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Important Differences between OCBC and UOB That Investors Have To Know

Singapore has been considered as a major financial hub in Southeast Asia (SEA) for a long time. With that status, it is only fitting that the top banks in the region are all listed here in Singapore. When investing in the local market, the banking sector plays a major role due to their huge weights within Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

How then should investors choose between the three big banks listed in Singapore? In particular, let’s look at some of the key differences investors have to know that exist between Oversea-Chinese Banking Corporation (SGX: O39) and United Overseas Bank (SGX: U11).

Déjà vu

Talking about déjà vu, both banks were founded by settlers from China during the 1930s; both have been involved with mergers and consolidations through the years to become what they are today; both derive most of their profits from two key markets, Singapore and Malaysia; and both are still majority owned by their respective founding families.

Looking at that, it is hard to tell the difference between the two from their histories. But, there are important differences.

First key difference: Insurance

Great Eastern Holdings (SGX: G07) is a life and general insurer and one of the largest insurance outfits in the SEA region. It is also majority-owned by OCBC, thus giving the bank big insurance operations. For an idea of the scale of Great Eastern in relation to OCBC, the insurer’s assets took up 18% of the bank’s total assets in the last financial year.

Meanwhile, UOB has its own insurance arm in United Overseas Insurance (SGX: U13). But, it’s a relatively small outfit; the insurance operations are so small compared to the banking group’s other activities that it’s not disclosed in the bank’s segment-reporting.

Second key difference: Thailand

This may come as a surprise but Thailand is actually a major market for UOB; assets originating from the country take up about 5.4% of the bank’s total assets. Meanwhile, profits that trace its geographical origin to Thailand make up roughly 9.4% of UOB’s operating income in the last financial year. In contrast, Thailand is a much smaller market for OCBC with the bank mainly having private banking business in Malaysia’s northern neighbour.

Foolish Bottom Line

Although the two banks share similar backgrounds in their histories, there are some key differences in their operations today.

Investors who are looking to get exposure to the banking sector have to bear in mind they will be buying a large insurance business as well if they are buying into OCBC. In terms of geopolitical risks, investors will be much more exposed to Thailand if they have chosen to invest in UOB as compared to OCBC. The relative performance of the two banks might thus be greatly affected by their key differences.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns United Overseas Insurance.