Many Singaporeans feel a certain sense of comfort – and even pride – investing in the titans of our local industry. Typically, these are companies whose services we frequently use, and whose ads we often see around us.
Perhaps no local company is more familiar to us than our “Big 3” Singapore banks: DBS (SGX:D05), OCBC (SGX:O39) and UOB (SGX:U11).
Following their record third-quarter profits, are these blue-chip bank stocks a worthwhile addition to our portfolios? Here are some metrics to consider.
Singapore bank stocks: Metrics to evaluate
In very simplified terms, banks operate by taking money as deposits and then lending that money out as loans. Typically, higher interest rates benefit banks since they can increase the interest rates charged on loans provided to households and businesses.
To find out how Singapore banks are performing, look out for these numbers on their earnings reports:
OCBC: Net interest margin up to 2.26%
| Net Interest Margin (NIM) | Q2 2023 | Q2 2022 |
|---|---|---|
| OCBC | 2.26% | 1.71% |
| DBS | 2.16% | 1.58% |
| UOB | 2.12% | 1.67% |
DBS, OCBC and UOB all recorded net interest margin (NIM) growth in their latest second-quarter earnings amid rapidly rising interest rates. NIM is a key measure of a bank’s profitability. It’s the difference between the interest income earned on loans and the interest paid out on deposits.
In Q2, OCBC outperformed its peers with NIM rising to 2.26%. For UOB and DBS, NIM rose to 2.12% and 2.16% respectively,
DBS: Record Q2 net profit of $2.7B
Driven by strong net interest income, all three Singapore banks reported a year-on-year increase in Q2 net profits.
| Net Profit | Q2 2023 | Q2 2022 |
|---|---|---|
| OCBC | $2.7B (+5% QoQ) | $1.8B |
| DBS | $1.7B (-9% QoQ) | $1.3B |
| UOB | $1.4B (-13% QoQ) | $1.1B |
In particular, DBS reported a record high of net profits in Q2, exceeding analysts’ estimates. DBS is currently leading peers OCBC and UOB with a net profit of S$2.7 billion in the second quarter. This represents a 20% gain from the previous year and a 5% jump from the first quarter, supported by NIM expansion and healthy loan momentum.
OCBC reported a net profit of S$1.7 billion during the quarter, up 34% from a year ago. The bank said that their net interest income growth, higher trading and investment income, and increased insurance profit made up for the effects of softer wealth management fees amid subdued global investment sentiments. However, it also saw a fall in 9% of net profits quarter-on-quarter, due to the increase in allowance.
For UOB, Q2 net profit rose 12% year-on-year to S$1.4 billion, driven by higher net interest income and customer-related treasury income.
DBS: Return on equity (ROE) reaches new high
Return on equity (ROE) measures how well a company generates profits using capital from shareholders. Generally, the higher the ROE, the better.
In Q2, ROE for DBS reached a new high of 19.2%. UOB’s ROE was 14.1% while OCBC’s ROE climbed to 13.5%.
| Return on Equity | Q2 2023 | Q2 2022 |
|---|---|---|
| OCBC | 13.5% | 10.3% |
| DBS | 19.2% | 13.4% |
| UOB | 14.1% | 11.0% |
UOB: Non-performing loans hold steady
Broadly speaking, a loan becomes non-performing when the bank considers that the borrower is unlikely to repay the loan.
In Q2, asset quality remained resilient for all three local banks. For UOB, the NPL ratio is 1.6, unchanged from the previous quarter but lower than from a year ago.
Both DBS and OCBC saw their non-performing loan ratio improve to 1.1, down from 1.3 a year ago.
| NPL Ratio | Q2 2023 | Q2 2022 |
|---|---|---|
| OCBC | 1.6 | 1.7 |
| DBS | 1.1 | 1.3 |
| UOB | 1.1 | 1.3 |
DBS and UOB: Expansion mode
Backed by strong capital positions, DBS, OCBC and UOB have all expanded their geographical footprints in recent years as Singapore’s small population puts natural limits on growth.
Notably, UOB made headlines in January last year when it agreed to acquire Citigroup’s consumer banking businesses in Indonesia, Malaysia, Thailand and Vietnam. The acquisition, its first major takeover in 16 years, has allowed it to enjoy a significant boost in its retail banking business. Following this, UOB plans to further their expansion into ASEAN so as to broaden their customer base and strengthen their outlook.
DBS, too, has recently completed its acquisition of Citi’s Taiwan-based consumer business, therefore positioning itself as the largest foreign bank in Taiwan. The bank’s last major acquisition was of ANZ’s wealth management and retail banking business in five markets in 2018.
Meanwhile, OCBC is looking to Indonesia for acquisitions, according to a Reuters interview with the bank’s CEO Helen Wong.
High interest rates a double-edged sword for Singapore banks
In the past year, DBS, OCBC and UOB have all seen significant growth momentum that has allowed them to reach record profits, thanks to the continuous rise in interest rates. As the US Fed slows down its rate hikes, loan interest rates are expected to plateau in Singapore, and have yet to show any signs of cutting.
But high interest rates could become a potential headwind for banks. If higher rates trigger an economic slowdown, loan growth may decline as consumers put off large purchases, for instance. Customers may even default on their loans, impacting bank profitability.
Be that as it may, all three Singapore banks – DBS, OCBC and UOB – have performed reasonably well this quarter. With emerging economic uncertainties amidst a challenging macroeconomic landscape, the banks are choosing to adopt a more prudent approach by raising their general allowances. Supported by their solid balance sheets and strong capital positions, the three local banks are well-positioned to deliver sustainable long-term growth.
Source: Reuters; Straits Times.
How to invest in DBS, OCBC and UOB
If you’re keen to gain exposure to Singapore banks, you can invest in them through a brokerage platform like Syfe Trade which offers access to both Singapore and US markets.
Syfe Trade is an easy and low-cost option for Singapore stock investing. Pricing for SGX stocks is just 0.06% of traded value (minimum S$1.98), and there are no platform and withdrawal fees.
Disclaimer: This article is for informational purposes only and should not be viewed as financial advice. It is not meant to market any specific investment, or offer or recommend the purchase or sale of any specific security. All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. This advertisement has not been reviewed by the Monetary Authority of Singapore.
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