Expect shareholder returns to rise in next decade despite slowdown in short-term growth

SINGAPORE (Dec 20): In the past 10 years, the local banks have given investors decent returns. DBS Group Holdings’ total shareholder returns stand at 157%, or a compound annual growth rate of 9.9%. Oversea-Chinese Banking Corp (OCBC) has returned 84.6% in the past decade, for a CAGR of 6.3%; and United Overseas Bank would have returned 99% in 10 years, or a CAGR of 7%. All three outperformed the Straits Times Index’s CAGR of 4.7% in the same period.

In the short term, banks are likely to remain profitable despite an economic slowdown in Singapore triggered by the US-China trade war, political unrest in Hong Kong and the lowering of interest rates by the US Federal Reserve thrice this year. Slower GDP growth usually results in lower demand for loans. Low interest rates have a negative impact on banks because they pressure their net interest margins. Slow loan growth and slimmer NIMs are negative for banks.