Financial updates for the 2020 second-quarter (three months ended 30 June 2020) from Singapore’s major banks have been filed with the Singapore Exchange.
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 banking giants, which make up around 38% of the Straits Times Index, grabbed the headlines last week when the Monetary Authority of Singapore (MAS) called on local banks to cap their total dividends per share for 2020 at 60% of 2019’s dividends.
Right here, let’s look at the banks’ latest performance and also how much dividends they have declared following MAS’ guidelines.
Following that are previously-published comparisons of the banks’ past financial performance. For easier navigation, you can click on the links below:
DBS, OCBC and UOB: How Did They Perform in 2Q 2020?
For the second quarter of 2020, all the banks continued seeing declining net profits on a year-on-year basis, largely due to higher allowances set aside to cope with the Covid-19 pandemic.
|Figure||Change year-on-year (YoY)||Figure||Change year-on-year (YoY)||Figure||Change year-on-year (YoY)|
|Total income||S$3,726 million||0.5%||S$2,625 million||0.3%||S$2,260 million||-12%|
|Profit before allowances||S$2,243 million||4%||S$1,681 million||4%||S$1,220 million||-16%|
|Net profit||S$1,247 million||-22%||S$730 million||-40%||S$703 million||-40%|
|Net asset value per share||S$19.71||6%||S$10.53||-0.3%||S$22.59||2%|
|Net interest margin (NIM)||1.62%||-0.29 percentage point||1.60%||-0.19 percentage point||1.48%||-0.33 percentage point|
|Return on equity||9.8%|
9.5% (for 1H 2020)
|-3.6 percentage points||Not shown for 2Q 2020|
(for 1H 2020)
|-0.48 percentage point from 1H 2019||7.1%|
8.0% (for 1H 2020)
|-5.4 percentage points|
|Non-performing loan (NPL) ratio||1.5%||No change||1.6%||+0.1 percentage point||1.6%||+0.1 percentage point|
|Common Equity Tier 1 capital adequacy ratio||13.7%||+0.1 percentage point||14.2%||- 0.2 percentage point||14.0%||+0.1 percentage point|
Apart from UOB, the other two banks saw their total incomes inch up slightly as compared to the previous year.
OCBC stood out as the only bank to post quarter-on-quarter growth in total income. This could suggest that the bank’s business is the most resilient among the trio.
As for net interest margin (NIM), DBS came out tops, with a figure of 1.62%, beating OCBC’s 1.60% and UOB’s 1.48%.
The NIM reveals the average interest margin that a bank earns from its borrowing and lending activities.
Moving on, the non-performing loan (NPL) ratio rose slightly or was stable for the banks. This is acceptable given the current economic climate that we are in.
The NPL ratio compares the amount of loan which borrowers are unable to pay off interest or the principal amount to the total loan book.
Having said that, all three banks continued maintaining strong Common Equity Tier 1 capital adequacy ratios, which were well above the MAS limit of 6.5%. This ratio is a critical measure of a bank’s financial strength.
Now, let’s explore how much interim dividend each of the banks has declared for the quarter, which should be of interest to shareholders given MAS’ recent call on banks to conserve cash.
|Interim dividend per share for 2019||S$0.30||S$0.25||S$0.55|
|Interim dividend per share for 2020||S$0.18||S$0.159||S$0.39|
With the dividend cap imposed by MAS, all three banks saw their latest dividends being cut.
The dividend restriction is a pre-emptive measure and it aims to bolster the resilience and capacity of the banks to continue lending to the economy.
DBS, OCBC, and UOB are well-capitalised and as such, the dividend cap will only boost their cash buffer which could be paid out in the future as dividends once the Covid-19 pandemic blows over.
Overall, I feel it was a decent set of results from the Singapore banks and as long as they continue being prudent, they will do well over the long-term.
Editor’s note: Information below was originally published on 14 May 2020.
DBS, OCBC and UOB: How Did They Perform in 1Q 2020?
2020 first-quarter net profit from DBS, OCBC, and UOB fell from 19% to 43% as they increased their allowances to prepare from risks arising from the coronavirus disease — a pandemic that has made economies the world over come to near-standstill.
The following table shows a comparison of key metrics from all three banks’ latest quarter:
DBS OCBC UOB
Figure Change year-on-year (YoY) Figure Change year-on-year (YoY) Figure Change year-on-year (YoY)
Total income S$4,026 million 13% S$2,490 million -7% S$2,407 million 0%
Profit before allowances S$2,470 million 20% S$1,546 million -12% S$1,320 million -1%
Net profit S$1,165 million -29% S$698 million -43% S$855 million -19%
Net asset value per share S$19.86 6% S$10.56 6% Unknown Not applicable
Net interest margin (NIM) 1.86% -0.02 percentage point 1.76% No change 1.71% -0.08 percentage point
Return on equity 9.2% -4.8 percentage points 6.0% -6.0 percentage points 8.8% -2.6 percentage points
Non-performing loan (NPL) ratio 1.6% +0.1 percentage point 1.52% +0.02 percentage point 1.6% +0.1 percentage point
Common Equity Tier 1 capital adequacy ratio 13.9% -0.2 percentage point 14.3% +0.1 percentage point 14.1% +0.2 percentage point
Total income at DBS and UOB was resilient, but that figure dropped for OCBC largely due to lower revenue from its insurance business, Great Eastern Holding Limited (SGX: G07).
