DBS, UOB and OCBC shares extend fall as outlook clouds on potential Fed rate cuts, US tariffs

SINGAPORE – Shares of all three local banks extended their decline on April 8 as potential US Federal Reserve rate cuts and the

Trump administration’s sweeping tariffs

weigh on the banks’ outlook.

Analysts told The Straits Times that these uncertainties continue to put pressure on and could soften loan demand, net interest margins and wealth management activity.

OCBC Bank led the losses, dropping 4.3 per cent to close at $14.81, below $15 for the first time since October 2024. UOB slid 3.3 per cent to $32.13 and DBS Bank also fell 3.3 per cent to $38.

The Straits Times Index (STI) – of which the local banking trio form a heavy weighting – was down 2 per cent to 3,469.47 points, after crossing the 4,000-point mark for the first time on March 28.

This comes after share prices of all three banks fell sharply on April 7, with DBS dropping nearly 10 per cent to $39.28. OCBC Bank sliding 6.9 per cent to $15.47 and UOB declining 6.3 per cent to $33.23.

Other indexes in Asia have rebounded, with the Nikkei 225 surging 6 per cent, the Hang Seng Index up 1.5 per cent and the Kospi Index trading 0.3 per cent higher.

Mr Michael Makdad, senior equity analyst at Morningstar, said potential US Fed rate cuts could reduce the banks’ net interest margins, putting pressure on their net interest income.

IG market strategist Yeap Jun Rong noted that investors are now pricing in four 25-basis-point rate cuts through 2025, a notably more dovish stance compared with just a month ago.

The Trump administration’s sweeping tariffs on all imports into the US from many countries, including those in Asia, could lead to higher prices and have ignited fears of a global recession.

If economic data suggests weakening growth or potential recession risks, investors often expect central banks to lower interest rates to support economic activity and stimulate borrowing and investment.

Maybank’s head of research Singapore and regional financials, Mr Thilan Wickramasinghe, said the potential for deeper-than-expected interest rate cuts are likely driving concerns on whether the banks can meet earnings expectations.

Mr Yeap said: “Any deterioration in growth conditions ahead could create a more challenging environment for the banks in terms of weaker loan demand, tighter net interest margins, higher credit risks and softer wealth management activities.”

Mr Makdad said that US tariffs will also put more pressure on exporters’ thin margins, impacting their businesses and their ability to repay loans that they have taken from banks.

He noted that exporting businesses located in the banks’ key markets such as China, Malaysia and Thailand that operate on relatively thin margins could see those margins disappear with the US tariffs.

This will affect their cash flows and their ability to service their loans, giving rise to concerns of potentially higher credit costs for banks, said Mr Makdad.

If the US tariff rates stay as high as announced, there will likely be some business failures for these exporting businesses, he said.

Wealth management activity could also take a hit as heightened uncertainties lead to a more cautious market sentiment.

Mr Makdad said that the decline in the equities markets could cause wealth management growth to slow as clients may take a more defensive stance in their investments and move their money to lower-risk assets.

Phillip Securities Research senior analyst Glenn Thum said that fee income will continue to grow but at a slower pace if the economic uncertainties continue.

Morningstar on April 7 raised the Morningstar Uncertainty Ratings for 14 of the 16 stocks in Asia under coverage, excluding China, saying that the US tariffs announced were much more severe than what the market had expected, raising uncertainty over future economic conditions in Asia.

The stocks include DBS, OCBC and UOB, which had their ratings raised to “medium uncertainty” from “low uncertainty”.

Mr Yeap of IG said that the ongoing tariff deadlock between the US and China, which sees China retaliating with 34 per cent tariffs on all imports from the US from April 10, showed little signs of resolution.

“The risks of prolonged global trade disruption continue to weigh heavily on economic outlook,” he said.

But Mr Wickramasinghe said that the banks have strong balance sheets and provision buffers enabling them to navigate uncertainty.

The banks also have articulated clear capital returns policies, which gives good dividend yield visibility, he added.

Mr Thum said: “We believe the banks would fulfil the promised dividends and share buybacks as they have ample excess capital to do so even in a worst-case scenario.

“We have already seen both DBS and UOB buying back shares as this presents a good opportunity for them and to deliver on what they have promised.”