How To Analyse The Singapore Banks | Step-by-Step

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The Crown Jewels of Singapore

The Singapore financial sector is led by the three local banks. They are DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp. Limited [OCBC] (SGX: O39) and United Overseas Bank Limited [UOB] (SGX: U11). The three major Singapore banks have played key roles in building up Singapore as a financial hub of the region. The strong rule of laws and governance in Singapore has created a stable environment for these banks to flourish. Today, the three banks are the largest companies within the Singapore stock market, contributing to about 44% weightage on the Straits Times Index. 

Within the past half a century, Singapore banks have worked their way up to become the largest banks within the region. A few of the reasons why Singapore banks have been so successful are due to the economic advantages that Singapore has as a country. For now, due to its stable political system and clear rule of law, the country is an attractive place for foreign investors and companies to setup regional base here. Moreover, with its landscarity, properties in Singapore tend to be more highly valued. For a bank, key asset base comes from the value of its mortgages. Therefore, with the higher property prices in Singapore, banks in Singapore will have to give out higher value mortgages as well, building up their asset sizes over time. 

What You Need To Know
However, not all banks are created equal. Although all three banks have rewarded their long-term investors very well, there are some key differences between the three of them. So before you invest in any of them, it would be important  for you to know the what are the different opportunities among the three banks. Let me walk you through how we analyse the three banks step-by-step and coming up with a conclusion on which might present the best investment opportunity for us right now.

#1: Shareholders

DBS Bank

DBS Group Holdings is the only government-linked bank in this group. The Ministry of Finance of Singapore holds about 29% stake in DBS Group through Temasek Holdings. The group has a long history of being run professionally and it is currently being led by Group CEO, Piyush Gupta.


Both UOB and OCBC started out as family-owned banks. UOB is still very much a family-owned and controlled bank with the Wee Family owning about 18% of the company. The Lien family is also a significant shareholder, retaining more than 5% stake in the company after its bank, Overseas Union Bank (OUE) merged with UOB in 2001. UOB never had a CEO outside of the Wee Family. Today, the bank is led by Wee Ee Cheong. 


Lastly, the key shareholder of OCBC is the Lee Foundation. However, OCBC has a structure in-between of DBS and UOB. Being majority owned by a foundation, the company has also moved the responsibility of leading the bank away from the Lee family. Today, the bank is led by Helen Wong, who was previously its head of global wholesale banking. 

  • In this aspect, I would prefer the structure of DBS Group and OCBC due to the proper succession planning process.

Business Segment

Apart from having a different shareholding and management structure, the banks also obtained its revenue from slightly different sources.

Before we touch on their revenue sources, below is a quick reference to how the 3 banks are doing across their financials:

Extracted from ShareInvestor WebPro

The main revenue stream for all banks still comes from interest income. That is to be expected as the main function of a bank is to take in deposits and give out loans, earning a spread between the two interest rates. 

We can see that in 2020, UOB achieved most of its income from giving out loans. The company can be seen as the most conservative as most of its income are still related to giving out traditional loans. Its wealth management services is its second largest revenue stream, contributing about 8% in FY2020. OCBC has a very similar revenue sources. However, due to its ownership in Great Eastern Holdings, the company has a sizable insurance business as well. In FY2020, its insurance business provided about 9% to the group’s revenue. 

Lastly, DBS Group can be seen as the most aggressive (or innovative) of the three. Apart from its interest income, which contributed 62% of its revenue, the group achieved 16% of its revenue in 2020 through trading and investment gains. However, such gains are more volatile in nature and the bank might experience a wider swing in its revenue by having such a large trading and investment operations. 

  • In this segment, I prefer the revenue streams of OCBC, having a more diversified but still recurring revenue stream across banking and insurance.

Loan Asset Breakdown

The biggest exposure to all three banks are the same. Close to 50% of their loans are related to the housing and construction industry. Beyond that, that is where the difference starts. OCBC are more exposed to the consumer market as 11% of their loans are given out to individuals. UOB on the other hand gave out a significant portion of its loan to other financial institutions while DBS Group is more exposed to the manufacturing sector.

  • I do not feel that any of the banks have an advantage over the others for this segment but as investors, we should be aware of what are the underlying industries we are being exposed to when investing in these banks.

