Singapore banks' 3Q profit likely dropped from 2Q as fee-and-trading income moderate off a high base, says Macquarie Capital's Jayden Vantarakis in a note.

The lending and rates environment remains favorable for DBS Group, Oversea-Chinese Banking Corp. and United Overseas Bank, though trading income trends seem mildly unfavorable on headwinds from rising bond yields and subdued volatility, he says.

The three banks' underlying 3Q net profit growth is estimated to come in at 6% on year, slower than the 13% gain in 2Q.

Macquarie names its top sector pick as UOB, citing the easiest base for earnings in 3Q and cuts its rating on OCBC to neutral from outperform, while retaining an outperform rating for UOB and DBS.