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Battle of Singapore banks (OCBC, DBS and UOB)

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Singapore “Big Three” local banks recently announced third quarter 2017 results. Although all three banks suffered from collateral damage arising from loan exposure to the oil and gas sector, the latest results were generally upbeat and data revealed resilient growth for OCBC, DBS and UOB.

Competition continued to be stiff among the banks but growth for all three banks is expected to be positive for the full-year as Singapore economic growth was predicted to exceed 3% for 2017.

OCBC took the lead

Net Performing Assets (NPAs) continued to weigh on the banks’ earning as the ailing oil and gas sector showed no signs of revival. DBS recorded a devastating 25% decline for 3Q17 profit as compared a year ago. Profit stood at $802 million, the worst among its close rivals. The dismal result for DBS was due to the massive allowances of $815 million made, largely for the loan exposure oil and gas sector. This was a huge provision and the amount indicated that the DBS CEO might have grossly underestimated the oil slump.

On the other hand, OCBC smashed in a solid profit of $1.06 billion for 3Q17, 12% above S$943 million a year ago. UOB came in second with profit of $883 million, 12% above a year ago. Among the three banks, OCBC made the least allowances for 3Q17, at only $156 million while UOB made provisions of $247 million. Whether the earning growth was attributed to lesser allowances remained to be seen but OCBC was leading ahead in terms of financial performance.

The key reason for OCBC trashing DBS and UOB was because the venerable bank traditionally derived its earning from various sources like insurance and wealth management. The oldest bank in Singapore remains the only bank that owns an insurance company – Great Eastern. OCBC also went on an acquisition spree in recent years to build up its wealth management arm. Barclays PLC in Singapore and Hong Kong and National Australia Bank’s Private Wealth were among the assets acquired.

OCBC

Net-interest income

One key indicator in assessing a bank’s financial performance is the net-interest income. This is the difference between the interest earned from the bank’s investments and interest paid to depositors.

Basically, when you put your money in the bank, the bank would use your deposits to generate returns through home and corporate loans. In return, you get the saving interest rate. From the perspective of the bank, the interests paid to depositors are a form of liability. Hence, to generate higher margin, usually the saving interest is capped low while loan rate is kept at a premium.

At the moment, loans continued to be one of the main revenue sources for Singapore banks as 3Q17 net-interest income for DBS, OCBC and UOB was $1.98 billion, $1.38 billion and $1.41 billion respectively. However, against the backdrop of non-performing loans, this type of revenue is beginning to lose its shine.

Take for example, OCBC recorded the worst net-interest income for the quarter yet it had the best profit among the three banks. Perhaps OCBC had been prudent in diversifying its revenue sources in previous years. That could be why it was not so affected by oil and gas non-performing loans as compared to DBS and UOB.

Non-interest income

Other key indicator for banks is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Cornerstone articles

Updated: March 7, 2019 — 1:12 am

3 Comments

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  1. Dear Sir,

    Would appreciate that you adjust / disable the Email Subscription Feature Window setting to prevent it from suddenly appearing in the middle of the screen when one is reading the article.

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    I enjoy reading your article but this feature is keeping me off your writings.

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    Regards,
    ST
    30 November 2017

  2. Hi ST,

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    Regards,
    Gerald
    https://www.sgwealthbuilder.com

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