Check out how Singapore banks fare in terms of asset quality and pre-provision operating profit

Guess which bank posted the highest PPoP growth?

UOB Kayhian reviewed the performance of the three Singapore banks based on: a) asset quality, and b) ability to generate growth in pre-provision operating profit (PPoP). 

According to the brokerage firm, NPL formation at DBS surged from 49bp in 2015 to 120bp in 2016 due to deterioration in asset quality from the oil & gas (O&G) sector. OCBC recognised NPLs from the O&G sector early since 3Q15.

"Thus, its NPL formation was relatively higher at 93bp in 2015 but relatively lower at 106bp in 2016. DBS’s NPL formation is lower at 85bp compared to OCBC’s 99bp if we compare the average NPL formation for 2015 and 2016."

Here's more from UOB Kayhian:

Write-offs heavier at DBS. OCBC achieved a high average recoveries and upgrades of 47bp during 2014-16. Conversely, DBS’s was lower at 21bp, but its write-offs were heavier at 30bp. Overall, OCBC is more conservative in recognising more NPLs but DBS is more proactive to write off and clean up NPLs.

Fastest PPoP growth at DBS. DBS generated the highest PPoP growth with a 3-year CAGR of 8%, vs 6.8% for OCBC and 4.5% for UOB.

We use PPoP/gross loans as an indicator of resiliency to withstand shocks from deterioration in asset quality. DBS had the highest PPoP/gross loans at 220bp in 2016 (OCBC: 214bp, UOB: 202bp) and 260bp in 1Q17 (OCBC: 225bp, UOB: 205bp). Also, DBS’s PPoP/gross loans is on an uptrend, compared to a downtrend for OCBC and UOB. For 1Q17, DBS' PPoP/gross loans would be slightly lower at 214.1bp if we exclude gain of S$350m from the disposal of PwC Building.

In terms of income mix, DBS’s reliance of net interest income is high at about 65% because its surplus deposits have been deployed in productive loans. OCBC has a broader base in non-interest income due to its insurance arm, Great Eastern. UOB has strong contribution from fee income, at 24% of total income