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How Risky Is DBS Group Holdings Ltd Stock?

Yesterday, I wrote an article on how risky Oversea-Chinese Banking Corp Limited (SGX: O39) could be as a stock for investors.

I assessed the bank’s riskiness through four financial ratios: the leverage ratio, the loans-to-deposits ratio, the efficiency ratio, and the price-to-book ratio.

What I found is that OCBC is not a particular risky bank based on those four metrics. (A caveat is due here: In the article on OCBC, I mentioned that the four metrics are not the only ones that count.)

I thought it’d be interesting as well to find out how DBS Group Holdings Ltd’s (SGX: D05) risk profile looks like based on the same four metrics. DBS is Southeast Asia’s largest bank with over S$450 billion in assets.

My previous article on OCBC had already ran through the importance of the four ratios when it comes to assessing risks, so I would not rehash my thinking in this piece – here’s the OCBC article again. Instead, I’m going to jump right into the thick of the action.

Here’s how DBS’s leverage ratio looks like from 2007 to today (in my earlier OCBC article, I also explained the significance of looking back all the way to 2007 for some of the ratios):

DBS leverage ratio chart
Source: S&P Global Market Intelligence

This is DBS’s loans-to-deposits ratio, again from 2007 to today:

DBS loans-to-deposits ratio chart
Source: DBS’s earnings releases

Next is a table showing how DBS’s efficiency ratio has evolved since 2007:

DBS cost to income ratio chart
Source: DBS’s annual reports

Finally, we have the price-to-book ratio of DBS over the past five years:

DBS's price-to-book ratio over last five years
Source: S&P Global Market Intelligence

So, what we can see from all the above are these:

  • First, DBS’s leverage ratio has not changed much over the years – that’s a positive.
  • Second, the company’s efficiency ratio (or cost to income ratio) has also been maintained within a fairly tight range – that’s another positive.
  • Third, the bank’s current price-to-book ratio of 0.9 is near a five-year low – this is yet again another positive since it lowers valuation-related risks for investors.
  • Fourth, DBS’s loans-to-deposits ratio has increased markedly since 2007 and has been creeping up – this means the bank has been taking on more and more liquidity risks and it could be an area investors might want to keep an eye on.

Given that DBS has scored fairly well in three of the four ratios, I’d say that the bank is not particularly risky for investors. But again, like I had cautioned in my OCBC article:

“But, this does not mean that OCBC would go on to be a great investment. Besides, as I had already mentioned, there are plenty of other factors to investigate when it comes to a bank.”

This applies to DBS as well.

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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 does not own shares in any companies mentioned.