Singapore major banks generated net interest margins of 1.5%–2.2% in 2025, compressed by competition and a low-rate environment.

NIM Compression in 2025: Magnitude and Drivers

Singapore’s three major banks—DBS, OCBC, and UOB—entered 2025 facing the sharpest net interest margin (NIM) compression in the current rate cycle. After peaking at decade-high levels between 2021 and 2023 (DBS at 2.1%, OCBC at 2.3%, and UOB at 2.1%), margins contracted meaningfully as the interest rate cycle matured and competitive pressures intensified.

Fourth-quarter 2025 data from the sector shows a 22-basis-point year-on-year decline in aggregate NIM, contributing to a 5% drop in net interest income and a 5% fall in overall earnings compared to the prior year. For the full year, RHB Research estimates that NIM narrowed by approximately 17 basis points across the sector.

The compression reflected two forces: first, the lagged pass-through of rate cuts by the US Federal Reserve, which cut rates three times in 2025 including a 25-basis-point reduction in December; second, intensifying deposit competition that prevented banks from lowering funding costs at the same pace as asset yields declined. These dynamics pushed headline NIMs into a range of roughly 1.5%–2.2% across the three institutions, with DBS at the higher end of that range and OCBC and UOB settling lower.

Net Interest Margin (%) (%)Source: Orionmano Industries

OCBC and UOB: Year-End NIM Positions

OCBC reported a 2025 NIM of 1.91%, down 29 basis points year-on-year, with net interest income falling 6% to S$9.2 billion. The bank had revised its full-year NIM guidance downward during the year from 2.0% to a range of 1.90%–1.95%, reflecting the persistent margin pressure. Despite the compression, OCBC maintained an exceptionally low non-performing loan ratio of 0.9% for seven consecutive quarters, underscoring asset quality stability.

UOB reported a 2025 NIM of 1.89%, narrowing 14 basis points from the prior year. Net interest income declined 3% to S$9.4 billion. The margin compression was milder than at OCBC, partly due to UOB’s differentiated loan mix and regional franchise exposure. Gross customer loans grew 4% to S$352.2 billion, providing some volume offset to margin pressure.

DBS, which had the highest peak margin among the three, reported a 2025 NIM of 1.91%—down 29 basis points from the prior year, with net interest income falling 6% to S$9.2 billion. DBS’s hedging strategy and balance sheet management provided relative resilience compared to peers, consistent with RHB’s assessment that DBS’s hedging program offered a cushion against rate declines.

The Fee Income Offset

All three banks demonstrated a structural shift toward fee-based revenue as a counterweight to NIM compression. Sector-wide, net fee income grew 13% year-on-year in Q4 2025. OCBC posted a 22% rise in net fee income to S$2.4 billion, led by a 34% surge in wealth management fees and a 17% increase in insurance income from Great Eastern Holdings. UOB achieved a record S$2.6 billion in net fee and commission income, up 7%, with wealth management fees climbing 18% and loan-related fees rising 13%.

This shift is not cyclical but structural: wealth management, capital markets, and advisory fees now constitute a growing share of total income, reducing the sensitivity of bank earnings to interest rate cycles. As fee income outpaced NII declines in absolute terms, total income for OCBC slipped only 3% to S$13.8 billion, while UOB saw a 4% decline in operating profit before allowances despite the fee tailwind.

Regional and Macro Context

Singapore’s interest rate environment reflected the global easing cycle. The 3-month compounded SORA declined from 3.59% in Q3 2024 to 1.72% in Q3 2025, a 187-basis-point drop, according to the Monetary Authority of Singapore’s November 2025 Financial Stability Review. Long-term bond yields fell 102 basis points over the same period. The MAS described domestic financial conditions as "mildly accommodative," supported by buoyant global markets and a 17% rise in the Straits Times Index to an all-time high.

On the funding side, CASA (current account savings account) balances rose 12% year-on-year, with the CASA-to-deposit ratio improving to 19.8%. This lower-cost deposit base provided a partial tailwind, helping to cushion NIM compression, though competitive pricing pressures on fixed deposits persisted. Singapore loan growth continued to climb at 6.1% as of January 2026, providing a volume lever for lending income.

Outlook for 2026

Analysts broadly expect NIM compression to ease in fiscal 2026, with RHB estimating a narrowing of about nine basis points year-on-year, roughly half the 2025 decline. Banks are guiding that deposit rate cuts—which lag asset yield movements—will begin to flow through more fully, allowing funding costs to adjust downward. The MAS’s current policy stance, anchored by firm domestic growth and gradually rising inflation, limits further sharp declines in benchmark rates, according to Fitch Ratings.

However, additional Fed rate cuts—policymakers have signalled the possibility of another reduction in 2026—could extend margin pressure, particularly if deposit competition remains elevated. Rising oil prices present an inflation risk that could delay further easing, providing some support for margins in a delayed-cut scenario.

The strategic pivot toward fee income is unlikely to reverse. With wealth management fees, capital market revenues, and loan growth providing offsetting momentum, Singapore’s major banks have demonstrated that they can sustain profitability even as the interest rate tailwind fades. The 2025 experience suggests that the structural resilience built over the past two years—spanning hedging programs, fee diversification, and regional loan growth—is now being tested, and the early results point toward a manageable compression rather than a sharp downturn.