More reasons to invest in DBS, OCBC and UOB.

For readers who prefer reading, this is the transcript of a video I produced yesterday sharing more reasons why I am staying invested in Singapore banks?

During "Evening with AK and friends 2023" which happened last Wednesday on 10 May, I said I was staying invested in Singapore banks and would look to buy more on any significant weakness in their stock prices.

This is because Singapore banks still remain very profitable businesses despite challenges.

In several blogs and videos which I produced, I said that Net Interest Margins for DBS, OCBC and UOB likely peaked in Q1 2023.

Funding cost has finally caught up which will squeeze the said margin.

However, the banks will still benefit from the expanded net interest margin on a full-year basis.

For example, OCBC said in their Q1 2023 report that they expect Net Interest Margin to average 2.2% for the whole year.

This is higher than 1.55% for Q1 2022 last year.

DBS, OCBC and UOB have the ability to reward shareholders with higher dividends and they have also shown a willingness to do so.

As an investor for income, this makes me happy.

With dividend yields of 5% to 6% at a payout ratio of around 50%, Singapore banks provide investors with peace of mind.

Why would I invest in a healthcare REIT that has a distribution yield of less than 4%, especially when I remind myself that it has to distribute all or almost all of its operating income to achieve that?

Even as Singapore banks have demonstrated impressive growth, they have also remained cautious.

It is good to see that they admit they don't know what they don't know.

Loan to deposit ratios for all three banks are pretty low with DBS at 79%, UOB at 83% and OCBC at 79%.

Loan to deposit ratio is used to assess a bank's liquidity position by comparing total loans to total deposits.

Singapore banks will continue to grow their non-interest income, which is never a bad thing, of course.

This is especially when net interest margin growth will plateau.

In this aspect, UOB is likely to show the strongest growth.

This is thanks to their opportunistic acquisition of Citibank's retail business in 4 south east Asian countries.

In fact, UOB saw a 457% year on year growth in non-interest income in Q1 2023.

When we compare this to the 35% growth registered by DBS, we can see why there is good reason to be more bullish about UOB.

Singapore banks are also very well run and very efficient.

Their low cost to income ratio supports this observation.

DBS and OCBC both have ratios of below 40%. DBS at 38.1% while OCBC at 37.1%. UOB has its ratio at 40.9%.

This low cost to income ratio is possible in part due to the pre-emptive move by the banks to digitize early and to do it well.

It has reduced operating cost in no small way.

Singapore banks continue to report high return on equity. 

DBS has a ROE of 18.6%. OCBC has a ROE of 14.9%. UOB has a ROE of 14.7%.

Return on equity is a measure of how well a business uses equity or the money contributed by its shareholders plus its retained profits to produce income.

This is a reason why DBS has always traded at a high premium compared to OCBC and UOB. DBS has always shown that it has a greater ability to produce income.

This would appeal to investors who prefer a stronger growth angle which is probably the case for most institutional investors.

So, are you staying invested in Singapore banks?

If AK can do it, so can you!

I must remind myself of the most important investment idea from "Evening with AK and friends 2023." HERE.