Comparing the three local banks has long been a hot topic among Singaporean investors. The majority of investors might assume that DBS will stand out. But is this actually the case? Due to the growing interest rates that increased net interest margins, all three banks announced exceptional profits for their Q2.
Let’s examine the qualitative and quantitative characteristics for each of these banks in detail.
Background of All Three Singapore Banks
Beyond Singapore, the three banks do have activities and offices in numerous other countries. However, DBS and OCBC have much more exposure to the Chinese, Thai, and Indonesian banking markets. Hence, these would make them more susceptible to country-related risks.
Quantitative of All Three Singapore Banks
Let’s now take a deeper look into the quantitative aspects that affect the business.
- Revenue Growth (Winner: DBS)
All three banks had strong year-over-year growth, primarily as a result of the rise in interest rates. DBS seems to be outperforming the other banks, with a 5 Year CAGR of 7.4% for Revenue Growth.
- Net Interest Margin (Winner: UOB)
The local 3 banks profit from the loans they provide to companies. The difference between the interest they pay you and the interest they receive from the borrower is known as Net Interest Margin (NIM). For all banks, their NIM is expected to increase over time as more loans are refinanced. As of FY2021, UOB managed to record the highest NIM among the local banks.
- CASA Ratio (Winner: DBS)
DBS’s Current account, saving account (CASA) ratio stood out at 76% among the other banks. Compared to fixed deposits, CASA is a more affordable option for banks to raise capital. DBS is anticipated to profit the most from central banks’ increasing interest rates as this widens the interest rate differential.
- Dividend Yield (Winner: OCBC)
The dividend yield for each bank will be the indicator that attracts the greatest attention from income-seeking investors. Banks are increasing their dividend payout in sync with their earnings as MAS’s dividend restriction has been lifted. With a 4.52% dividend yield, OCBC has the highest yield of the three banks at current share price.
- Price-to-Book (P/B) Ratio (Winner: OCBC)
DBS is by far the most expensive bank of the three, trading at a P/B ratio of 1.49 times. UOB comes in second with a P/B of 1.06 times. Lastly, OCBC is the cheapest, trading closest to its net asset value at 1.04 times.
There is no one clear winner, as is evident from all of the important measures that we examined. Do not misunderstand as this does not imply that the local banks are bad. Firstly, the portfolios of the local banks are still strong, and future interest rate hikes are advantageous to them. Furthermore, all 3 local banks’ net asset values are rising which could justify their valuation growth over the years.
However, the share prices of all these banks have recovered quite a bit since the Covid crash. Hence, it might be wise to evaluate if you intend to start a new position as their prices are close to all-time highs.
Disclosure: No existing position in any of the 3 local banks.
If you are keen, check out our articles on other analysis: Trust Bank Referral
Disclaimer: The information provided by LearnToInvest serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.