After years of increases, interest rates are starting to fall.
Singapore banks enjoyed a profitable period during the rate hikes.
They saw net interest margins increase, which drove profits to record highs.
As earnings rose, so did dividends, which benefited investors seeking income.
Now that the cycle is turning, a familiar question returns.
Will bank dividends hold up when rates fall?
At first glance, the concern is understandable.
Lower rates usually mean lower margins. But bank dividends still look attractive.
The key lies in understanding what now drives bank earnings beyond interest income alone.
DBS Group Holdings Ltd (SGX: D05) — Rising Dividends
DBS is Singapore’s largest bank with over 12 million customers in 19 markets spanning Southeast Asia, Greater China and South Asia.
In 2025’s third quarter (3Q2025), DBS raised its ordinary dividend to S$0.60 per share, an 11.1% increase year-over-year.
The bank also gave a capital return dividend of S$0.15 per share, bringing the total dividend for the quarter to S$0.75 per share.
This payout is supported by its diverse sources of income.
Starting with net interest income (NII), in 3Q2025, DBS’s net interest margin softened by 0.15 percentage points to 1.96%, reflecting lower benchmark rates.
As a result, NII fell by 6% year-on-year to S$3.6 billion.
Despite the headwinds, total income held up as fee income and treasury customer sales reached new highs, led by wealth management activity.
Wealth fees alone rose strongly, cushioning the impact of margin compression.
As a whole, total income rose 3% year on year to S$5.9 billion.
Meanwhile, asset quality remained resilient.
DBS reported a non-performing loan ratio of 1%, unchanged from a year ago.
This combination of strong capital, diversified income, and disciplined risk management gives DBS room to sustain dividends even as rates decline.
Oversea-Chinese Banking Corporation Limited (SGX: O39) – Diversification Beyond Banking
Like DBS, Oversea-Chinese Banking Corporation’s (OCBC) dividend performance rests on its diverse businesses.
For 3Q2025, the bank suffered from lower interest rates, leading to a 9% year-over-year drop in NII to S$2.23 billion.
The culprit?
Net interest margin fell by 0.34 percentage points to 1.84%.
Despite these changes, the group’s net profit remained strong at S$1.98 billion, a slight increase from the prior year.
This result is due to income gains beyond lending.
In 3Q2025, non-interest income grew 15% YoY to S$1.57 billion, which made up for the drop in net interest income.
More importantly, OCBC is sharing the spoils, committing to a 60% total dividend payout ratio, and for share buybacks to be completed in 2026.
In 3Q2025, OCBC did not announce a special or capital return dividend.
But in 2Q2025, the lender declared an interim dividend of S$0.41 a share, down from S$0.44 a share the year before.
Insurance remains a key stabiliser.
Income from life and general insurance rose strongly in 3Q2025, supported by improved investment performance at Great Eastern Holdings (SGX: G07).
This earnings stream is far less sensitive to interest margins.
Asset quality stayed firm across both periods.
The non-performing loan ratio held at 0.9% in both 3Q2024 and 3Q2025.
United Overseas Bank Limited (SGX: U11) — Stability Through the Cycle
UOB’s latest quarter reflects a more challenging environment.
The bank’s 3Q2025 net profit plunged by 72% to S$443 million, down from S$1.6 billion the year before.
This decline was due to lower net interest margin and the bank setting aside reserves to improve its coverage.
Even with lower profits, UOB assured that the final dividend for 2025 would not be cut.
In 2Q2025, UOB declared an interim dividend of S$0.85 per share for the half-year ended 30 June 2025, down from S$0.88 in the previous year.
A second tranche of UOB’s S$0.50 per share special dividend will also be paid out.
Asset quality was stable, with a non-performing loan ratio of 1.6% for 3Q2025.
Even though earnings may change in a falling-rate cycle, UOB’s strong capital and varied income let it focus on consistent dividends instead of short-term profit changes.
What Happens to Bank Earnings After Rate Cuts?
When interest rates fall, net interest margins compress.
Loans reprice faster than deposits, putting pressure on interest income.
This is when other income streams matter more.
Wealth management, treasury income, and fee-based businesses become increasingly important.
These areas are less sensitive to rate movements and help smooth earnings across cycles.
Lower rates can also encourage borrowing. Mortgage demand improves. Businesses refinance. Higher loan volumes can partially offset thinner margins.
Are Bank Dividends Still Worth It?
Bank dividends are still a good investment as long as the basics are solid.
To keep profits steady in any situation, banks need to do more than just standard lending.
Dividend payouts must be manageable.
Singapore banks usually don’t pay out too much, so they can keep dividends steady even when things get tough.
Balance sheets must remain strong.
Capital and asset quality matter more in a falling-rate environment than during boom years.
The real question is not whether rates fall.
It is whether banks can continue generating the cash needed to support dividends.
So far, the evidence suggests they can.
Get Smart: Dividends Beyond Interest Rates
Interest-rate cuts will affect bank margins, an outcome that is unavoidable.
But bank dividends are supported by more than interest income alone.
Wealth management, fees, insurance, regional growth, and strong capital positions all play a role.
If profitability remains steady and balance sheets stay strong, Singapore bank dividends can continue to provide meaningful income even as rates decline.
We’ve found 5 SGX-listed dividend stocks with strong track records in turbulent markets. If you want consistency in an uncertain world, start here.
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Disclosure: Joseph does not own shares in any of the companies mentioned.
