Best Bank Stocks in Singapore: DBS vs UOB vs OCBC [2023]

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3 Best Bank Stocks in Singapore: DBS vs UOB vs OCBC

Articles written are independent opinions, and are not affiliated/sponsored unless specifically mentioned.

Table of Contents

Are you looking to invest in Singapore but unsure what options are available?

With its robust economy, Singapore’s stock market has been the go-to spot for investors. In recent years it has experienced tremendous growth and offers a variety of ways to make money – including stock investments.

If you’re searching for the best stocks to buy in Singapore, or Singapore blue chip stocks, bank stocks should be at the top of your list. But with so many to choose from, how do you know which will produce long-term results?

This post will discuss the best bank stocks currently trading in Singapore and their features and strengths.

Stock Ticker Market Cap P/E Ratio P/B Ratio Dividend Yield
UOB SGX:U11 S$50.66b 11.6 1.22 4.23%
OCBC SGX: O39 S$55.13b 10.3 1.05 4.65%
DBS SGX: D05 S$89.20b 12.5 1.559 4.18%

Figures accurate as of 3 December 2022

  • The Straits Times Index (STI) is a capitalisation-weighted measurement index for the stock market that acts as a benchmark for Singapore’s stock market. Essentially, it tracks the top 30 companies whose stocks are listed in the SGX.
  • Chart sources from Yahoo Finance

United Overseas Bank (UOB) Background

United Overseas Bank (UOB) was founded in 1935 and currently has a staff count of over 24,000 in more than 500 branches spread across Singapore, China, Indonesia, China, and Malaysia.

Together with its subsidiaries, the UOB company provides banking services and products. It has 3 main divisions; Group Retail, Global Markets, and Wholesale Banking.

Like other financial institutes, the UOB offers loan products such as overdrafts, short-term and long-term loans, and cash credit. Other services include forex, bank guarantee, credit advisory, and SGD bonds.

It also has its robo advisory platform – UOB UTrade Robo – and a brokerage account – UOB Kay Hian.

The announcement by UOB to acquire Citigroup’s consumer banking units in Vietnam, Thailand, Malaysia, and Indonesia made headlines early this year.

The acquisition could increase the interest margins for the bank and strengthen its overall outlook.

Presently, the share is trading at S$30.91 to deliver a market capitalisation of $52.11 billion.

UOB Share 5-Year Performance

uob 5-year performance

Source: Yahoo Finance

STI Benchmark UOB Difference
1-Year Returns 8.945% 16.57% +7.625%
5-Year Returns 2.716% 17.81% +15.094%

Over the past year, the stock price has increased by +16.57%. Over the past five years, the share price has outperformed the STI by +15.094%.

The Development Bank of Singapore Limited (DBS) Background

The Development Bank of Singapore Limited (DBS) is the largest bank in Singapore and Southeast Asia.

It has offices in 18 markets, including China, the USA, Australia, Japan, the UK, and Thailand.

This bank deals with various commercial banking as well as financial services. It has four divisions: Consumer Banking, Wealth Management, Treasury Markets, and Institutional Banking.

Some of the products and services offered by the bank include; checking accounts, fixed deposits, mortgages, auto loans, cards, and more.

It also has a robo advisory platform and a brokerage account, DBS digiPortfolio and DBS Vickers, respectively.

DBS has acquired ANZ’s wealth and retail bank business and has announced plans to acquire Citi’s consumer banking business in Taiwan.

DBS Share 5-Year Performance

dbs 5-year performance

Source: Yahoo Finance

The stock has been performing well apart from 2020, when the COVID-19 pandemic occasioned a slowdown.

STI Benchmark DBS Difference
1-Year Returns 8.945% 5.45% -3.495%
5-Year Returns 2.716% 37.91% 35.194%

The stock price has moved by 5.45% over the last year but underperformed the STI by -3.495%.

In terms of relative price strength, the share price outperformed the STI by 35.194% over the past 5 years.

The annualised dividend yield is 4.18% based on a trailing 12-month period. The company paid a total dividend of S$1.44 per share in the previous year.

The Oversea-Chinese Banking Corporation (OCBC) Background

The Oversea-Chinese Banking Corporation (OCBC) is an international financial institution headquartered in Singapore. It’s the second-largest bank in Southeast Asia by assets.

