There are three major banks listed in Singapore, namely DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp. Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11). For investors who would like some banking exposure, do they even need to choose between the three or would investing in any one of them give similar risks and potential returns over the long run? Turns out, there are actually some important differences between the trio and that’s what I want to look at in here. The first key difference: Insurance operations With total assets of S$65.7 billion, Great Eastern Holding Limited (SGX:…
For investors who would like some banking exposure, do they even need to choose between the three or would investing in any one of them give similar risks and potential returns over the long run?
Turns out, there are actually some important differences between the trio and that’s what I want to look at in here.
The first key difference: Insurance operations
With total assets of S$65.7 billion, Great Eastern Holding Limited (SGX: G07) is a life and general insurer that’s one of the largest of its kind in the Southeast Asian region.
It is also majority-owned by OCBC, a relationship which gives the bank a sizeable insurance operation; for some perspective, OCBC ended 2014 with total assets of S$401.2 billion.
When compared with OCBC, the other two banks – DBS and UOB – have much smaller insurance operations.
Second key difference: Thailand, Malaysia, and some say Hong Kong
This may come as a surprise to some but Thailand is actually a major market for UOB; assets originating from the country make up around 5.2% of the bank’s total assets. Meanwhile, operating income that traces its geographical origin to Thailand made up roughly 9.3% of the bank’s total operating income in 2014.
OCBC, on the other hand, does not have any significant business exposure (in relative terms with its other businesses) to Thailand and counts Malaysia as its second largest market.
We’re left with DBS, and unlike the other two banks, the Greater China region makes up a much larger part of its banking operations. In 2014, more than 80% of DBS’ loan book was from Singapore and Greater China, indicating a relative lack of presence in Southeast Asia.
Third key difference: Shareholder’s structure
Lastly, the main difference between the three banks lies in their ownership structure. DBS is mainly owned by Temasek Holdings Limited, one of Singapore’s giant sovereign wealth funds. Meanwhile, the other two banks are mainly owned by their respective founding families.
There could be differences in the way business decisions are made on the board and top-tier management level between a government-linked entity and a largely family-owned business.
It is the result that matters
Source: S&P Capital IQ
Interestingly if we compare the share performances of the three banks over the past 10 years since the start of 2005, they tend to trade in a rather similar manner. You can see this in the chart above, which plots the total returns (capital gains plus reinvested dividends) of the trio over that period.
But, there have also been winners and losers amongst them. Over the decade under study, OCBC’s the one giving its investors the best annualised total return of 10.5%. UOB comes in second with a 9.5% annualised total return while DBS is in last place with a figure of 8.3%.
So over the past 10 years at least, there has been a difference for investors when it came to investing in one of the local banks over another.
The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.
Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.