How Much Risk Are Investors Taking With United Overseas Bank Ltd Now?

In early September this year, I wrote an article that discussed how risky United Overseas Bank Ltd (SGX: U11) could be for investors.

My September article looked at four financial ratios that are important to banks: the leverage ratio; the loans-to-deposits ratio; the efficiency ratio; and the price-to-book ratio. (You can find out why these ratios are important, and what to look out for, in an article of mine that assessed the riskiness of UOB’s peer, Oversea-Chinese Banking Corp Limited (SGX: O39).)

What I found back then was that UOB was a fairly low-risk bank based on the four ratios. But, I think now could be a good time to revisit my risk-assessment of the bank for two reasons.

First, banks in Singapore have been facing a challenging environment this year, with issues such as our country’s slowdown in economic growth and the weakness in the oil & gas sector. Second, UOB has released a new set of results – for the third-quarter of 2016 – since my aforementioned September article was published.

With that, let’s turn to the four financial ratios and how they’ve changed since the second-quarter of 2016 (with the exception of the price-to-book ratio – that would be from the date of publication of my earlier article):

  • The leverage ratio: From 10.2 to 10.1
  • The loans-to-deposits to ratio: From 84% to 85%
  • The efficiency ratio: From 45.8% to 45.0%
  • The price-to-book ratio: From 0.9 to 1.1

In all, UOB has seen improvements in its leverage ratio and efficiency ratio. Its loans-to-deposits ratio has increased only slightly. The biggest negative change is the higher price-to-book ratio; that being said, UOB’s PB ratio of 1.1 right now is still near a five-year low.

So, taking into account all we’ve seen above, I think it’s fair to say that UOB’s risk profile has not changed much at all.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of United Overseas Bank. Motley Fool Singapore writer Chong Ser Jing does not own shares in any companies mentioned.