DBS Group Holdings Limited (SGX: D05), United Overseas Bank Limited (SGX: U11), as well as Oversea-Chinese Banking Corporation Limited (SGX: O39) – as a Singaporean, these 3 banks needs no further introduction, where you can find their ATMs and bank branches scattered across the country.

The high interest rate environment (and its expected to remain as such in the near-term) continues to remain a tailwind for the banks, from a further growth in their net interest income (potentially).

Looking at the share prices of the 3 banks, they are currently hoovering at a 52-week high level – meaning to say that it’ll cost between S$3,200 and S$3,800 to invest in DBS or UOB, and around S$1,500 to invest in OCBC, based on their current prices at the time of writing of this post (as the minimum number of shares you need to buy if you want to invest in a Singapore-listed company is a hundred).

Hence, for those with limited funds, which one should they invest in? Naturally, you will want to go for one that has recorded the best growth in terms of performance over the years.

In this post, I will be putting the 3 banks’ financial results (where I will be looking at the growth of their net interest income, net fee and commission income, and other non-interest income), key financial ratios (where I will be looking at their net interest margin, return on equity, as well as non-performing loans ratio), and also its dividend payout to shareholders recorded over the last 5 years side-by-side to find out which has recorded the best growth.

Let’s begin:

Financial Performance

All 3 banks have a financial year end every 31 December.

Hence, I will be extracting their financial performance reported between FY2019 and FY2023 to find out which one has the best growth:

Net Interest Income (S$’mil):

Apart from UOB (which only saw its net interest income recording a year-on-year decline in FY2020), the other 2 banks (in DBS and OCBC) saw its net interest income falling in FY2020 and FY2021, as a result of a lower net interest margin as central banks globally cut interest rates as a result of the Covid-19 pandemic to support the economy.

In terms of the 3 banks’ compound annual growth rate (CAGR) in their net interest income, it is as follows – DBS at 7.2%, UOB at 8.1%, and OCBC at 8.8%.

The ‘winner’ here goes to OCBC.

Net Fee & Commission Income (S$’mil):

Among the 3 banks, DBS and UOB saw its net fee and commission income declined in 1 out of 5 years – for the case of DBS, it was in FY2022, due to declines in wealth management and investment banking fees, while for the case of UOB, it was in FY2020, due to declines in credit card fees as a result of the Covid-19 pandemic.

OCBC recorded a fall in its net fee and commission income in 3 out of 5 years – in FY2020 (due to a fall in loan-related fees and credit card fees on the back of lower transaction volumes), in FY2022 and FY2023 (due to lower wealth management fees attributable to global risk-off investment sentiments).

In terms of the CAGR of the 3 banks’ net fee and commission income, it is as follows: DBS at 2.1%, UOB at 1.92%, and OCBC at a negative figure.

The ‘winner’ here goes to DBS.

Other Non-Interest Income (S$’mil):

Both UOB and OCBC saw their other non-interest income recording a year-on-year drop in 2 out of 5 years.

For UOB, it was in FY2020 (due to lower trading income on the back of a volatile market) and FY2021 (due to a lower non-customer trading income as there were larger gains from bond sales and unrealised gains on hedges last year amid the lower interest environment);

For OCBC, it was in FY2020 (due to a decline in net trading income, primarily due to lower mark-to-market gains in Great Eastern Holdings’ investment portfolio, as well as decline in profits from life insurance, largely due to higher insurance contract liabilities resulting from a lower discount rate used to value these liabilities, in line with lower market interest rates) as well as in FY2022 (due to a net loss from the sale of investment securities, mainly attributable to bond portfolio rebalancing and positioning amid challenging market conditions).

On the other hand, DBS only saw its other non-interest income recording a year-on-year decline in FY2021, due to a fall in gains from investment securities as a result of a high base arising from market opportunities a year ago.

In terms of the 3 banks’ CAGR of their other non-interest income, it is as follows: DBS at 11.1%, UOB at 7.1%, and OCBC at a negative figure.

Once again, DBS is the ‘winner’ here.

Net Profit (S$’mil):

All 3 banks’ net profit declined in FY2020 due to higher credit allowances being factored in to account for potential risks arising from the pandemic.

In terms of their CAGR, it is as follows: DBS at 9.5%, UOB at 5.6%, and 7.6%.

DBS is once again the ‘winner’ here.

Key Financial Ratios

There are 3 key financial ratios that I will be looking at in this section – net interest margin, return on equity, and non-performing loans ratio:

Net Interest Margin (%):

DBS and OCBC are neck and neck in performance. DBS had the highest net interest margin in FY2019 and FY2020, while OCBC achieved the highest net interest margin in FY2022 and FY2023.

Return on Equity (%):

Comparing the return on equity of the 3 banks, I’m sure you will agree with me that DBS is the clear ‘winner’ here, as the bank has the highest return on equity among the 3 banks throughout the entire 5-year period I have looked at.

Non-Performing Loans Ratio (%):

Once again, its a ‘tie’ between DBS and OCBC, as comparatively, the 2 banks had recorded the lowest in terms of their non-performing ratios in 2 years – for the case of DBS, it is in FY2021 and FY2022, and for the case of OCBC, it is in FY2020 and FY2023.

Dividend Payouts

In terms of dividend payout frequency, currently, only DBS pays out a dividend on a quarterly basis, while UOB and OCBC pays out a dividend on a half-yearly basis.

The following table is a comparison of the 3 banks’ dividend payout over the last 5 years:

All 3 banks saw a decline in their dividend payout in FY2020 due to the Covid-19 pandemic, as banks are advised by the Monetary Authority of Singapore to cap their dividend payouts to 60% of the amount paid out a year ago for prudence.

For the case of DBS, the decline in FY2023 was due to a special dividend payout of $0.50 declared the year before. Stripping that out, its dividend in FY2023 improved by 28%.

In terms of the CAGR of the 3 banks’ dividend payout, it is as follows: DBS at 9.3%, UOB at 5.5%, and OCBC at 9.1%.

DBS once again emerges as the ‘winner’ in terms of growth in dividend payout, with OCBC coming in at 2nd place.

Closing Thoughts

DBS is the winner here – due to it emerging on top in terms of growth in its financial performance (where it come out on top in terms of growth in its net fee and commission income, other non-interest income, as well as net profit), return on equity, as well as in its dividend payout over the last 5 years.

For those who prefer more regular dividend payouts, DBS is a more favourable choice because it distributes dividends quarterly.

That said, in my opinion, OCBC has also displayed a solid performance over the past 5 years. It came out on top in terms of CAGR for net interest income over this period, and is closely matched with DBS in net interest margin and non-performing loans ratio. Additionally, its dividend payout has grown at a respectable rate of 9.1%.

With that, I have come to the end of my post today, where I look at the performance of the 3 banks over the last 5 years to answer the question of ‘which Singapore bank should I buy if I have limited funds’. That said, everything you have just read in this post are purely for educational purposes only, and they do not represent any buy or sell calls for any of the 3 banks. You should always do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am a shareholder of all the 3 Singapore-listed banks.

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