Better Bank Stock Now: United Overseas Bank Ltd or Oversea-Chinese Banking Corp Limited?

Yesterday, I had compared the business fundamentals of two of Singapore’s banks, DBS Group Holdings Ltd (SGX: D05) and United Overseas Bank Ltd (SGX: U11), to see which may be the better bank stock.

UOB turned out to be the bank with the stronger performance for the metrics and figures I was looking at. But since there are really only three bank stocks in Singapore, I thought it’d be interesting as well to see how UOB stacks up against the third bank, namely, Oversea-Chinese Banking Corp Limited (SGX: O39).

When I was comparing DBS and UOB, I had looked at four key things: (1) Their assets-to-equity ratio, (2) their loan-to-deposit ratio, (3) the growth in their book value per share, and (4) their price-to-book ratio. These things give me insight on three important areas of the banks’ businesses, and that is, their financial strength, track record of growth, and valuation.

I had covered the four financial figures in greater detail in my article comparing DBS and UOB, so I won’t go through them again (here’s the article once more). Instead, I’d jump right into the thick of the action.

Here’s how UOB and OCBC’s assets-to-equity ratio and loan-to-deposit ratio look like at the moment:

UOB and OCBC balance sheet table
Source: Banks’ earnings report

While UOB has the lower asset-to-equity ratio, OCBC edges ahead in the loan-to-deposit ratio race. So, in terms of their financial strength, I think it’s fair to call it a tie.

Let’s now move on to the banks’ growth in book value per share over the past five years, which is illustrated in the chart below:

Growth in book value per share for UOB and OCBC from 2010 to 2015
Source: Banks’ earnings report (click chart for larger image)

UOB’s the bank with the faster growth rate here. While OCBC’s book value per share had climbed by a total of 37% from 2010 to 2015, UOB’s selfsame figure had gained 43%.

We’re down to the banks’ price-to-book (PB) ratios. You can see how their valuation compares in the following table:

UOB and OCBC valuation table
Source: Banks’ earnings report

Turns out, it is OCBC that has the steeper valuation with its PB ratio of 1.11.

A Fool’s take

In tallying up the scores, UOB appears to be the stronger bank stock when compared to OCBC by virtue of its faster historical growth and lower valuation. But, like I had mentioned in the article pitting DBS against UOB, this look at the four financial figures – while important – should not be taken as the final word on the investing merits of either UOB or OCBC. Deeper research on the banks is needed before any investing decision can be made.

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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 writer Chong Ser Jing doesn't own shares in any companies mentioned.