All three major local banks in Singapore, DBS, OCBC, and UOB have finally released their FY22 results. Here, we evaluate how Singapore Banks have performed in 2022 and compare their relative standings.
(Read our comparison of the Singapore banks’ latest 1Q23 earnings here!)
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Despite some differences, there is a general trend that runs across all three banks in terms of their performance. Each bank has reported record earnings for FY2022, with strong balance sheets, signs of slowing growth, and increased dividends.
Nevertheless, we would present some differences along the way to help differentiate the banks so you can choose the best.
To start that off, here is a summary of some key metrics:
Singapore Banks Comparison
| DBS | OCBC | UOB | |
| Revenue Growth | 16% | 10% | 18% |
| Net Profit Growth | 20% | 18% | 18% |
| EPS Growth | 20% | 18% | 18% |
| DPS Growth | 67% | 28% | 13% |
| Dividend Yield | 5.8%* | 5.4% | 4.4% |
| Net Interest Margin | 1.75% | 1.91% | 1.86% |
| NIM Growth | 21% | 24% | 19% |
| Non Performing Loans | 1.1% | 1.2% | 1.6% |
| CAR | 14.6 | 17.7 | 16.7 |
| CASA Ratio | 76% | 52% | 48% |
| Return on Equity | 15% | 11% | 12% |
| Price to Book | 1.56 | 1.08 | 1.14 |
| Price to Book Median (5 years) | 1.35 | 1.09 | 1.16 |
| China Exposure | 24% | 22% | 9% |
If you haven’t already, read the preceding post about DBS for a comprehensive breakdown. Else, here’s a quick recap:
DBS
DBS reported record earnings.
This was mostly attributed to an increase in interest rates, which increased net interest income far more than the reduction in non-interest income caused by financial market volatility.
Slowing growth
While DBS’ 4th quarter net profit reached a record $2.34 billion, its quarter on quarter growth rate was only 5%. This could be an indication of waning growth. This trend was also present in its loan growth.
Unfortunately, you’ll soon see that this is a common occurrence across all three banks.
Balance sheet remains strong
DBS’s balance sheet remains as robust:
- Non-performing assets is down 8% y-o-y
- NPL ratio improved from 1.2% to 1.1%
- Common Equity Tier-1 ratio increased 0.8 percentage points from the previous quarter to 14.6%
DBS remains adequately capitalized which gives us confidence in its ability to survive a potentially tough year ahead.
Dividends
The bank announced a final dividend of 42 cents per share. On top of that, there’s a special dividend of 50 cents per share.
DBS’ total distribution for FY2022 hit $2 per share!
Next, let us move on to:
UOB
UOB has reported a record high core net profit* of S$4.8 billion for FY2022, representing an increase of 18% compared to the previous year. Additionally, including one-off expenses related to the acquisition of Citigroup’s consumer businesses in Malaysia and Thailand, the bank’s net profit was also a record high at S$4.6 billion.
Similar to DBS, UOB’s strong performance was largely due to margin expansion in its loans, resulting in a net interest income increase of 31%. While this is slightly lower than DBS’s net interest income jump of 40%, UOB has still seen impressive growth in its loan book and net interest income.
*Core net profit excluded the one-off expenses related to the acquisition of Citigroup’s Malaysia and Thailand consumer banking business
In terms of net fee income, while UOB and DBS both had a dip in net fee income due to the weak market sentiment that weighed down on wealth management and loan related operations, UOB’s drop was 9%, which was marginally better than DBS’s drop of 12%.
Overall, UOB performed well, trailing DBS in terms of net profit growth but not by much.
Slowing growth
When comparing UOB’s fourth quarter core net profit to the same period in 2021, the growth is astounding, at 37%. However, if we only look at quarter-on-quarter changes, we can notice a slowing in growth, with core net profit growth remaining stagnant.
While this could be attributed to a seasonal slowdown in wealth management and loan-related activity, it could also be an early indication that banks’ growth is slowing, something which we mentioned in the previous article with DBS.
