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Which of the “Big 3” Singapore Banks Offers the Best Potential?

Singapore’s three biggest banks provide the foundation for the country’s economic growth, and all three banks are also known to be stable and dependable investments. The three major banks in Singapore are DBS Group Holdings Ltd (SGX: D05), United Overseas Bank Ltd (SGX: U11) and Oversea-Chinese Banking Corporation Limited (SGX: O39).

I’ve decided to compare which of the three banks offers the best investment potential and I’m making use of three metrics. The first is loan growth, which measures the year-on-year growth of the bank’s loan book, a driver of future revenue. Next comes the valuation using the price-to-book (PB) ratio, which tells an investor whether the bank’s shares are trading cheaply or not. Finally, I looked at the dividend yield, which measures the income-based return for each bank.

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1. Loan growth

Source: DBS, UOB and OCBC 1Q 2019 press releases

UOB has the best year-on-year loan growth at 12%, versus the other two banks at 5% each.

Winner: UOB

2. Valuation

Source: DBS, UOB and OCBC 1Q 2019 earnings announcements

In terms of valuation, DBS appears to be the most expensive at a price-to-book ratio of 1.4x, while UOB and OCBC are valued at the same multiple (1.1x).

Winners: UOB and OCBC

3. Dividend yield

Source: DBS, UOB and OCBC FY 2018 earnings announcements

For the dividend yield, DBS is the clear winner here with a trailing dividend yield of 4.6%, while UOB has a yield of 4.0% and OCBC 3.8%. Also, DBS has recently changed its dividend payment frequency from half-yearly to quarterly, which is an added bonus for investors looking for regular income.

Winner: DBS

The Foolish conclusion

Despite there being no clear winner from the above, my suggestion would be to purchase UOB more for growth, while choosing DBS if you are focused more on dividends.

There are headwinds for all three banks in terms of the current US-China trade tensions, and also the potential for disruption from virtual banks. These could stunt loan growth for all players but the banks should still be able to keep their absolute dividends constant, so DBS may be a better bet if an investor is worried about the macroeconomic environment and potential competition.

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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 contributor Royston Yang does not own shares in any of the companies mentioned. The Motley Fool Singapore has recommended shares of DBS Group Holdings Ltd, United Overseas Bank Ltd and Oversea-Chinese Banking Corporation Limited.