CGS International lifted its rating on Singapore’s banking sector to overweight on Tuesday in CGSI’s note lifting Singapore banks to overweight. CGSI pointed to a 5 basis point projected rise in net interest margins and an 8 per cent re-acceleration in loan growth as the case for higher earnings at the three local banks through fiscal 2027 and 2028.
CGSI raised its fiscal 2027 and 2028 earnings per share estimates for the three local banks by 2.6 per cent to 6.3 per cent. The note, by analysts Tay Wee Kuang and Tan Jie Hui, sets up three separate bets. DBS kept its “add” rating with the target price raised to S$69.90 from S$63.80 and remained the sector top pick. UOB moved from “hold” to “add” at S$42.60 from S$38.70, and OCBC moved to “add” from “hold” at S$26, with each call carrying a load-bearing risk the same note flags.
What the CGSI Note Says
CGSI’s note, dated Tuesday June 9, frames the sector upgrade around the return on equity expansion the brokerage expects from net interest income growth and from structural gains inside the wealth management businesses. The 2.6 to 6.3 per cent range in EPS upgrades is wide because each bank starts from a different base, and the CGSI note ties that spread back to a single driver: net interest margin.
Net interest margin is the gap between what banks earn on loans and what they pay on deposits. CGSI projects a 5 basis point year-on-year rise in net interest margins for fiscal 2027, held constant into fiscal 2028. That number looks small on its own, and the reason it does work in CGSI’s model is that it sits on top of a 7.3 per cent year-on-year rise in total deposits in April, according to MAS data on bank deposits and lending.
Within that deposit base, current account and savings account balances have grown faster than fixed deposits on a month-on-month basis since February 2026, “suggesting Singapore banks could experience a lower funding cost environment”, the CGSI analysts wrote. Loan growth has re-accelerated in parallel, with the brokerage pointing to an 8 per cent year-on-year rise in April.
The brokerage’s framework treats the three banks as one sector for the rating decision and as three separate stories for the target price revisions, and the breakdown of those stories sits in the table below.
| Bank | Rating | Target Price | Previous Target | Key Argument |
|---|---|---|---|---|
| DBS | Add | S$69.90 | S$63.80 | Best-in-class ROE and supportive dividend profile |
| UOB | Add (upgraded) | S$42.60 | S$38.70 | Sector-leading CASA ratio of 57 per cent |
| OCBC | Add (upgraded) | S$26 | Not stated | Wealth management and insurance twin businesses |
Why the Banks Are in a Better Spot
Singapore banks spent the past two years working through a net interest margin squeeze as global rates eased, and the CGSI call rests on a slow turn rather than a sharp one. The brokerage’s analysts expect “potentially stronger NII growth” going into fiscal 2027, with the deposit mix doing the heavy lifting on the funding side and the loan re-acceleration doing it on the asset side.
A separate piece of context the same note flagged: a strong US non-farm payroll report for May has fuelled market expectations of a potential US Federal Reserve rate hike by late 2026. CGSI noted that higher US rates could present local banks with opportunities to deploy excess capital into higher-yielding instruments, supporting fiscal 2027 NII growth even if it may not translate to a recovery in domestic benchmark rates such as the Singapore Overnight Rate Average. The setup leaves the local banks as a rate-sensitive play, and a similar reading earlier this year in how Singapore banks are positioned when rates stay elevated pointed the same way.
The earnings revisions sit on top of that setup. The 2.6 to 6.3 per cent range in fiscal 2027 and 2028 EPS upgrades is the brokerage’s way of saying the setup is sector-wide, and the upside inside it is not the same for each bank. A few of the load-bearing figures from the same note tell the story:
- 2.6% to 6.3% EPS upgrade range across the three banks for fiscal 2027-2028
- 5 basis points projected year-on-year net interest margin rise for fiscal 2027, held into 2028
- 7.3% year-on-year deposit growth in April, per MAS data
- 8% year-on-year loan growth in April
- 57% UOB current account and savings account ratio, the highest of the three
DBS Holds the Top Pick Slot
DBS stayed at the top of CGSI’s list. The target price moved from S$63.80 to S$69.90 on the “add” rating, and the brokerage pointed to a “best-in-class ROE” and a “supportive dividend profile” as the supports. ROE is return on equity, a profitability gauge that compares net income to shareholders’ equity.
On the dividend, CGSI noted that “DBS has expressed confidence it can deliver a step-up of S$0.06 to its quarterly core dividend per share (DPS) in Q4 2026 that would translate to an annualised DPS of S$3.48.” The step-up is a small one quarter-on-quarter, and the annualised figure is what CGSI expects if the Q4 hike holds for four quarters. Readers can cross-check the dividend pattern on DBS’s investor dividend information page.
