---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 177515
conversation_id: 8f670744-163e-4d8d-9592-c1f46d12443a
citations: 14
created: 2026-05-31 21:32:34Z
---

# What are the key risks to DBS’s growth trajectory?

# Key Risks to DBS Group Holdings' Growth Trajectory

DBS (D05.SG) ended FY2025 with record income and a 17% ROE, but its near- to medium-term growth trajectory faces a concentrated cluster of cyclical, balance-sheet, and structural risks. Based on CLSA internal research and DBS's own management commentary, the principal risks are as follows.

## 1. NIM compression from falling SGD/HKD rates — the single biggest near-term risk

DBS's earnings have been disproportionately leveraged to the SORA/HIBOR rate cycle, and both are rolling over hard.

- **SORA collapse.** 3M SORA has trended markedly lower, and the swaps market is pricing in further declines [1]. By 1Q FY2026, Singapore SORA had fallen to **1.07% from 2.54% in 1Q FY2025 — less than half a year earlier** [13].
- **DBS management acknowledges direct hit.** CFO Chng Sok Hui flagged in 1Q FY2026 that the bank "continues to face lower rates and a stronger SGD," with hedging and deposit growth only partially mitigating headwinds [12]. Management has previously guided that "interest rates are expected to be peaking or have peaked, and therefore, there will be some downward pressure on NIM" [14].
- **High NIM sensitivity.** DBS has roughly **S$4–5m of NII impact per 1bp move in the FFR** (the sensitivity is now higher because SGD pass-through has risen from 65% to over 100%) [7].
- **HIBOR collapse adds secondary pressure.** 1M HIBOR fell ~300bps in May 2025; exposure is larger for DBS and OCBC, though the group PBT impact should be contained to the low single digits [3]. Recent stabilisation (a 14bp rebound in June 2025) is modest [10].
- **Hedging cliff in 2026.** DBS has hedged ~S$200bn in fixed-rate assets with 2–3 year duration [7], but **the hedging strategy is due to roll off by end-2026**, which CLSA flags as a key vulnerability — rate cut expectations merely "kick the NIM compression can down the road" [1].

## 2. Loan growth softening on trade and macro uncertainty

DBS's earnings model depends on mid-single-digit loan growth, and Singapore system data show that target is at risk.

- **System loan growth has stalled.** Singapore banking system loans were **down 1.7% 2Q-to-date and 0.4% year-to-date as of June 2025**, "putting mid-single-digit loan growth targets for the banks at risk" [8].
- **Companies waiting on trade clarity.** May 2025 banking statistics from MAS indicate business loan growth is slowing as companies hold back pending clarity on trade negotiations [9]. The drag is concentrated in **manufacturing and business services loans** [8].
- **NIM-dilutive mix shift.** Even where deposits remain strong, excess liquidity is being parked in lower-yielding assets — NII and ROE accretive in absolute terms, but **NIM-dilutive** at the margin [5].
- **Cyclical concern from CLSA.** "Shorter-term worries on rates, loan growth and macro uncertainty" are the key headwinds in the near term, though structural wealth franchise growth should offset them over time [6].

## 3. Asset quality — concentrated HK/China CRE exposure

DBS's regional footprint creates specific concentration risk.

- **Hong Kong and China commercial real estate.** "Asset quality worries in the region remain centred on Hong Kong and China CRE exposure," and DBS (along with OCBC) has greater exposure to this segment relative to UOB. While there has been stability for some time, "some feel we are not completely out of the woods just yet" [3].
- **Identified macro and micro credit risks.** CLSA's formal investment risks for DBS list: geopolitics, macroeconomic shock from inflation, subdued domestic and regional loan growth, falling interest rates, volatile or depressed markets, and a disorderly rise in interest rates and competition. Micro risks include **unexpected and meaningful NPLs in core markets (Singapore, greater China) due to poor credit-risk management** [2][4].

## 4. M&A execution and capital deployment risks

- **Value-dilutive transformational M&A** is explicitly listed as a key DBS-specific risk — i.e., the bank pursuing growth or market share in a challenging liquidity environment or in the absence of good-quality loan demand [2][4].
- **Key-personnel risk.** "Departure of key personnel" is a named risk [4] — particularly relevant given the recent CEO transition from Piyush Gupta to Tan Su Shan.

## 5. Structural / regulatory headwinds

- **BEPS Pillar 2 (Global Minimum Tax).** Singapore's adoption of the **15% global minimum tax** under the OECD/G20 BEPS framework creates incremental tax cost for DBS, whose effective rate had been slightly below 15%. Management has flagged this as an external driver some analysts may not have built into valuation models [14].
- **Through-the-cycle credit cost normalisation.** DBS's actual credit cost (10–15bps) has been running below its own through-the-cycle assumption of **15–20bps**, suggesting some normalisation drag as the cycle ages [14].

