How Big Banks Drove Singapore's STI to a Standout Year

Singapore's Straits Times Index (STI) has had a notable year in 2024, standing out as Southeast Asia's best-performing stock market index. With a year-to-date gain of over 17% and a 17-year-high of 3842 in December, the STI has shown resilience and steady growth. This impressive performance was driven by the strength of Singapore's leading banks and a supportive economic environment.

The Big Three Banks at the Core of STI's Growth

The STI tracks the 30 largest companies listed on the Singapore Exchange (SGX). This year, its performance has been largely driven by the "Big Three" banks: Development Bank of Singapore (DBS), Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB). Together, these banks make up over half of the index's market-weighted value.

DBS, Southeast Asia's largest bank, led the charge with its stock climbing over 40% this year. Contributing factors included stable net interest margins, robust wealth management performance, and a headline-grabbing SGD 3 billion share buyback in November. OCBC and UOB also performed strongly, with both gaining over 25%, benefiting from steady economic conditions and disciplined capital management.

Why the Banking Sector in Singapore Thrived in 2024

Singaporean banks maintained robust net interest margins (NIMs) at their highest in a decade, largely thanks to the U.S. Federal Reserve's measured approach to rate adjustments. DBS reported a sustained NIM above 2% for most of the year. Wealth management divisions became a major driver of income, with DBS seeing its wealth management fee income rise by 18% year-on-year in Q3 2024.

The share buyback programs introduced by DBS and hinted at by UOB reflect not only strong capital positions but also a commitment to returning value to shareholders, boosting investor confidence.

Opportunities and Challenges Ahead for the STI

As analysts look ahead to 2025, optimism remains tempered by global uncertainties. The potential return of Donald Trump to the U.S. presidency looms large, with his economic policies around inflation and tariffs potentially influencing interest rate trajectories and bank profitability.

Liquidity remains a critical issue for the SGX. The number of listed companies has been shrinking, falling from 723 in 2019 to just 617 in 2024. The STI's heavy reliance on its banking sector also highlights the lack of diversification in Singapore's equity market. While banks have outperformed, other sectors have lagged, limiting the broader market's ability to attract new investors and companies. Sustaining the momentum into 2025 will require continued policy support and a diversification of the listing pipeline.