Together with paper losses from Great Eastern’s investments portfolio, net profit at OCBC fell the most among the three banks. Net profit from OCBC’s banking operations tumbled 28%.
The lower net profit from all three banks was largely due to higher allowances to recognise the weak near-term economic outlook.
On top of the sectors directly hit by Covid-19 such as aviation, hospitality, and retail, the oil and gas (O&G) industry has also been affected.
The crashing oil price, coupled with the coronavirus pandemic, also exposed Hin Leong’s whopping S$1.14 billion in hidden losses.
The latest earnings filings showed that DBS’ O&G sector loans were 6.2% of the total. OCBC’s O&G sector comprised 5% of its loan book while UOB’s outstanding O&G loans stood at 3.6% of the total.
In terms of net interest margin (NIM), OCBC posted stable numbers at 1.76% while DBS and UOB saw lower NIM.
DBS said that the 2020 first-quarter NIM does not reflect the impact of the recent interest rate cut, which should only be felt in the current second quarter.
Most investors would be scrutinising the non-performing loan (NPL) ratio with the heightened risk of default from customer loans during this trying period.
On that note, the NPL ratio of all three banks rose. NPL at the biggest bank among the trio, DBS, increased by 0.1 percentage point to 1.6%.
Despite lower quarterly net profit for the banks, it’s heartening to note that their Common Equity Tier 1 capital adequacy ratio, a key measure of a bank’s financial strength, is well above the regulatory limit of 6.5%.
Maintaining a rock-solid balance sheet is a common theme among DBS, OCBC, and UOB, as highlighted by their leaders in their respective earnings update.
DBS’ CEO, Piyush Gupta, commented:
“Our record operating performance in the first quarter has given us a head start to face the challenges of the coming year. While the economic outlook remains uncertain and credit risks have increased, the digital investments we have made have strengthened the resilience and efficiency of our franchise and we remain committed to serving our customers. We will maintain a solid balance sheet with ample capital, liquidity and loss allowance reserves that give us strong buffers to absorb external shocks.”
OCBC’s CEO, Samuel Tsien, said:
“As we enter this period of a health crisis that has developed into a global economic crisis, the conservative stance we have always taken to preserve a strong capital, liquidity and funding foundation have served our customers and shareholders well. As you would have noted from our first quarter 2020 performance, the overall fundamentals of our diversified banking, wealth management and insurance businesses remain sound. We paid close watch on our credit portfolio against the market uncertainty, and significantly shored up our allowances on a forward-looking basis. I am confident that we will continue to maintain a strong balance sheet and achieve sustainable earnings as we execute our long-term corporate strategy of our diversified business model that focuses on the three business pillars.”
UOB’s CEO, Wee Ee Cheong, mentioned:
“In times such as these [referring to challenges due to Covid-19], we ensure our balance sheet remains strong and our capital and liquidity positions robust, so we can continue to support our customers through the roughest of cycles and crises, just as we have done so over the past eight decades. Coupled with our strengthened allowance coverage and through our collective efforts with all our stakeholders, we are confident that we will ride through these extraordinarily difficult times and emerge stronger.”
With banks playing a key role in Singapore’s economy, it’s heartening to see them continuing to be prudent to emerge out of this Covid-19 crisis stronger.
Editor’s note: Information below was originally published on 4 March 2020.
DBS, OCBC and UOB: How Did They Perform in 2019?
Firstly, let’s explore a few key ratios that give us a better picture of the banks’ profitability (the “best” metrics are in bold):
|Bank||Net Interest Margin||Cost-to-Income Ratio||Return on Assets||Return on Equity|
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 2019 of 1.89%.
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.
Among the banking trio, OCBC had the lowest cost-to-income ratio for 2019 of 42.7%.
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 (ROE) for 2019.
In fact, DBS’ 2019 ROE is the best ever for the bank.
DBS CEO Piyush Gupta said in the bank’s latest earnings release that its ROE figure “demonstrates a franchise that delivers high quality results.”
Balance Sheet Ratios
Next up is a comparison of the banks’ balance sheet ratios. They give us clues on how strong the banks’ balance sheets are (the “best” metrics are in bold):
|Bank||Loan-to-Deposit Ratio||Non-Performing Loans Ratio||Leverage Ratio||Average All-Currency Liquidity Coverage Ratio|
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, DBS was the best at maximising the loans and deposits it had for 2019, given that it had the highest loan-to-deposit ratio in that year.
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.
It’s a tie among the three banks for 2019 as all have an NPL ratio of 1.5%.
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 2019.
The table below reveals the banks’ valuation numbers (the “best” metrics are in bold; share price as of time of writing on 3 March 2020):
|Price-to-Earnings (PE) Ratio||Dividend Yield|
OCBC seems to offer the best value among the three banks with its lowest PB and PE ratio.
However, it loses out to the other banks in terms of dividend yield.
Income investors would love DBS as it has the highest dividend yield among the banks at 5.0%.
Going forward, DBS said that it plans to dish out an annualised dividend of $1.32 per share, instead of $1.23 for 2019.
The higher dividend is “in line with the policy of paying sustainable dividends that grow progressively with earnings”.
Using the guided dividend payout, DBS’ dividend yield would rise to 5.4%.
As for UOB, its board has declared a special dividend of S$0.20 per share in 2019, similar to 2018.
Including that dividend, UOB’s adjusted dividend yield would be 5.3%.
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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.