UOB could be Singapore’s top ‘value-up’ play

DBS likely to outperform despite its seemingly high valuations, while OCBC may come to be viewed as the main value play among the 3 Singapore banks

During my brokerage days in the 1990s, some of the strongest banks in Malaysia used to make relatively large general provisions. While this reduced their reported earnings, I used to tell investors that it didn’t necessarily change the underlying value of their shares.

The high general provisions essentially masked the true profitability of these banks, and provided them with a buffer to ride through economic downturns. Indeed, the strongest banks usually traded at higher valuations than their peers.

Not everyone accepted this narrative, though. Some investors pushed back, asking why a bank would choose to deflate its earnings with high general provisions, unless it sensed trouble on the horizon. And, if things were about to go south, wouldn’t it be better to avoid being exposed to that bank in the first place?