How Risky Is United Overseas Bank Ltd Stock?

Earlier in the week, I had written articles that looked at the risk profiles of two of Singapore’s local banks, DBS Group Holdings Ltd (SGX: D05) and Oversea-Chinese Banking Corp Limited (SGX: O39).

For the article on DBS, check out here. For the piece on OCBC, you can head here.

I had studied the two banks’ leverage ratio, loans-to-deposits ratio, efficiency ratio, and price-to-book ratio. My article on OCBC contains explanations on what these ratios are and just why they are important.

What I found was that DBS and OCBC do not appear to be particularly risky banks for investors – it’s important to note here that the four ratios are not the only ones that count when analysing banks.

In Singapore’s stock market, there are three local banks, the last of which is United Overseas Bank Ltd (SGX: U11). I thought it’d be a good idea to assess UOB as well based on those four ratios.

The following table shows the changes in UOB’s leverage ratio since 2007 (the OCBC article also spelled out the significance of using 2007 as a starting point for some of the ratios):

UOB's leverage ratio table
Source: S&P Global Market Intelligence

Here is UOB’s loans-to-deposits ratio from 2007 to today:

UOB's loans-to-deposits table
Source: UOB’s annual reports

Now we turn to UOB’s efficiency ratio (the bank reports it as the expenses/income ratio), again with 2007 as a starting point:

UOB's efficiency ratio table
Source: UOB’s annual reports

Lastly, we have UOB’s price-to-book ratio. This is a chart showing how the ratio has been like over the past five years:

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

The important takeaways from the tables and chart above are these:

  • UOB’s leverage ratio has not increased in any significant manner over the years under study and that’s a positive.
  • The bank’s loans-to-deposits ratio have also been maintained within a fairly tight range – that’s another tick in the box.
  • The bank’s price-to-book ratio is 0.9 right now and is near a five-year low. This helps lower valuation risks for investors and is thus a good thing.
  • The one snag we have here is the slight upward creep in UOB’s efficiency ratio (note: for the efficiency ratio, the lower it is, the better). It’s still strong at just 45.8%, but the fact that it’s been steadily stepping up over the years is something investors may want to keep an eye on.

All told, UOB looks like a fairly low-risk bank stock to me given that it has performed well in three of the four ratios. But, I think it’s important to repeat the caution I gave 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.”

It applies to UOB too.

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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.