DBS 3Q26: Resilient at the Core, but Dividend Headwinds Build Beyond 2027

DBS’ third-quarter results reflected weaker trading activities, although the underlying earnings franchise remained resilient. Net profit fell 9% quarter-on-quarter and 5% year-on-year to SGD 2.81 billion, approximately 5% below consensus. Total income declined 4% sequentially to SGD 5.85 billion, as markets trading income fell sharply to SGD 152 million, down SGD 317 million from the previous quarter, reflecting unfavourable equity market conditions and weaker trading revenue.

Beyond the headline results, however, customer-driven activities continued to deliver growth. Commercial book income reached a record SGD 5.69 billion, while customer-driven non-interest income, comprising net fees and treasury customer sales, rose 16% over nine months to a record SGD 6.31 billion. For 9M26, net profit also reached a record SGD 8.82 billion, with return on equity at 17.0%. This highlights the resilience of DBS’ underlying earnings base, with continued growth in its customer franchise providing a buffer against volatility in markets trading income.

Table 1: DBS 3Q26 result summary

Net interest income is recovering, although deposit competition could delay margin expansion

Net interest income rose 4% quarter-on-quarter to SGD 3.71 billion, marking its second-highest level on record. The improvement was supported by 3% growth in both loans and deposits on a constant-currency basis, alongside a higher average Singapore Overnight Rate Average (SORA) of 1.23%, compared with 1.08% in the previous quarter. Group net interest margin (NIM) remained stable at 1.87%, marking the first quarter without further compression following three consecutive quarterly declines. The exit margin, the September level, was 1.90%, above the quarterly average of 1.87%. As highlighted in our 1H26 update, the earnings drag from lower interest rates was beginning to ease, and the latest results indicate that the margin has reached a more stable footing. Management also described net interest income as having passed its trough.

Nevertheless, the improvement in group NIM masks continued pressure within the commercial book. Commercial-book NIM declined 5 basis points to 2.16%, despite the increase in average SORA. This reflects the impact of a less favourable funding mix, as SGD 9 billion of the SGD 16 billion increase in deposits came from fixed deposits and other deposits, while SGD CASA contributed only SGD 1 billion. With competition for deposits intensifying, higher funding costs could delay the recovery in commercial-book margins, even as the broader interest rate environment becomes more supportive.

Figure 1: DBS’ group and commercial-book net interest margin (%)

Looking ahead, the rate environment should provide further support to net interest income. SORA has risen to around 1.3%, while management's 2027 guidance assumes an average rate of approximately 1.6%, incorporating two further US Federal Reserve rate hikes. Based on DBS' net interest income sensitivity of SGD 10 million for every 1-basis-point movement in Singapore interest rates, a 30-basis-point increase would translate into approximately SGD 300 million of additional annual net interest income, all else being equal. Together with continued balance-sheet growth, this provides support for management's guidance of mid-single-digit total income growth, although the pace of margin recovery will remain dependent on the bank's ability to manage funding costs.

Record wealth inflows reinforce the franchise, although fee growth is moderating

DBS' wealth management franchise continued to expand, with assets under management (AUM) rising 5% quarter-on-quarter to a record SGD 544 billion, representing 16% year-on-year growth on a constant-currency basis. The increase was supported by record net new money (NNM) of SGD 15 billion.

However, the pace of growth is beginning to moderate. Wealth fees declined 6% quarter-on-quarter as customer investment activity eased from the strong levels recorded in the previous quarter. Year-on-year growth also slowed to 9% from 42% in 2Q26, partly reflecting a higher comparison base following 31% growth in 3Q25. With the first three quarters of 2026 already representing the three highest quarterly wealth fee contributions on record, sustaining the same pace of growth will become increasingly challenging into 2027.

Beyond the higher base, tighter regulatory restrictions in China could introduce another headwind to wealth inflows from 2027. Decree 837, which took effect on 1 July 2026, extends outbound investment screening to mainland individuals for the first time. A Singapore private banker cited by CNBC indicated that the movement of sizeable onshore capital offshore has become increasingly difficult, potentially limiting the pool of new capital available to offshore wealth centres. The introduction of a 20% tax on offshore trusts could add further pressure, with CNBC reporting that some wealthy Chinese individuals are moving assets from Singapore and Hong Kong to US banks outside the Common Reporting Standard framework.

DBS' geographical diversification provides some buffer against these headwinds, with management confirming that net new money has not been directly affected so far. While a higher comparison base and tighter restrictions in China are likely to moderate wealth growth, the franchise remains an important contributor to group earnings.

Asset quality remains sound, while capital headroom continues to narrow

Asset quality remained resilient, with the group NPL ratio improving to 0.9% from 1.0% in the previous quarter. Non-performing assets also declined 3% quarter-on-quarter, while specific allowances stood at 17 basis points of loans. Allowance coverage remained adequate at 134%, or 202% after taking collateral into account, indicating that the bank retains a comfortable buffer against potential credit deterioration.

Capital remains healthy, although the buffer has continued to narrow amid balance-sheet growth and shareholder distributions. Risk-weighted assets increased SGD 16 billion quarter-on-quarter to SGD 398 billion, bringing the fully phased-in CET1 ratio down to 14.0% from 14.6% in June, while the transitional ratio stood at 15.9%. On 4 November, the Monetary Authority of Singapore reduced DBS' operational risk multiplier to 1.5 times from 1.8 times. Had the adjustment been applied in September, the fully phased-in and transitional CET1 ratios would have been higher at 14.1% and 16.1%, respectively.

Overall, the improvement in asset quality and continued capital adequacy reinforce the resilience of DBS' balance sheet. However, the reduction in surplus capital is becoming increasingly relevant to the dividend outlook, particularly as the bank continues to balance loan growth, capital returns and regulatory capital requirements.

Earnings remain resilient, but dividend support moderates beyond 2027

DBS declared a third-quarter dividend of 81 cents per share, comprising an ordinary dividend of 66 cents and a capital return dividend of 15 cents. Management reiterated its commitment to the capital return dividend through end-2027, while SGD 2.6 billion of the SGD 3 billion share buyback programme remains available for opportunistic deployment. Beyond 2027, however, the scope for extending the capital return programme is likely to be more limited as the capital buffer narrows. The fully phased-in CET1 ratio has declined from 15.1% a year ago to 14.0%, bringing it closer to management's target of around 12.5%–13.5%. While ordinary dividends should continue to grow alongside earnings, they are unlikely to fully replace the capital return component. Consequently, the forward dividend yield is expected to moderate from 2028, with future shareholder distributions increasingly supported by earnings growth and capital generation.

Factoring in the reported 3Q26 results and management's latest guidance, we have revised down our earnings forecasts for DBS in 2027 and 2028. This translates into a lower target price of SGD 73.8, based on our 2028 earnings estimates, compared with our previous target price of SGD 77.4. At the current share price of SGD 71.23, this implies approximately 3.6% upside, excluding dividends. The forward dividend yield is expected to average around 4.5% over the next three years, continuing to provide an attractive income component to total shareholder returns despite the anticipated moderation in distributions beyond 2027.

While the shares' relatively high valuation limits the scope for further share price appreciation in the near term, the bank's earnings resilience continues to underpin its longer-term investment appeal. Existing shareholders can continue to benefit from its income-generating potential, while investors yet to build a position may prefer to wait for a more attractive entry point to improve the balance of risk and reward.

Table 2: Valuation table for DBS

Figure 2: DBS’ share price vs earnings per share

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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.