facebookDBS, OCBC and UOB: How Did the Banks Perform in 2020?
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DBS, OCBC and UOB: How Did the Banks Perform in 2020?

profileSudhan P
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Last month, Singapore’s three major banks announced their financial results for the year ended 31 December 2020. 

For those uninitiated, those banks are — DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11).

The banks, which make up around 40% of the Straits Times Index, saw their earnings fall in 2020 due to the economic uncertainties brought about by the COVID-19 pandemic. 

For instance, DBS, the largest bank amongst the trio, saw its net profit fall 26% year-on-year. 

However, with the gradual improvement in consumer sentiments and business confidence, the banks are likely to see better days ahead. 

For investors who are looking to pick the best of the lot, here’s a comparison of the banks’ 2020 critical financial ratios, including their valuations. 

Profitability Ratios

The following table shows a few key ratios that give us a better picture of the banks’ profitability (the “best” metrics are in bold):

BankNet Interest MarginCost-to-Income RatioReturn on AssetsReturn on Equity
DBS1.62%42.2%0.75%9.1%
OCBC1.61%43.8%0.85%7.6%
UOB1.57%45.6%0.69%7.4%

Net interest margin (NIM): This is similar to the operating margin for a non-banking outfit. The NIM shows the average interest margin that a bank is earning from its borrowing and lending activities.

Among the banking giants, DBS had the highest NIM for 2020 at 1.62%.

Cost-to-income ratio: This ratio measures the non-interest expense of a bank as a percentage of its revenue. It is used to gauge a bank’s efficiency and productivity. Generally, the lower the ratio, the more efficient a financial institution is.

DBS had the lowest cost-to-income ratio among the banks at 42.2% for the year.

Return on assets and return on equity: These tell us how effective a bank’s management is in maximising the profits earned from shareholders’ capital.

Among the three banks, OCBC had the best return on assets, and DBS had the highest return on equity for 2020.

Balance Sheet Ratios

Here is a table showing the key ratios that can give us clues on how strong the banks’ balance sheets are (the “best” metrics are in bold):

BankLoan-to-Deposit RatioNon-Performing Loans RatioLeverage RatioAverage All-Currency Liquidity Coverage Ratio
DBS80.0%1.6%6.8%136%
OCBC83.7%1.5%7.7%139%
UOB85.4%1.6%7.4%135%

Loan-to-deposit ratio: This ratio measures a bank’s liquidity. The sweet spot for this ratio is usually between 80% and 90%. Banks with a loan-to-deposit ratio below that range may not be maximising the capital they have.

On the other hand, if a bank’s loan-to-deposit ratio is above that range, it might run into liquidity problems when there is a high withdrawal rate on deposits, especially during an economic downturn.

Among the three banks, UOB was the best at maximising the loans and deposits it had for 2020, given that it had the highest loan-to-deposit ratio in that year.

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Non-performing loans (NPL) ratio: A non-performing loan is a loan on which the borrower is unable to pay off interest or the principal amount. The lower the ratio, the better it is for a bank.

For 2020, OCBC had the lowest NPL ratio of 1.5% among the banking trio.

Leverage ratio and liquidity coverage ratio: These ratios show the ability of a bank to meet its financial obligations. In general, the lower the leverage ratio, the better.

Meanwhile, for the liquidity coverage ratio, we’re looking for high numbers.

Among the three banks, DBS had the lowest leverage ratio while OCBC had the highest liquidity coverage ratio for 2020.

Valuation Ratios

The table below reveals the banks’ valuation numbers (the “best” metrics are in bold; share price as of time of writing on 3 March 2021):

BankPricePrice-to-Book
(PB) Ratio
Price-to-Earnings (PE) RatioDividend Yield
(Based on MAS Dividend Cap)
DBSS$27.361.3615.12.6%
OCBCS$11.181.0314.02.8%
UOBS$25.161.0914.93.1%

OCBC seems to offer the best value among the three banks with its lowest price-to-book and price-to-earnings ratios.

However, it loses out to the other banks in terms of dividend yield

Income investors would love UOB as it has the highest dividend yield among the banks at 3.1%. 

However, all three banks have depressed dividend yields as the Monetary Authority of Singapore (MAS) has called on local banks to cap their dividends for 2020.

With a dividend payout ratio ranging from 39% to 45% for the banks, there’s room for dividend growth once the MAS dividend cap is removed.

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Disclaimer: The information provided by Seedly 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. The writer may have a vested interest in the companies mentioned.

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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