SGX Market Updates

Singapore Banks Grow Greater China Business by 175% since 2010


PUBLISHED ON |

26 February 2020

  • Since 2010, DBS, OCBC & UOB have increased their combined annual income that is segmented to Greater China by 175%. Combined Greater China income grew from S$2.33 billion in 2010, to S$6.42 billion in 2019.

  • Of the three banks, OCBC saw the biggest increase from S$216 million to S$1.49 billion in its Greater China income. The biggest annual increase occurred in 2014 when OCBC grew its income by close to 150%, partly due to the acquisition of OCBC Wing Hang.

  • OCBC has also grown its Greater China income from 4% of  total income in 2010 to 14% of  total income in 2019. Recent years have seen OCBC Bank pursue partnerships to position itself as a key partner of choice for Chinese enterprises expanding into Southeast Asia.




Singapore’s three listed local banks, have a combined market value of S$155 billion and consist of DBS Group Holding (DBS), Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB). Together the three banks have contributed S$243.6 million in daily turnover in the 2020 year-to-date, which accounted for 20% of the total stock market turnover.

As reported here, the three banks averaged net profit growth of 10.1% in their FY19 (ending 31 Dec) from FY18, spanning 13.6% growth for DBS to 8.4% growth for both OCBC and UOB. All three banks also increased their total income that is related to the Greater China segment in FY19, with UOB seeing the greatest increase, which was up 8.4% from its FY18 Greater China operating income. 

In FY19 Greater China total income represented 27% of DBS’ total income, a similar percentage to its contribution in FY10. For OCBC and UOB, Greater China business has seen a gradual increase in its share of total income. OCBC’s Greater China income was 4% of its total income in FY10, which had grown to 14% in FY19. UOB had grown its Greater China operating income from 6% of total operating income in 2010, up to 9% in FY19.



OCBC Greater China Income Up Sevenfold since 2010

In FY10, OCBC segmented S$216 million of its total income to Greater China, which had grown close to sevenfold, to S$1,494 in FY19. OCBC’s biggest annual increase, in both absolute and percentage terms was in FY14, the same year that the Group acquired a majority stake in OCBC Wing Hang, which became a wholly-owned subsidiary on 15 October 2014. OCBC Wing Hang contributed S$94 million in FY14 and S$50 million in 4Q14 to the Group’s operating profit after allowances.

In October 2014, the Straits Times cited OCBC Group CEO Samuel Tsien’s observations that when looking at the origination of economic activity, China had become increasingly important. Mr Tsien explained that "China is important not only as an exporter, not only as a manufacturing factory for the world, it is also becoming a major consumer centre for the world. So there are a lot of import and export that are happening into China. And China has accumulated a lot of wealth as a result of that. Our view is that, and it has proven to be true, China will always look for an outlet to make use of that wealth it has accumulated - I'm talking about country reserves - so our feeling is that China will become a dominant force. And we have to find a way to establish a stronger presence in China in order to ride on this trend”.

A few years later, in a media release (click here) in 2018, Mr Tsien furthered that "Southeast Asia, which is along the 21st Century Maritime Silk Road, is a strategic economic corridor at the heart of China’s Belt and Road initiative. It is attractive to the many Chinese corporates looking to expand overseas, not least because it is also home to a large diaspora of ethnic Chinese who share the same culture, values and ancestry. OCBC’s home market, Singapore, is a global financial centre and an important regional gateway for trade, capital and investment flows from across the world”. 

The Greater China total income growth of the three banks, based on annual financial reports, is illustrated below.


DBS OCBC UOB Revenue from China



Despite the challenges ( and opportunities) of the past decade, China has become a strong economic power and its impact is not just felt in the operating statements of listed companies, but in the overall tempo of the global stock market and economy. Market capitalisation of Chinese stocks currently account for 9% of global market capitalisation, which is up from 6% at the end of 2010. Meanwhile, the Chinese economy now makes up 16% of Global GDP, which is up from 9% in 2010.



DBS,OCBC & UOB's COVID-19 Responses

Looking ahead, all three CEOs of the banks detailed their response to the COVID-19 virus with the release of their FY19 results:

  • DBS CEO Piyush Gupta stated in his FY19 presentation that if the COVID-19 virus was controlled by Summer, the FY20 revenue impact could be around 1% to 2%. The bank also detailed its initiatives for staff and customers in response to the virus (see PDF here for more).

  • The OCBC CEO’s FY19 presentation also detailed its comprehensive support measures with the COVID-19 virus, which include broad-ranging assistance for its stakeholders across Singapore, China, Hong Kong and Malaysia (see PDF here for more).

  • UOB CEO Wee Ee Cheong also noted with the unfolding impact of the COVID-19 epidemic, to help cushion its impact on its customers, UOB had implemented a range of relief assistance measures for affected companies, especially small and medium-sized enterprises, and mortgage relief for homeowners.



Comparatively High (& Sustainable) Yields

Since the end of 2010, the three banks have averaged 7.7% annualised total returns. Based on closing prices of 25 February, the three banks average a 4.9% dividend yield, based on respective distributions of the past 12 months.  Dividends have played an important part of the bank’s total returns since the end of 2010. Together all three stocks are amongst the 10 biggest constituents of the FTSE Developed Asia Pacific ex Japan Sustainable Yield Index with a combined weight of 8.3% as of 31 January.

The individual total returns, and current indicative dividend yields of the three banks are illustrated below. 


DBS OCBC UOB Total Returns Dividend Yield



Note that based on intraday trading prices as of 2:30pm, the average 12 month yield of the three banks has ticked above 5.00% to 5.02% (4.97% for DBS, 4.90% for OCBC and 5.20% for UOB). Globally, the current median dividend yield of the banking sector is 3.20%.







This article is provided by SGX My Gateway.



SGX My Gateway

SGX's investor education portal with market, product and investment information and events. Sign up now at sgx.com/mygateway to receive our investment updates and economic calendar.

This document is not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Singapore Exchange Limited (“SGX”) to any registration or licensing requirement. This document is not an offer or solicitation to buy or sell, nor financial advice or recommendation for any investment product. This document is for general circulation only. It does not address the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a financial adviser regarding the suitability of any investment product before investing or adopting any investment strategies. Use of and/or reliance on this document is entirely at the reader’s own risk. Further information on this investment product may be obtained from www.sgx.com. Investment products are subject to significant investment risks, including the possible loss of the principal amount invested. Past performance of investment products is not indicative of their future performance. Examples provided are for illustrative purposes only. While each of SGX and its affiliates (collectively, the SGX Group Companies) have taken reasonable care to ensure the accuracy and completeness of the information provided, each of the SGX Group Companies disclaims any and all guarantees, representations and warranties, expressed or implied, in relation to this document and shall not be responsible or liable (whether under contract, tort (including negligence) or otherwise) for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind, including without limitation loss of profit, loss of reputation and loss of opportunity) suffered or incurred by any person due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information, or arising from and/or in connection with this document. The information in this document may have been obtained via third party sources and which have not been independently verified by any SGX Group Company. No SGX Group Company endorses or shall be liable for the content of information provided by third parties. The SGX Group Companies may deal in investment products in the usual course of their business, and may be on the opposite side of any trades. SGX is an exempt financial adviser under the Financial Advisers Act (Cap. 110) of Singapore. The information in this document is subject to change without notice. This document shall not be reproduced, republished, uploaded, linked, posted, transmitted, adapted, copied, translated, modified, edited or otherwise displayed or distributed in any manner without SGX’s prior written consent.












Stock / REIT Search

Advertisement

Advertisement