Helen Wong, the bank’s CEO, says OCBC is looking into acquisitions in Indonesia, for its regional expansion.

The company engages in banking services, investment holding, insurance, stock broking, and asset management. Additionally, the bank offers its retail and institutional customers a wide range of products.

Like other banks, OCBC has its robo advisor, OCBC RoboInvest, and a brokerage platform – iOCBC Securities.

OCBC Share 5-Year Performance

ocbc 5-year performance

Source: Yahoo Finance

The OCBC stock is currently trading at S$12.21 to deliver a market capitalisation of S$55.13 billion.

The stock has had a decent performance in 2021 and 2022, which can be attributed to an increase in interest rates.

STI Benchmark OCBC Difference
1-Year Returns 8.945% 8.84% 0.105%
5-Year Returns 2.716% -0.65% -3.366%

The stock price has moved by 8.84% over the past year. In terms of relative price strength, the share price has underperformed the STI by -3.366% over 5 years.

However, amongst the 3 banks, OCBC has the highest dividend yield at 4.65%. So this might be an attractive option for dividend investors.

2022 Quarter 3 (Q3) Income Comparison

The country’s Q3 bank earning releases are out, and most institutions have performed well thanks to the high-interest rates.

The performance can be analysed in the following areas:

  1. Income
  2. Net interest margin
  3. Non-performing loan ratio
  4. Common equity tier 1
  5. Return on equity
  6. Dividend

 

Net Income

Bank Total Income

S$ Million

Y-O-Y Difference Net Income

S$ Million

Y-O-Y Difference
UOB 3184 +30% 1403 +34%
OCBC 3152 +23% 1372 +31%
DBS 4544 +28% 2236 +32%

Usually, net interest income and charges or fees are a bank’s 2 primary sources of income.

In terms of income, all banks performed well due to the high-interest rates, and the MAS core inflation rate is likely to remain high going into 2023.

All 3 banks have increased their net income by over 30% from year to year. UOB is the winner as its Y-O-Y was higher at 34%.

Net interest margin

Bank Net Interest Margin Q2 Net Interest Margin Q3 Percentage Improvement
UOB 1.67% 1.95% 16.77%
OCBC 1.71% 2.06% 20.47%
DBS 1.58% 1.96% 24.05%

Net Interest Margin (NIM) is the measurement of profitability used by banks to assess their performance.

It measures the difference in interest earned on loans and investments versus the interest paid on deposits.

This measures how efficiently a bank generates income from its loan portfolios and other investment sources.

NIM is important for banks because it allows them to measure their level of profitability when compared with their peers, understand the impact of any changes in interest rates on their revenue, and determine the overall stability of their financial operations.

In addition, NIM can provide insight into whether or not a bank’s balance sheet is healthy, as higher NIM usually indicates that lending and investment activities are profitable.

Therefore, as an investor looking to invest in the best bank stocks, understanding NIM metrics should be part of your analysis process when evaluating potential investments in particular stocks.

In terms of Net Interest Margin, all banks registered an improvement from their earlier performance in Q2.

OCBC is the highest at 2.06% in terms of highest net interest margins. DBS, however, had the most improvement at 24.05%.

The acceleration in net interest margin has also contributed to better performance for all the banks in Q3.

Non-Performing Assets

Bank Non-performing loan ratio Q2 Non-performing loan ratio Q3 Percentage Change
UOB 1.7% 1.5% 0.2%
OCBC 1.3% 1.2% 0.1%
DBS 1.3% 1.2% 0.1%

Non-performing assets (NPAs) are loans or other investments that have not performed according to the bank’s expectations.

They consist of assets which are either in danger of becoming delinquent or are already past due payments.

These assets include corporate loans, consumer debt, mortgages, and more.

Banks must monitor and manage their non-performing assets, so they don’t perform any default action against them, such as repossession or foreclosure of the loan security.

The performance of a bank’s NPAs can affect its credit ratings, which can affect the interest rates charged on new loans it gives out.

Furthermore, if many non-performing assets accumulate over time, it could lead to serious financial problems for the bank.

As per the non-performing assets, there was a reduction across the board, which means that all banks maintained a healthy loan book in Q3.

UOB had the highest overall reduction at 0.2%.