Robust Balance Sheet
The non-performing loan (NPL) ratio remained benign at 1.6%. Unfortunately, this is still worse than DBS’s NPL ratio of 1.1%. Still, it is fairly good.
The Common Equity Tier 1 ratio has also increased to 13.3%, substantially above regulatory standards.
Dividend
As expected, UOB boosted its dividend as it had a particularly profitable year.
With solid earnings and capital position, UOB will pay a final dividend of 75 cents per ordinary share. Together with the interim dividend of 60 cents per ordinary share, the total dividend for FY22 will be S$1.35 per ordinary share, indicating a payout ratio of about 49%.
This amount represents a 13% increase in its dividend, which is the lowest of the three banks. Apart from not paying special dividends like DBS, UOB’s dividend growth is actually lower than its earnings per share growth. Overall, UOB’s dividend may not be the best among the three banks.
Moving on, let’s take a look at OCBC:
OCBC
OCBC is much more unique in that it has an insurance arm, Great Eastern; thus, its revenues deviate from the rest occasionally, although not much.
OCBC’s net profit grew 18% to S$5.75 billion in FY2022, up from S$4.86 billion the previous year. The story (strong growth in net interest income, which more than offset weaker non-interest income) is the same, so I will not repeat it.
When comparing its earnings to DBS and UOB, OCBC is on par with UOB in terms of net profit growth, but falls short of DBS, which saw a 20% increase. One driver for this is its Great Eastern business, which witnessed its profit drop due to unrealised valuation losses caused by higher discount rates used to evaluate insurance contract liabilities.
The good news is that these unrealised valuation losses are likely to reverse as the SGS yield curve normalizes to become upward sloping, thus this is not an actual loss to the bank, and when this is considered, OCBC outperforms UOB and possibly even DBS.
Slowing growth
I feel like a broken record at this point. Yes, the same thing is happening here; growth appears to be slowing as interest rates start to peak and investors seek better rates of return on their deposits.
What is noteworthy here is that, in comparison to the third quarter, the fourth quarter of 2022 witnessed a reduction in net profit, whereas the other two banks just had a slowing or stagnant growth. But don’t worry; this is primarily due to a decrease in profit from the insurance sector, which is not a actual loss. By excluding this, it is then in the same boat as UOB, with stagnated net profit growth.
Robust Balance Sheet
And, once again, OCBC has a robust balance sheet like the other banks.
Its nonperforming loan rate has decreased from 1.5% to 1.2%, while CET1 was 15.2%, which is fairly steady from a year ago and far above regulatory requirements.
Dividend
OCBC has also increased its total dividend for FY2022 by 28%, or 15 cents, from a year earlier to 68 cents per share. This represents a payout ratio of 53%, which is healthy and in fact is more than the rise in earnings per share, so investors should be satisfied.
Overall, this places OCBC in the middle in terms of dividend distribution, with DBS being the best and UOB being the worst.
Outlook
Going forward, it is anyone’s guess how the banks will fare, but it appears that the managements are in consensus that interest rates will remain elevated, with banks expecting further increases in their NIM, at least for the first half of 2023.
If this is the case, we may see some extra growth in the near term, but at a considerably slower rate.
In the long term, maybe in the second half of this year onwards, NIM may begin to peak and drop as interest rates plateau while financing costs increase as banks try to keep customers from withdrawing deposits into more appealing investment vehicles.
If this occurs, we may start to see a decrease in bank profit unless they can balance it out with an increase in non-interest income.
Conclusion
In conclusion, all three local banks in Singapore have delivered record net profits and increased dividends, which should please their shareholders.
However, some may be more satisfied than others. DBS shareholders can be considered the happiest with the most significant dividend payout and best results. On the other hand, UOB shareholders may not be as pleased.
Looking ahead, it’s worth noting that while OCBC and UOB remain fairly priced, DBS continues to trade at a premium, as it has consistently done. Therefore, new investors or those planning to add to their investments need to take this into account when making their decisions.
Overall, the banking sector in Singapore remains robust, and it will be interesting to see how the banks adapt to the challenges and opportunities that lie ahead.
