Singapore Bank Stocks To Buy: DBS, OCBC, or UOB?

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 at 2.27%

Source: Respective banks’ Q1 2024 financial statements.

DBS, OCBC and UOB all recorded net interest margin (NIM) consistency in their latest first-quarter earnings amid stagnant high 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 Q1, all respective banks maintained a positive NIM above 2%. OCBC reigns the highest out of the three at 2.27%, followed by DBS of 2.14% and UOB of 2.02%.

DBS: Record Q1 2024 net profit of $2.96B

Source: Respective banks’ Q1 2024 financial statements.

Driven by strong net interest income, all three Singapore banks reported a year-on-year increase in Q1 net profits.

DBS continues to lead peers OCBC and UOB with a record net profit of S$2.96 billion in the first quarter. This represents a 15% gain from the previous year and 24% from the previous quarter. Such performance was supported with growth in total income from record fee income, treasury customer sales and higher market trading income.

OCBC reported a net profit of S$1.98 billion during the quarter, up 5% from a year ago, driven by an 8% rise in operating profit. Additionally, the increase was supported by a jump of 22% in net profits quarter-on-quarter, underpinned by record total income, well-controlled costs and lower allowance.

For UOB, Q1 net profit had a slight drop of 2% year-on-year with total core operating expenses increased 2% largely on staff costs, while total allowance decreased 4% due lower specific allowance. Net interest income also lowered 2% from lower net interest margin. This would offset the rise in net fee income and other non-interest income.

DBS: Return on equity (ROE) reaches new high 

Source: Respective banks’ Q1 2024 financial statements

Return on equity (ROE) measures how well a company generates profits using capital from shareholders. Generally, the higher the ROE, the better.

In Q1, ROE for DBS continued to reach new highs at 19.4%. OCBC’s ROE remained unchanged at 14.7% and UOB’s ROE decreased to 14.0% but had an increase of 0.2% quarter-on-quarter.

UOB and OCBC:  Improvement in Non-performing loans

Source: Respective banks’ Q1 2024 financial statements.

Broadly speaking, a loan becomes non-performing when the bank considers that the borrower is unlikely to repay the loan.

In Q1, asset quality remained resilient for all three local banks. For DBS, the NPL ratio is kept steady at 1.1%. Both UOB and OCBC saw their non-performing loan ratio improve from 1.6% to  1.5% and 1.1% to 1.0% respectively. Both NPL decreased by 0.1%.

Singapore Banks: 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 2022 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. The acquisition paves the way to more credit card partnerships featuring renowned regional and global brands.

DBS, too, completed its acquisition of Citi’s Taiwan-based consumer business last year, positioning itself as the largest foreign bank in Taiwan by asset. The bank’s last major acquisition was of ANZ’s wealth management and retail banking business in five markets in 2018.

Meanwhile, OCBC has just completed the acquisition of PTBC, reinforcing the Singapore bank’s robust presence in Indonesia. With plans to finalise the integration process by 4Q 2024, PTBC will continue to serve customers through its banking channels and products.

Singapore banks prepare for decisions to cut rate 

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 rise in interest rates. As the US Fed continues to move towards their expectations to cut interest rates in the later half of the year, data points to slowing inflation and economic activity.

Normally, the effects of interest rates are proportional to bank performances. However, even if rates were cut, further earnings upsides would be foreseeable for Singapore banks in FY24F. This is especially so as loans will inevitably take time to reprice. In the meantime, banks have started to lower interest rates on deposits to help buffer net interest margins. For instance, UOB is the first mover in lowering the interest rates for its flagship account to align with long-term interest rate environment expectations. 

In summary, 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; UOB

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 Brokerage which offers access to both Singapore and US markets.

Syfe Brokerage 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.

Previous articleTop 8 S-REITs with Highest Net Buys