[SINGAPORE] UOB Kay Hian (UOBKH) downgraded Singapore banks DBS and OCBC to “sell” and “hold”, respectively, citing forecasts of higher credit costs and “anaemic” loan growth resulting from US President Donald Trump’s tariffs.
It downgraded DBS from “hold” to “sell”, cutting its target price from S$49.80 to S$40. It maintained a “hold” rating for OCBC, cutting its target price from S$21.10 to S$16.85.
In a note on Monday (Apr 7), 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.
He noted that the brokerage had 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 strategy are in tatters.”
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He noted that manufacturers are likely to cut costs to stay viable, triggering job losses and subsequent slowdowns in domestic consumption.
The brokerage 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.
Beyond immediate earnings pressure, the brokerage said that global economies 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, Koh added.
The brokerage 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.
Meanwhile, 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. Final demand from the US accounts for 8.3 per cent of domestic value-added in Singapore, which is higher relative to other Asean economies, the note said.
