results, due in early November, will provide more clarity on earnings trajectory. Key areas to watch include the direction of net interest margins and the pace of net interest income recovery, particularly whether asset yields can move ahead of funding costs, alongside the resilience of wealth-led fee income and its more market-sensitive components. Asset quality and capital returns will also remain important considerations. Any meaningful shift in these trends could prompt a reassessment of our earnings estimates and target prices.

While the scope for further share price appreciation remains relatively limited, dividends continue to support the total-return profile of Singapore banks. Within the sector, DBS and OCBC remain our preferred exposures over UOB based on their earnings trajectories. For OCBC, its thinner CET1 buffer limits the scope for further capital returns beyond the SGD 2.5 billion programme, which is targeted for completion by 2026. This leaves its forward yield at around 3.7%, below DBS’ annualised forward yield of around 4.7% over the next three years, making DBS more attractive from an income perspective.

DBS therefore remains our top pick among the three banks. Its stronger earnings quality and more attractive income profile offer the best balance between earnings resilience and shareholder returns.

Table 1: 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)	19.2	17.9	16.0	14.2
Book Value/Share	24.3	25.3	26.7	28.1
P/B Ratio (X)	2.3	2.9	2.8	2.6
Dividend Yield	4.1%	4.4%	4.6%	5.1%
Target Price (SGD)				77.4
Upside Potential (Excluding dividends)				4.8%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 8 Oct 2026

Table 2: 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)	17.8	16.2	14.4	12.9
Book Value/Share	14.0	15.8	17.9	20.2
P/B Ratio (X)	1.4	1.8	1.6	1.4
Dividend Yield	3.4%	3.7%	3.5%	3.9%
Target Price (SGD)				32
Upside Potential (Excluding dividends)				10.3%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 8 Oct 2026

Table 3: 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)	14.6	12.0	10.9	9.8
Book Value/Share	30.2	32.7	35.3	38.2
P/B Ratio (X)	1.1	1.2	1.1	1.1
Dividend Yield	5.7%	4.2%	4.6%	5.1%
Target Price (SGD)				42.2
Upside Potential (Excluding dividends)				4.9%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 8 Oct 2026

Figure 2: 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.