Record STI, Record Banks: Who Deserves Your Money?

The $FTSE Singapore Straits Time Index (.STI.SG)$ has been rewriting the record books. After closing above 5,250 in early July, the benchmark pushed further to 5,342.24 on 7 July — up 1.57% on the day and extending a rally that has defined Singapore equities through the first half of 2026. For investors who have watched from the sidelines, the message is clear: this is not a broad-based melt-up. It is a concentrated advance, led by a handful of heavyweights that happen to include the market's most familiar names.

Behind the headline number sits a story investors already know — but may be underestimating in scale. Singapore's three local banks are not merely participating in the rally. They are, in large part, driving it.

Banks Carry Half the Index — and the Momentum

$DBS (D05.SG)$, $OCBC Bank (O39.SG)$ and $UOB (U11.SG)$ together account for roughly half of the STI's weight, making them the single most important driver of index performance. When all three move in the same direction, the headline index almost has no choice but to follow — and that is precisely what has played out in recent sessions.

All three tagged fresh highs in early July. DBS touched S$68.64, extending a run that has made it one of the most closely watched large-caps in the region. UOB broke above S$40 for the first time, closing at S$41.69 — a symbolic milestone for a stock long favoured by income investors. OCBC closed at S$26.34, having emerged as the standout performer among the trio on a year-to-date basis.

On Futu data, OCBC leads the group with a +38.11% YTD gain, followed by DBS at +25.70% and UOB at +22.52%. All three have comfortably outpaced the STI ETF's +17.27% return over the same period. For anyone benchmarking against the index, the implication is straightforward: owning the STI without a meaningful bank allocation has likely meant underperforming — or, at minimum, missing the engine room of the rally.

The strength is not limited to lenders. Non-bank constituents have contributed too — notably SGX (+43.26% YTD) and ST Engineering (+30.78%) — but none carry the index weight that the Big Three do. That is why the question for investors is shifting from "Are Singapore banks still worth owning?" to "Which one is the better buy from here?"

Earnings Tailwinds and a Citi Upgrade

The latest leg of the bank rally rests on improving earnings expectations and a friendlier funding backdrop — not just sentiment chasing a hot index.

In a report released on 7 July, Citi raised target prices on all three lenders and projected roughly 10% earnings growth in fiscal 2027 and 2028, underpinned by a loan recovery that appears to be gathering pace. May banking data supports the thesis: system loans grew 8.7% year on year, outpacing deposit growth of 6.8%. When loans grow faster than deposits, banks typically benefit on two fronts — higher net interest income from a larger loan book, and increased fee income from trade finance, lending-related services and transaction activity.

Citi also raised its industry loan-growth forecast from 5% to 6–7%, a meaningful revision that signals growing confidence in the credit cycle. Separately, the Singapore Overnight Rate Average (SORA) has found support amid tighter liquidity conditions — a constructive backdrop for net interest margins, which had been under pressure during the earlier rate-cut cycle.

The upgrade cycle matters because bank stocks are, at their core, earnings-and-dividend stories. Investors are not just paying for today's yield; they are pricing in tomorrow's loan book and fee income. If Citi's forecasts prove directionally correct, the current valuations may still have room — particularly for names where consensus earnings estimates remain conservative.

Analyst Views Split: Two Buys, One Neutral

Citi's stock preferences, however, are not uniform — and that divergence is where the "who to buy" debate gets interesting.

DBS — Buy. Citi's top pick. The house cites stronger dividend visibility, a leading position in Asian wealth management, and earnings estimates 5–8% above consensus. DBS has also been among the most aggressive in expanding its wealth footprint, with plans for new and upgraded centres across Asia-Pacific through 2027. For income-oriented investors, DBS offers the highest trailing dividend yield in the group at around 4.44% — a meaningful premium when risk-free rates are settling lower.

OCBC — Buy. Citi sees room for OCBC's return on equity to converge toward DBS's level over time. If that gap narrows, the current price-to-book discount could offer meaningful upside — essentially a "catch-up trade" wrapped in a dividend story. Earnings forecasts sit 2–5% above market expectations, and Bank of Singapore's ultra-high-net-worth focus continues to support the wealth narrative.

UOB — Neutral. Earnings estimates align closely with consensus, which Citi interprets as a sign that the market has already priced in UOB's near-term prospects fairly. The open question is whether UOB can close the gap with peers on wealth management and loan growth — and whether its valuation discount represents a genuine bargain or a reflection of slower relative momentum. UOB's trailing dividend yield of 4.22% remains attractive, but the stock lacks the clear catalyst that Citi sees in DBS and OCBC.

For investors, the split rating is a useful framing device: Citi is bullish on the sector, but not equally bullish on every name within it.

The Leaderboard Tells a Broader Story

The accompanying scorecard ranks 10 STI-linked stocks by 2026 year-to-date price return, combining all three local banks with the top seven non-bank STI constituents by YTD performance. The table makes the concentration of gains immediately visible.

At the top of the leaderboard, SGX (S68) leads with a +43.26% YTD gain and a market cap of S$25.6bn, followed by OCBC (+38.11%, S$118.8bn), ST Engineering (+30.78%, S$33.9bn) and DBS (+25.70%, S$194.8bn). Wilmar (+24.97%), UOB (+22.52%) and Singapore Airlines (+22.19%) round out the upper tier, with SATS (+19.42%), Venture (+14.99%) and UOL (+12.58%) completing the list.

The dividend column adds another layer. While SGX and ST Engineering have delivered the strongest price gains, their trailing dividend yields are modest at 1.63% and 1.57% respectively. The banks occupy a sweeter spot: DBS at 4.44%, UOB at 4.22% and OCBC at 3.10% — offering a blend of capital appreciation and income that few other STI names can match. Singapore Airlines, at 4.49%, is the highest-yielding name on the list, though its recovery narrative carries different risk characteristics.

Against the benchmark, the STI closed at 5,342.24 on 7 July (+1.57%), with a YTD return of +17.27%. Every stock on the leaderboard has beaten the index — but the banks have done so while carrying roughly half its weight. That is the definition of a sector in the driver's seat.

High Yields, High Stakes: What to Watch Next

All three banks combine dividend appeal with an earnings recovery narrative — a pairing that tends to resonate strongly with Singapore's retail investor base. Trailing dividend yields cluster around 4%, with DBS near the top of the range. For yield-focused investors who have watched the STI climb to record levels, the banks offer a rare combination: index-level relevance, above-market YTD returns, and income that compares favourably with fixed deposits and government bonds.

Near-term direction will likely track three variables: loan growth data in the coming months, the trajectory of SORA and broader rate expectations, and overall STI sentiment as global macro headlines shift. Ex-dividend dates across OCBC, Singtel and other blue chips in July and August may also influence short-term flows among income investors.

If earnings deliver as forecast, the banking trio should continue to play its familiar role as the market's ballast — anchoring the index even as non-bank names rotate in and out of favour. The harder call is stock selection. After a strong run, DBS offers the clearest institutional endorsement; OCBC presents the catch-up case; and UOB remains the steady, neutral hold. None of the three looks cheap on a naive basis — but in a market where the index itself is at an all-time high, "fairly valued and still rising" may be the new normal.

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