As we navigate a global financial landscape punctuated by uncertainties, such as the US Federal Reserve’s cautious approach to interest rate adjustments, investing in stable and robust financial institutions like Singapore’s leading banks — DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp (SGX: O39) and United Overseas Bank Ltd (SGX: U11) — becomes particularly compelling. The banks benefit from the potential longer period of high-interest rate environment, with the Fed currently maintaining the Fed Funds level at 5.25-5.50% and only foreseeing modest rate cuts towards the end of 2024. This setting provides a favorable backdrop for these banks, showcasing their resilience and adaptability. Here are three key reasons to invest in Singapore’s leading banks: DBS, OCBC and UOB.
1. Strong Institutional Support and High Market Activity
In 2024, DBS, OCBC, and UOB have drawn significant institutional investor interest, evidenced by a combined net institutional inflow of S$500 million as of May. This marked turnaround from the previous year’s net outflow signifies growing confidence in their financial stability and growth potential. Furthermore, these banks rank among the top-traded stocks in Singapore and across ASEAN exchanges, reflecting their high liquidity and active investor engagement. This reassures investors of the banks’ robustness and ease of managing investments.
2. Consistent Financial Performance and Growth
The trio has consistently demonstrated strong financial performance, with a notable increase in total returns—from 5.8% in 2023 to an impressive 15.6% by mid-2024. Since the end of 2019, they have maintained an average total return of 67%, highlighting their ability to generate substantial long-term value for shareholders. A significant driver of this performance is their Net Interest Income (NII), which saw a 46% increase in the first quarter of FY24 compared to 4QFY19. This growth in NII, propelled by higher interest rates and expanding loan volumes, underscores the banks’ adept management in a favorable economic environment.
3. Strategic Diversification of Income Sources
Beyond interest income, DBS, OCBC, and UOB have successfully diversified their revenue streams to include substantial Non-Interest Income (NOII), which encompasses fees and trading income from various sectors such as investment banking, wealth management, insurance, and transaction services. In 1QFY24 alone, NOII for the three banks reached S$4.4 billion, a 40% increase from 4QFY19. This diversification not only enhances the banks’ resilience against fluctuations in interest rates but also positions them to capitalize on broader financial services trends, providing a well-rounded portfolio of income sources.
Conclusion
The combination of strong institutional backing, consistent financial growth, and strategic income diversification makes DBS, OCBC, and UOB attractive options for investors looking to capitalize on the strengths of Singapore’s financial sector. These factors not only provide a stable investment climate but also promise continued growth and profitability in a dynamically evolving economic landscape.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.
