Buoyed by the outperformance, including declining provisions for loan losses compared to the second quarter, investors pushed both bank's shares to multi-month highs.
Singapore's banks have been under pressure due to low interest rates and weak growth in pandemic-hit markets in Asia, while they also soak up bad loans as regulators prepare to ease conditions for billions of dollars in lending moratoriums.
"Outlook wise, I think the worst on the Singapore and regional economies are clearly not over yet but 2021 has a good chance of being brighter," said Kevin Kwek, senior analyst at Sanford C. Bernstein. "The earnings give reason to believe 2021 will be better and odds of dividend caps being removed - some will revisit valuations soon."
DBS, Southeast Asia's biggest lender, posted a 20% fall in net profit to S$1.30 billion ($951 million), better than the average estimates of S$1.17 billion from four analysts, according to data from Refinitiv.
The bank's fee income, with a big chunk coming from the wealth management business, surged 17% to pre-COVID-19 levels.
DBS Chief Executive Piyush Gupta said in a statement that he expected a strong economic rebound in Asia from a low base to support mid-single-digit loan growth and double-digit fee income growth in 2021. That would help partly offset the full-year impact of lower net interest margins, Gupta said.
The bank's net interest margin, a key profitability gauge, weakened to 1.53% in the latest quarter from 1.9%. Allowances for credit and other losses more than doubled to S$554 million.
OCBC reported a 12% drop in quarterly profit to S$1.03 billion, beating analysts' average estimates of S$864.9 million.
"At the present time, we see that economic and business activities, customer sentiments have stabilised, but I would not classify them as a strong recovery growth," Group CEO Samuel Tsien told reporters in a conference call.
Tsien said wealth management was a bright spot, with fees back to pre-COVID-19 levels of the previous year.
DBS shares rose as much as 3.7% to a five-month high, while OCBC gained 3.6% to an almost three-month high in a strong broader market. Shares in United Overseas Bank, which on Wednesday also posted better than expected results, rose 2.9%.
"It is encouraging that the three banks have maintained or slightly lowered the cumulative credit cost guide till 2021," said Krishna Guha, analyst at Jefferies. "This should provide downside support for share prices," he said.
($1 = 1.3569 Singapore dollars)
(Reporting by Anshuman Daga in Singapore; Editing by Kenneth Maxwell and Jane Wardell)
By Anshuman Daga