Geographic Breakdown

In term of its geographical breakdown, all the three banks still have the majority of their loans in Singapore. However, DBS Group has the highest exposure to the greater China region, with close to 30% its loans coming from Hong Kong and the rest of China. OCBC and UOB both have similar exposure to the Greater China region of around 16% with the rest mainly in the Southeast Asia region.

  • I do not feel that any of the banks have an advantage over the others for this segment but as investors, we should be aware of what are the underlying industries we are being exposed to when investing in these banks.

Profit Margin Breakdown

The net interest margin (NIM) is the spread between what a bank is paying out to its depositors and what it is earning from its loans. Therefore, a higher the NIM would means the bank is able to extract a higher profit from its loans. All three banks have very similar NIM but DBS Group slightly edged out the rest at 1.62%.

However, when we look across their net profit margins, we can see that OCBC has achieved a much higher profit margin for FY2020 at 35.37%. That might signify that the company might have a lower cost structure in its business to enjoy the slightly better margin.

  • In term of profit margin, OCBC is the bank that stands out the most in this aspect.

Loss Ratio

For any bank, it is impossible to completely remove the risk of default from their borrowers. However, a well-managed bank would have the ability to mitigate that risk. One ratio for investors to monitor is their non-performing loan ratio (NPL Ratio). A bank with a consistently lower NPL ratio would be preferred by investors. In this aspect, all three banks have very similar NPL ratio of just 1.5-1.6% for FY2020 despite the pandemic raging on during the year.

So in term of bad loans, all three banks are managing it pretty well.

Return on Equity

Data from ShareInvestor WebPro

Return on equity (ROE) shows us how well the company is able to extract profit from the resources it has. A higher ROE ratio shows us that the company is better at generating profit for shareholders. According to Warren Buffett, it is one of the most important financial data point he looks at when investing in a company. For FY 2020, DBS Group shows a much higher ROE compared to its peers at 9.2%.

  • In term of ROE, DBS Group is the bank that stands out the most in this aspect.

Long-Term Growth

Data from ShareInvestor WebPro

The long-term value of a company would come from its ability to continue growing. As the company grows, so will its value over the long term. In this aspect, DBS Group seems to be performing the best overall, with a 7.46% growth rate in its revenue of the past decade. Its earnings per share has also increased at the fastest rate among the three banks at 4.11% a year.

  • In term of growth, DBS Group is the bank that stands out the most in this aspect.


Data from ShareInvestor WebPro

The last factor for us to consider is valuation. A simple method to value the three banks is by using their dividend yield or price to book ratio. As investors, we would prefer a stock with a higher dividend yield while having a low price to book ratio. All three banks have a long history of paying out consistent dividends, therefore we can assume that these dividends would continue in the future. At the moment, it seems that UOB is providing us with a higher dividend yield at 2.9%. As for the price to book ratio, both OCBC and UOB are trading at 1.3 times their net tangible book value while DBS Group has the highest valuation at 1.7 times its book value. 

  • Therefore, in terms of valuation, OCBC and UOB are much lower valued at the moment.

Which Should We Invest In?

Overall, all three banks are very similar in terms of their business model and exposure. However, DBS Group has demonstrated that it has been able to grow the fastest and extract good profits for investors in terms of its return on equity. However, we might have to end up paying a higher premium for that quality and growth based on its valuation. For a more balanced opportunity, OCBC might be the bank for us to watch based on its lower valuation and still respectable performance ratios. 

You can also view ShareInvestor WebPro Analysis Indicator as well.

DBS Group Holdings Ltd (SGX: D05),

 United Overseas Bank Limited [UOB] (SGX: U11).

Oversea-Chinese Banking Corp. Limited [OCBC] (SGX: O39)

You can find more financial information about these stocks from ShareInvestor WebPro. With its information on consensus estimates and 3 years forward forecast by analysts, WebPro would give us a better understanding of the opportunities within these stocks and more, for less than $20 a month. 

From 10 – 14 August, ShareInvestor is running a limited time offer where you can redeem vouchers, free reports and various discounts off its yearly subscription. Redeem your preferred bonus with every 12 month WebPro subscription from 10 – 14 August 2021. So check out the details right here. This article is produced in partnership with ShareInvestor WebPro, 

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