Scale and deposit franchise give DBS, OCBC, and UOB a structural cost advantage that new entrants cannot easily replicate.

The Funding Cost Gap Is Structural and Substantial

Incumbent banks in Singapore enjoy funding costs 80–120 basis points lower than new entrants, a structural advantage rooted in established scale and deposit franchise depth. This gap represents the most durable competitive moat in Singapore’s banking market, one that digital-only newcomers and regional fintechs have so far been unable to bridge. The magnitude of the advantage, when measured against peers globally, is outsized: in most developed markets, incumbency advantages in funding costs rarely exceed 50–70 bps.

The quantitative underpinning of this advantage is visible in the local banking groups’ asset quality metrics. DBS, OCBC, and UOB reported non-performing loan (NPL) ratios of 1.1%, 0.9%, and 1.5% respectively in Q4 2024, according to DBS Group Research. These low NPL ratios reflect the stability of deposit-funded loan books, a direct outcome of franchise depth. Banks with cheap, sticky deposit bases are less forced to chase marginal-yield lending, which in turn exerts downward pressure on credit costs and provisioning requirements.

The 1.5% NPL ratio for UOB, slightly higher than peers, nonetheless remains well within the range that global credit rating agencies classify as low risk for ASEAN banking systems. The consistency across all three major incumbents underscores the systemic nature of their funding cost advantage, rather than idiosyncratic strength at any single institution.

Incumbents’ Deposit Franchise and Credit Cost Resilience

Low funding costs feed directly through to lower credit costs and stronger provisioning buffers. DBS guided for total credit costs of 17–20 bps for FY2025, OCBC at 20–25 bps, and UOB at 25–30 bps. These sub-30-bps figures are exceptionally low by international standards; typical European and US regional banks operate at 40–60 bps through-cycle. The guidance implies that Singapore’s Big Three expect their provision expenses to remain manageable even if the macroeconomic environment softens.

In Q4 2024, total allowances charged to the profit and loss stood at DBS $209 million, OCBC $208 million, and UOB $212 million. The narrow dispersion of absolute provisioning across the three banks, despite differing loan book sizes, further indicates the systemic nature of their deposit-based cost discipline. The Singapore banking system’s total provisioning coverage increased to 137% as of Q2 2025, up from 113% as of Q2 2024, according to the Monetary Authority of Singapore’s Financial Stability Review. This 24-percentage-point improvement in coverage occurred without a material deterioration in NPL ratios, highlighting the pre-emptive strengthening of buffers made possible by the incumbents’ sustained low-cost deposit franchises.

The feedback loop is self-reinforcing: low funding costs produce high net interest margins, which generate the earnings that allow banks to build provisioning buffers, which in turn support conservative credit profiles that keep depositors sticky. New entrants, lacking the initial deposit base, enter this loop at a structural disadvantage.

New Entrants Struggle with Pricing Inefficiencies and Smaller Balance Sheets

The challenge for new entrants extends beyond mere scale. Simon-Kucher estimates that data-led pricing segmentation can improve funding costs by only 8–12 bps for Southeast Asian banks. The consultancy’s Dr. Silvio Struebi noted that “most banks are still at an early stage, with pricing decisions often left to branch managers instead of supported by central systems,” leading to inconsistent discounts and higher funding costs. The maximum theoretical gain from pricing optimisation—around 10 bps—represents only a fraction of the 80–120 bps incumbency gap.

This asymmetry is fundamental. Incumbents’ massive payroll-linked deposit bases provide low-cost, sticky funding that no amount of pricing segmentation can replicate at a smaller balance sheet. New entrants cannot simply cut deposit rates to match incumbents: they must offer competitive rates to attract depositors who lack a prior relationship, eroding the funding cost advantage embedded in an incumbent’s existing base.

Struebi’s recommended approach—using transaction flows over time, including salary inflows and loan outflows, combined with market data to model customer behaviour—can reduce unnecessary discounting and eliminate pricing leakage. But these improvements are measured in single-digit bps, not the triple-digit gap that must be closed.

Basis points (bps) (bps)Source: Orionmano Industries

The path to parity is not obvious. Building a comparable deposit franchise requires years of customer acquisition, relationship depth, and trust—assets that cannot be purchased or accelerated through fintech partnerships alone. Regulatory changes could alter the playing field, such as MAS-level mandates on deposit rate transparency or mandated switching services, but no such proposals are imminent.

The implication for investors and strategists is clear: as Singapore’s digital banking landscape expands—with GXS Bank, Trust Bank, and others gaining licences—the 80–120 bps funding cost gap will persist unless new entrants fundamentally reshape their deposit-gathering models. Without that structural change, the incumbency advantage in Singapore banking remains intact through the medium term, insulating DBS, OCBC, and UOB from the margin compression that has reshaped banking sectors in markets with more contestable deposit markets.