## 6. Wealth management — the franchise's biggest swing factor

DBS's positioning as a leading Asian wealth manager is the structural growth story, but the business is more cyclical than the headline narrative suggests:

- Wealth management fee income took a notable dip in 2022 as customers turned cautious [11] — a reminder that the fee engine is sensitive to risk-off market regimes, equity volatility, and HNW client confidence in the region.
- A repeat of that pattern (which could be triggered by regional risk-off, RMB weakness, or HK/China credit stress) would compress what is currently DBS's highest-multiple, highest-ROE growth driver.

## Risk Heatmap (CLSA Framework)

| Risk Bucket | Severity (Near-term) | DBS-specific intensity | Mitigants |
|---|---|---|---|
| NIM compression (SORA/HIBOR) | High | High — highest CASA but largest NIM beneficiary | S$200bn hedge book, but rolls off by end-2026 |
| Loan growth weakness | Medium-High | Medium — diversified regionally | India / GBA / Taiwan consumer build-out |
| HK/China CRE asset quality | Medium | High vs UOB | Heavy overlay reserves, lower rates help |
| Wealth fee cyclicality | Medium | High — biggest single fee line | Structural Asian HNW wealth growth |
| BEPS / 15% min tax | Low-Medium | Universal across SG banks | Already partially in numbers |
| M&A/key-personnel risk | Low | Medium — recent CEO change | Strong succession process |

## Bottom line

CLSA maintains an **Outperform (O-PF) rating on DBS with a target price of S$45.00** (from the 20-May-25 sector note at S$44.38 / +1.4% upside) [3], noting DBS has the **highest CASA ratio, highest ROE among peers, and conservative NIM guidance** as offsets to the cyclical headwinds [11]. The thesis hinges on whether DBS's structural wealth and fee-income franchise can outrun the rate-cycle compression that has already begun to bite.

The most acute risks to monitor over the next 12 months:
1. Pace of further SORA/HIBOR declines and the rate at which DBS's hedging book unwinds toward 2026
2. 2Q25 loan growth print in August earnings — particularly business loans
3. Any new stress signals in HK/China CRE exposures
4. Wealth management fee momentum as a high-ROE buffer

---
**Sources**
[1] Singapore banks (Stuck in neutral) — CLSA (20 May 2025) — 607959993LinqAlpha.PDF
[2] Singapore banks (Stuck in neutral) — CLSA (20 May 2025) — DBS investment risks
[3] Singapore banks (Stuck in neutral) — CLSA (20 May 2025) — DBS rating/TP & HK CRE exposure
[4] DBS - O-PF (Wealth of returns) — CLSA (10 June 2025) — DBS investment risks
[5] DBS - O-PF (Wealth of returns) — CLSA (10 June 2025) — Loan growth & NIM dilution
[6] DBS - O-PF (Wealth of returns) — CLSA (10 June 2025) — Shorter-term worries
[7] DBS - O-PF (Wealth of returns) — CLSA (10 June 2025) — Hedge book & NIM sensitivity
[8] Singapore financials (Awaiting clarity) — CLSA (30 June 2025) — Loan growth at risk
[9] Singapore financials (Awaiting clarity) — CLSA (30 June 2025) — Trade clarity overhang
[10] Singapore financials (Awaiting clarity) — CLSA (30 June 2025) — SORA & HIBOR
[11] Singapore banks (Stuck in neutral) — CLSA (20 May 2025) — DBS investment thesis
[12] DBS Group Holdings Q1 FY2026 Earnings Call — DBS (29 April 2026)
[13] DBS Group Holdings Q1 FY2026 Earnings Call — SORA decline
[14] DBS Group Holdings Analyst/Investor Day — NIM peak & BEPS tax

## Citations

- [1] **607959993LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959993LinqAlpha.PDF>
- [2] **607959993LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959993LinqAlpha.PDF>
- [3] **607959993LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959993LinqAlpha.PDF>
- [4] **607961689LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961689LinqAlpha.PDF>
- [5] **607961689LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961689LinqAlpha.PDF>
- [6] **607961689LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961689LinqAlpha.PDF>
- [7] **607961689LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961689LinqAlpha.PDF>
- [8] **607963079LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607963079LinqAlpha.PDF>
- [9] **607963079LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607963079LinqAlpha.PDF>
- [10] **607963079LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607963079LinqAlpha.PDF>
- [11] **607959993LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959993LinqAlpha.PDF>
- [12] **DBS Group Holdings Ltd., Q1 2026 Earnings Call, 29-April-2026 11** · external
- [13] **DBS Group Holdings Ltd., Q1 2026 Earnings Call, 29-April-2026 11** · external
- [14] **DBS Group Holdings Ltd - Analyst/Investor Day** · external