CET-1 Ratio

Bank Common Equity Tier Level

CET-1 Q2

Common Equity Tier Level

CET-1 Q3

UOB 13.1% 12.8%
OCBC 14.9% 14.4%
DBS 14.2% 13.2%

The CET-1 Ratio (Common Equity Tier 1) measures a bank’s financial strength.

It provides an indication of a bank’s ability to absorb losses without relying on government assistance or jeopardizing its solvency.

This vital ratio requires that banks have adequate risk-based capital to cover potential losses.

These capital ratios help regulators identify banks at risk so they can intervene early to mitigate such risks.

The higher the CET-1 ratio, the more reserved the bank is and the less likely it is to require assistance from external sources to remain solvent.

This ratio is extremely important for determining which bank stocks are the best investments for investors.

Globally, banks should have a CET-1 ratio of at least 4.5%, implying that they have sufficient capital to offset unexpected losses.

Singapore’s MAS has raised the CET-1 level to 6.5%. From the figures, all the banks are above the 6.5% level for both Q2 and Q3, but there is a decline across the board.

Return Of Equity (ROE)

Bank Return on Equity Q2 Return on Equity Q3
UOB 11.0% 14.0%
OCBC 11.5% 12.4%
DBS 13.4% 16.3%

Return on equity (ROE) is a performance metric used to assess the profitability of investments in a bank compared to its shareholder’s equity.

It measures how well the bank utilises its shareholders’ funds to make profits.

A high ROE can indicate that a bank is profitable or has access to quality financial instruments, allowing it to invest more efficiently with higher returns than its competitors.

This indicates that the company may be able to use its money more effectively to generate greater profits and increase value for shareholders in the long run.

The ROE has increased for all banks in Quarter 3 of 2022.

However, DBS registered the highest ROE at 16.3%, UOB at 14%, and OCBC at 12.4%.

Dividend Yield

Bank Dividends Per Share Dividend yield
UOB S$1.2 4.23%
OCBC S$0.56 4.65%
DBS S$0.36 4.18%

Dividend yield measures the income a company pays out to its investors relative to its stock price.

It is computed by dividing the total amount of dividends paid over the last 12 months divided by the current share price.

It is important to banks because it indicates how attractive a particular bank’s stocks are – especially for dividend investors.

A higher dividend yield typically means that a bank has issued larger dividends over the past year and provides investors with more income returns than other banks.

This can make them more attractive investments as they can provide higher returns than other potential investments.

Usually, a dividend yield of 4% and above is considered favourable if you are a yield-oriented investor.

In 2021, the MAS lifted a cap on dividend payouts for banks, and this means that the companies could now offer a higher dividend payout leading to impressive yields above 4% based on the share prices.

DBS bank paid a quarterly dividend of S$0.36 per share with a dividend yield of 4.18%.

On the other hand, OCBC and UOB usually pay dividends half-yearly with dividend yields of 4.65% and 4.23%, respectively.

A dividend yield of 4.65% makes OCBC the best dividend pick among the 3 banks.

Final Words

The shares of the 3 banks have risen by up to 5% this year, outperforming the Straits Time Index (STI) thanks to increasing interest rates that lead to higher incomes for the banking sector.

Looking ahead, the trend may continue as central banks all over the world continue hiking rates due to inflation.

However, should we head deeper into recession, we might see bank stocks performing poorly due to lesser loans being borrowed.

So which is the best, DBS, UOB, or OCBC?

To be honest, I don’t think there is a  “better” stock here.

If it’s up to me, I will choose whichever bank I’m comfortable with or the bank I’m using.

Want to buy these stocks? You’ll need an online brokerage account in Singapore.

We prefer moomoo Singapore as it’s the cheapest platform for stocks traded on the SGX.

They’re also offering you a free Apple share if you make a first deposit of $2,700!

Keen? Use our referral link to get them from moomoo.

Reference

Disclaimer: Each article written obtained its information from reliable sources and should be purely used for informational purposes only. The information provided by Singapore Financial Planners and its affiliated parties is not meant to be construed as financial advice. Singapore Financial Planners shall not be held liable for any inaccuracies, mistakes, omissions, and losses incurred should you act upon any information listed on this website. We recommend readers to seek financial planning advice from qualified financial advisors. 

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