Are Singapore’s Banks Great Bargains Right Now?

For you value hounds out there, here’s something to note. The three local banks DBS Group Holdings Ltd (SGX: D05)Oversea-Chinese Banking Corp Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11), are all trading at their lowest valuations since the global financial crisis.

In the case of UOB, the bank currently has a price to tangible book value that’s even lower than the levels seen during the crisis period. Are the outlooks for the three banks that pessimistic, or are we looking at a potential bargain opportunity?

Source: S&P Global Market Intelligence

Issues surrounding the banking sector are widely known:

  1. The economies in Singapore and other regional countries are slowing down.
  2. The sharp drop in the price of oil since late 2014 has raised the risk of higher default rates for loans that are extended to companies related to the energy industry.
  3. Singapore has always been a trading hub and the slowdown in China’s economic growth might also pose some serious risks to the level of trade here.
  4. The recent vote by the people of the United Kingdom to leave the European Union might also pose some short-term risks for the banks in Singapore. In fact, UOB has announced that it will be suspending future loans for properties in London, signaling the heightened risk for lending in Europe.

Some of the issues mentioned above are part of the reason why Moody’s Investors Service has revised its outlook on Singapore’s banking trio one step down from stable to negative on Thursday.

There are certainly real concerns for the banks in Singapore. And perhaps their low valuations are justified in view of the challenges.

Investors who are interested in the banks right now need to consider if the problems we’ve seen plaguing them will affect their long-term prospects. If the banks’ long-term picture is not impaired, then long-term investors who have the ability to withstand short-term risks may be rewarded in the future for believing in the banking sector of Singapore.

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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 Stanley Lim doesn’t own shares in any companies mentioned.