There is also a one-off special dividend tailwind in the CGSI model. “The potential cessation of its share buyback programme under its capital return initiative announced in November 2024 could also lead to a one-off special DPS of up to S$0.93 at end-FY2027,” the analysts wrote. The DBS narrative is built on three pillars: ROE, a recurring dividend, and a capital return conversion at the end of the buyback window.
And the CGSI analysts underline the deposit story that underpins the entire sector call.
Continued liquidity inflows through deposits have supported resilient NII.
CGS International analysts Tay Wee Kuang and Tan Jie Hui, in the brokerage’s June 9 note.
UOB’s CASA Bet Comes With a Deposit Lag
UOB moved from “hold” to “add” with the target price lifted to S$42.60 from S$38.70. CGSI’s argument for UOB turns on a single number: a CASA ratio of 57 per cent, which the brokerage calls “sector-leading.” CASA stands for current account and savings account deposits, and a higher ratio means more low-cost funding, which is the edge when rates rise.
The same note flagged a softer number on the deposit side. “However, they noted that its deposits growth grew just 0.2 per cent quarter on quarter, lagging behind the industry’s 3 per cent.” That deposit lag is a real gap, and the brokerage’s read is that the CASA mix still gives UOB more room to absorb rate moves, and the deposit base is not adding to that mix as fast as peers’ are.
On capital return and earnings, CGSI wrote that “its share buyback progress is ‘intact’, and its dividend yield is ‘respectable’.” The forward earnings picture also includes a normalisation tailwind. The analysts “expect EPS normalisation in the second half of 2026, following high provisioning in H2 2025 from easing credit cost concerns for its Greater China commercial real estate exposure.” The UOB call is the most rate-sensitive of the three.
OCBC Carries the Wealth and Insurance Story
OCBC moved to “add” from “hold” with a higher target price of S$26. The argument CGSI made is the most different from the DBS and UOB calls. “We upgrade OCBC from ‘hold’ to ‘add’ as we believe OCBC’s twin businesses of wealth management and insurance could position it to better capture the structural inflow of capital into Singapore and Hong Kong,” the brokerage wrote.
The OCBC call comes with a moving piece: its May 2026 retail acquisition of HSBC Indonesia. CGSI flagged that the deal “may affect earnings for FY2027” because of integration costs, and the deal is detailed in OCBC’s announcement of the HSBC Indonesia deal. On the structure, the analysts wrote that “the asset-light nature of the business with a small loan book in the retail segment and a much larger deposits business will help limit credit exposure while enhancing the overall ROE profile of OCBC.”
The OCBC story is the slowest to pay out in the CGSI model. The wealth and insurance businesses are the structural lever, the HSBC Indonesia deal is the near-term overhang, and the EPS lift is conditional on integration coming in clean and net new money inflow holding up.
What Could Break the CGSI Call
CGSI named three downside risks in the same note, and each maps to a different bank. The first is a steep rise in specific provisions following worsening macroeconomic conditions, a risk that hits UOB and OCBC the most because both have integration or normalisation overhangs. The second is higher-than-expected integration costs associated with OCBC’s acquisition of HSBC Indonesia. The third is slower growth in net new money inflow for the wealth franchise, which cuts into the structural lever that the OCBC call leans on.
The US rate path is the swing variable, and CGSI’s working case is a faster-than-expected US Federal Reserve rate hike by late 2026, the scenario in which local banks deploy excess capital into higher-yielding instruments while the Singapore Overnight Rate Average does not move.
Frequently Asked Questions
What did CGSI change in its Singapore banks call?
CGS International moved its Singapore banks sector rating from “neutral” to “overweight” on June 9, 2026, and raised its fiscal 2027-2028 EPS estimates for the three local banks by 2.6 per cent to 6.3 per cent in the same note.
What target prices did CGSI set for the three banks?
The brokerage raised DBS to S$69.90 from S$63.80, UOB to S$42.60 from S$38.70, and OCBC to S$26 from a hold. DBS remained the sector top pick.
How is net interest margin set to move for Singapore banks?
CGSI projects a 5 basis point year-on-year rise in net interest margins for fiscal 2027, held constant into fiscal 2028, against a backdrop of 7.3 per cent year-on-year deposit growth and 8 per cent loan growth in April.
Why does CGSI highlight UOB’s CASA ratio?
A higher current account and savings account (CASA) ratio gives a bank more low-cost funding, which lifts margin when rates rise. UOB’s 57 per cent CASA ratio is the highest among the three banks CGSI covers.
What could derail the CGSI upgrade?
CGSI names three downside risks: a steep rise in specific provisions if macro conditions worsen, higher integration costs tied to OCBC’s HSBC Indonesia deal, and slower growth in net new money inflow for the wealth franchise.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Figures and target prices are accurate as of the CGSI note dated June 9, 2026. Readers should consult a qualified financial professional before making investment decisions.
