[SINGAPORE] Analysts have downgraded their outlook on Singapore banks amid concerns of weaker loan growth and higher credit costs, as Trump’s tariffs threaten a global trade war.
UOB Kay Hian (UOBKH) downgraded DBS to “sell”, cutting its target price from S$49.80 to S$40. The brokerage maintained a “hold” rating for OCBC, cutting its target price from S$21.10 to S$16.85.
Similarly, DBS Group Research analysts downgraded UOB from “buy” to “hold”, while maintaining their “hold” rating on OCBC. UOB’s target price was slashed from S$38.50 to S$32.70, while OCBC’s target price was cut from S$17.60 to S$14.40.
At 2.45 pm on Tuesday (Apr 8), , and were trading at S$38.34, S$15.01 and S$32.35, respectively.
In a note on Monday, UOBKH analyst Jonathan Koh said that banks’ regional operations would bear the brunt of Trump’s reciprocal tariffs, with substantial tariffs imposed across the board on Asian economies including Vietnam (46 per cent), Thailand (36 per cent), China (34 per cent) and Indonesia (32 per cent).
Although Singapore is subject only to a 10 per cent baseline tariff, Koh estimates that DBS, OCBC and UOB would effectively face average reciprocal tariffs of 15.9 per cent, 17.3 per cent and 17.3 per cent, respectively, due to their exposure across the region.
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The brokerage cut its 2026 net profit forecasts for both DBS and OCBC by 13 per cent, citing lower loan growth and higher credit costs due to non-performing loans in the manufacturing sector, particularly within the Asean region.
“The slowdown in intra-regional trade triggered by reciprocal tariffs will reverberate across supply chains across the region,” said the analyst. “Many companies’ China+1 strategies are in tatters.”
He added that manufacturers are likely to cut costs to stay viable, triggering job losses and subsequent slowdowns in domestic consumption.
UOBKH lowered its forecasts for DBS’ loan growth from 4.8 per cent to 2 per cent, while OCBC’s was lowered from 4.9 per cent to 2 per cent.
Both banks’ ability to sustain dividend payouts may also be under pressure. UOBKH said that it expects DBS to maintain a dividend per share (DPS) of S$0.60 in the fourth quarter of 2025 – lower than its previous forecast of S$0.66, while OCBC’s DPS is projected to remain steady at S$1, provided economic conditions do not deteriorate further.
Similarly, DBS Research Group analysts Derek Tan and Lim Rui Wen noted “rough seas ahead” for Singapore banks in a note on Monday. They believe their previous bullish views of the lenders due to more active capital management plans, higher earnings visibility and stronger loan growth have been “derailed” by the prospect of a trade war.
Current banking stock valuations have neared all-time highs at 1.2 to 1.8 times forward price-to-book ratios (based on FY2025 forecasts), the analysts noted.
This draws similarities to the US-China trade war in 2018 which saw local bank stock prices retreat by up to 35 per cent. In FY2018, valuations peaked at 1.3 to 1.5 times forward price-to-book ratios.
“A more pronounced sell-off may be on the cards,” the DBS analysts said.
UOBKH said that global economies and banks should expect further shocks. China’s retaliation to match US tariffs of 34 per cent, as well as the European Union’s warnings of retaliation, could lead to a global trade war.
UOB economists have cut US gross domestic product forecasts from 1.8 per cent to 1 per cent in 2025, while raising the probability of a US recession to 40 per cent from a previous 20 to 25 per cent. Singapore’s GDP growth forecast of 2.5 per cent is likely to fall by 0.5 to 1 per cent, UOBKH’s Koh added.
In Singapore, Prime Minister Lawrence Wong said on Tuesday that the country’s economic growth will be “significantly impacted” by the tariff fallout, and a recession this year cannot be ruled out.
UOBKH noted that the interest rate outlook remains uncertain, with the US Federal Reserve holding off on rate cuts while awaiting greater clarity. The Fed held its 2025 year-end rate projection steady at 3.9 per cent during its Federal Open Market Committee meeting on Mar 25, signalling two modest cuts of 25 basis points each this year.
DBS’ Lim and Tan, however, flagged that the Fed might further increase the current guidance due to the risk of an escalating trade war. “Almost 100 basis points of cuts are now priced (by markets) for 2025, as it is assumed that the Fed will prioritise growth over inflation concerns,” they said, expecting further downside to banks’ net interest income.
Meanwhile, UOBKH’s Koh noted that Singapore’s interest rates have begun to ease. The three-month compounded Singapore Overnight Rate Average fell by 64 basis points in 2024 to 3.07 per cent, and declined further to 2.56 per cent in the first quarter of 2025.
UOBKH also downgraded the broader Singapore banking sector to “underweight”, with Trump’s “unprecedented” tariffs and a slowdown in global trade likely to affect Singapore’s wider economy. Likewise, DBS noted that loan growth guidance from local banks would have to be revised downwards as economic slowdowns intensified.
The DBS analysts noted, however, that Singapore banks have significant management overlays, ranging from S$600 million to S$2 billion.
Even in the face of a prolonged trade war, these should enable banks to keep credit costs low in case of defaults, they said.
