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Singapore Banks Averaged 12.7% Total Return In 2013

My Gateway (92 x 92)With a combined market capitalisation of S$105 billion, Singapore’s three local banks —DBS Group Holdings (SGX:D05), OCBC (SGX:O39), and UOB (SGX:U11)– make up more than 10% of the total market capitalisation of stocks listed on SGX.

The three stocks averaged a total return of 12.7% in 2013. For the average return approximately 9.1% came from price appreciation and 3.6% came from reinvested dividend distributions. Total returns for 2013 were 19.0% for DBS Group, 8.2% for OCBC and 10.8% for UOB.

All three banks are active players in the property finance market and compete with foreign banks that are also licensed to operate in Singapore. Rising affluence in the region has also positioned these groups to capture a share of the growing private banking market.

 

DBS Group Holdings

United Overseas Bank

OCBC Bank

SGX Code

D05

U11

O39

Market Cap (S$B)

42

33

33

Chg Pct YTD (%)

0.9

-1.2

-4.6

Price to Book Ratio

1.3

1.4

1.5

Total Return 2013 (%)

19.0

10.8

8.2

Px Chg Pct 2013 (%)

15.2

7.2

4.8

Dvd Ind Yld (%)

3.3

2.9

3.5

Price-Earnings Ratio

10.8

11.7

12.9

Tier 1 Capital Ratio

13.3

12.9

14.3

Source: Bloomberg (Data as of 14 January 2014)

These three banks are now considered to be among the world’s most resilient institutions. Bloomberg’s most recent World’s Strongest Bank survey placed OCBC in the second place while DBS Group and UOB were ranked the seventh and ninth places, respectively. This survey measures safety in terms of banks’ operating ratios. As part of its assessment of bank strength, this survey looks at a bank’s Tier 1 capital ratio, which is the ratio of the its core equity capital (Tier 1 capital) to total risk-weighted assets. Tier 1 capital is the sum of a bank’s equity capital and disclosed reserves, while risk weighted assets are assets held by the bank, which are systematically weighted for credit risk under different asset classes.

This ratio is also an important standard under the Bank for International Settlements BASEL requirements. The Bank for International Settlements coordinates regulations in the fields of financial services to promote international financial stability. In last year’s Bloomberg report, the Tier 1 Capital Ratio of the three Singapore banks were: 16.6 for OCBC, 14.0 for DBS Group and 14.7 for UOB. This year’s report is expected to be delivered in May. Other key variables used are detailed in the table below.

 

OCBC Bank

DBS Group Holdings

United Overseas Bank

Rank

2

7

9

Overall Score

19.1

28.2

31.0

Tier 1 Capital Ratio

16.6

14.0

14.7

Nonperforming assets to total assets ratio

0.4

0.8

1.1

Loan loss reserves to nonperforming assets ratio

141.1

162.6

106.7

Deposits to funding ratio

81.7

83.1

83.5

Efficiency Ratio

35.0

45.1

42.6

Source: Bloomberg (Data as of September 2013)

Another common financial metric applied to banks is the price-to-book value ratio (P/BV), which is used to value a bank as the assets and liabilities held by a bank are constantly valued at market price. All three banks have broadly similar ratios with DBS Group at 1.3, UOB at 1.4 and OCBC at 1.5. The 1.3 to 1.5 ratio means that the prices of the stocks are at 1.3 times to 1.5 times the net assets held by the bank. The price-to-earnings (P/E) ratio is another commonly used ratio, which evaluates a bank’s price per share to the amount of earnings that it generates per share. The ratios for the three banks are currently 10.8 for DBS Group, 11.7 for UOB and 12.9 for OCBC. The 10.8 to 12.9 ratio means that the prices of the stocks are at 10.8 times to 12.9 times the net profits earned by the bank.

In addition to representing more than 10% of the total market capitalisation of all primary and secondary stocks listed on SGX, the three banks represent approximately 22% of the full market capitalisation of the benchmark Straits Times Index.

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