Saturday, October 15, 2016

Some Bank Metrics

Was just thinking of comparing the local banks, but this time round it was just a quick one as opposed to a slightly more detailed one that I did 2 years ago.


DBS has the best CET 1 ratio, Basel III requires 7% by 2019, so no problem, all is good here. However, compared to some other banks that I happened to stumble upon, their CET 1 levels is nothing extraordinary.

Leverage Ratio (LERA) is pretty modest at between 7-8%, which implies a leverage of 12-14X. I think that this is actually pretty conservative, so that's a good thing to have.

Loan Coverage Ratio (LCR) for all banks are over 100%, but it's interesting to note that UOB is at 167%. Is this because they have a slightly higher NPL ratio?

CASA ratio is somewhat related to NIM because a higher CASA ratio usually means a higher NIM. It's not surprising that DBS has the highest CASA ratio by a stretch.

Notice how I left out any valuation metrics? There is nothing comparing to the current stock price! However, I think leaving out valuation metrics can be good for this phase because it helps you identify which company is the objectively better one. Of the 3, I have personal preference towards OCBC and then DBS.

Of course, once you add in the valuation element, you might find that the relatively higher or lower prices skew your decisions, which is because you are now having to decide how much certain factors are valued to you and if you are willing to pay for a better position, or are willing to be paid for a less favourable position.

Investors don't make money by choosing the best stocks with no regards for its price and valuation. They make money by weighing valuations against fundamentals and deciding if the risks are worth it - and that might be avoiding good, but expensive stocks, or that might be from buying bad, but cheap stocks.

Of course the idea situation is to buy a company with great fundamentals that is at cheap valuations, but... opportunities like that don't happen too often, I'd reckon.

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