The three Singapore banks presented their latest quarterly earnings report card last week.
Suffice to say that all three handily beat expectations, posting earnings that were better than what analysts had expected.
DBS Group (SGX: D05) led the pack with a record fiscal 2021 third quarter (3Q2021) net profit of S$1.7 billion and declared an interim dividend of S$0.33 per share.
OCBC Ltd (SGX: O39) and United Overseas Bank Ltd (SGX: U11) also posted equally impressive numbers, with a net profit of S$1.2 billion and S$1.05 billion, respectively.
All three lenders were similarly optimistic about the economic recovery and projected continued growth next year.
If you are looking to buy one of these banks, it seems like a tough decision as all of them have performed well.
Let’s look at various aspects of the banks to determine which will make the best investment at this time.
Financial results
Source: Banks’ 3Q2021 Earnings Reports
First, let’s look at the financial results for each bank.
UOB is the clear winner here as it posts a year on year growth in all three categories — revenue, profit before allowances, and net profit.
For 3Q2021, UOB’s net interest income and non-interest income saw year on year rises of 8.8% and 14.6%, respectively.
In contrast, DBS reported a slight 3% year on year decline in net interest income due to falling net interest margin (NIM) while OCBC posted a moderate year on year increase in both categories.
UOB was also the only bank out of the three to post a year on year rise in profit before allowances.
Winner: UOB
Level of allowances
Source: Banks’ 3Q2021 Earnings Reports
Next, we looked at the level of allowances made at each bank to gauge whether their loan books remained robust.
Of the three, DBS was the only bank to write back general allowances amounting to S$138 million, resulting in a negative provision of S$70 million for the quarter.
Although both UOB and OCBC did not go to the extent of writing back allowances yet, both banks posted sharp year on year declines in provisions made of 65.8% and 53.4%, respectively.
These numbers are an encouraging sign that the economy is on the mend.
Lower provisions mean that the banks believe that a lower proportion of loans are likely to go bad, thus signalling an uptick in economic activity and heightened optimism.
Winner: DBS
NIM and loan book
Source: Banks’ 3Q2021 Earnings Reports
Looking at the lenders’ loans books, all posted healthy single-digit year on year growth.
UOB and DBS both announced a 9% year on year jump in their loan books while OCBC chalked up a 6.2% year on year growth.
On the NIM front, DBS has continued to suffer from declining NIM.
DBS’s NIM contracted by 0.1 percentage points from 1.53% a year ago to 1.43% in 3Q2021, and 0.02 percentage points lower compared to its previous quarter.
UOB, on the other hand, has seen its NIM stabilise.
Not only did it remain largely flat quarter on quarter, but it was also higher than the 1.53% logged in the third quarter of 2020.
The combination of healthy loan growth and stable NIMs makes UOB the winner for this category.
Winner: UOB
Cost to income ratio
Source: Banks’ 3Q2021 Earnings Reports
Of the three banks, UOB has the lowest cost to income ratio at 43.7%.
This result was a reversal from the same period last year when UOB had the highest cost to income ratio of the trio.
Winner: UOB
Valuation
Source: Banks’ 3Q2021 Earnings Reports
Finally, we look at the valuation for each bank.
DBS is the most expensive of the three, trading at a price to book of around 1.5 times.
OCBC, on the other hand, is hovering fairly close to its book value of S$11.28.
The good news is that all three banks have enjoyed a year to year increase in their net asset value, with DBS clocking up the highest growth rate at 7.5% year on year.
Winner: OCBC
Get Smart: A clear winner
UOB is the clear winner here with a strong set of financial numbers, healthy loan growth, stable NIMs and with the lowest cost to income ratio.
However, investors also need to look beyond the operating and financial metrics to see what each bank is up to.
For instance, OCBC has paired up with Chinese bank Ping An Bank (SHE: 000001) to offer a range of financial services to its clients.
DBS has set up an arm called DBS Finnovation to hold businesses that are related to its core banking activities.
This innovative unit holds a 90% stake in a digital exchange that was set up late last year, as well as a 33% stake in Partior, a platform to smoothen interbank transfers.
DBS Finnovation also has a 23% stake in Climate Impact X, a carbon exchange and marketplace in collaboration with Singapore Exchange Limited (SGX: S68) and Temasek Holdings.
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Disclaimer: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.
