DBS, OCBC, and UOB's STI Weight Rises to 54.3% in 2024

The Straits Times Index (STI) has seen a significant shift in its composition in recent years, with the weightage of DBS Group (SGX: D05), Overseas-Chinese Banking Corporation (SGX: O39), and United Overseas Bank (SGX: U11) increasing to 54.3% in 2024. This rise in influence has been driven by the banks' robust earnings and strong financial performance, which have contributed to the STI's 23.5% total return in 2024. However, the increased weightage of these banks has not necessarily led to higher volatility in the index, as the STI's returns have been relatively stable despite their significant influence.

The primary factors driving the growth in these banks' influence in regional markets are their expanding loan books and increasing net interest margins (NIMs). For instance, DBS's loan book grew by 2.4% year-on-year in 3Q 2024, while UOB and OCBC saw growth of 5% and 2.4%, respectively. Additionally, DBS's NIM remained stable at 2.11% in 3Q 2024, while OCBC's NIM was the highest among the trio at 2.18%. These factors contribute to the banks' ability to generate robust earnings and maintain their competitive edge in regional markets.

The sustainability of this trend depends on several factors, including the banks' ability to manage their expenses, maintain their asset quality, and adapt to changing market conditions. For example, DBS has demonstrated superior expense control, with a cost-to-income ratio (CIR) of 38.5% in 3Q 2024, compared to UOB's 41.5% and OCBC's 39.1%. Additionally, all three banks have maintained stable NPL ratios, indicating strong asset quality. However, the banks must continue to innovate and adapt to remain competitive in the face of technological advancements and changing customer preferences.

The banks' dividend yields and capital management strategies have contributed significantly to their appeal to investors. DBS, OCBC, and UOB offer strong dividend yields, with DBS at 4.75%, OCBC at 4.98%, and UOB at 4.64%. These yields are attractive to income-oriented investors seeking stable returns. DBS has initiated a $3 billion share buyback program, marking the first time it has canceled shares after buybacks. This strategy helps to reduce the number of outstanding shares, which increases earnings per share (EPS) and, consequently, the dividend per share. OCBC and UOB have also been active in returning capital to shareholders through dividends and share buybacks.

For future payouts, analysts expect substantial focus on dividend growth and special payouts. DBS is forecasted to increase quarterly dividends by 6 S cents to 60 S cents and declare a special dividend of 50 S cents per share. OCBC is expected to post a net profit of S$1,748 million for 4Q24, reflecting an 8% yoy growth, which may translate to increased dividends. UOB is also expected to maintain its dividend payout, given its strong financial performance.

In conclusion, the growth in these banks' influence in regional markets is driven by their expanding loan books and stable NIMs, but their ability to sustain this trend will depend on their capacity to manage expenses, maintain asset quality, and adapt to changing market conditions. The banks' dividend yields and capital management strategies have made them attractive investments, and investors can expect continued focus on dividend growth and special payouts in the future.