DBS Group Knocked Back On Rates, But Credit And Long-Term Opportunity Are Sound

No bank is getting through this cycle unscathed, and DBS Group (OTCPK:DBSDY) is no exception. Not only is DBS seeing significant spread compression from weakening loan yields, loan demand has moderated some. On the positive side, the company’s investments and efforts into building a stronger fee-generating business base are paying off, digitalization is helping reduce costs and maintain better business activity relative to less-digitalized peers, and the credit evolution has so far been pretty good.

These shares are down about 20% since my last update on this Singaporean money-center bank. That’s not the performance I expected in a pre-COVID-19 scenario, but it as at least better than the average American bank’s performance over that period, not to mention better than pretty much all of its peers, including United Overseas (OTCPK:UOVEY), Standard Chartered (OTCPK:SCBFY), Bank Rakyat (OTCPK:BKRKY), and Bangkok Bank (OTCPK:BKKLY), while it has basically been even with OCBC (OTCPK:OVCHY).

I continue to believe that DBS Group is a solid long-term holding to consider, as the bank has significantly improved itself over the last decade-plus. In addition to leveraging global trade growth, DBS is well-placed to benefit from the growth of retail banking in Southeast Asia, with a predominantly digital focus that keeps costs low and tends to attract younger, wealthier customers. With solid prospects for mid-single-digit core growth after the post-COVID-19 recovery, I believe DBS Group is undervalued below the $70’s.

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DBS Group Knocked Back On Rates, But Credit And Long-Term Opportunity Are Sound