Yahoo Finance Three Important Risks For DBS Group Holdings Ltd (SGX:D05) You Should Know
Improving credit quality as a result of post-recession recovery has led to a strong growth environment for financial institutions. Large banks such as DBS Group Holdings Ltd (SGX:D05), with a market capitalisation of S$70.79b, have benefited from this momentum. Economic growth fuels demand for loans and affects a borrower’s ability to repay which directly impacts the level of risk DBS Group Holdings takes on. As a consequence of the GFC, tighter regulations have led to more conservative lending practices by banks, leading to more prudent levels of risky assets on their balance sheets. The level of risky assets a bank holds on its accounts affects the attractiveness of the company as an investment. So today we will focus on three important metrics that are insightful proxies for risk. Check out our latest analysis for DBS Group Holdings
What Is An Appropriate Level Of Risk?
DBS Group Holdings is engaging in risking lending practices if it is over-exposed to bad debt. Typically, loans that are “bad” and cannot be recuperated by the bank should comprise less than 3% of its total loans. When these loans are not repaid, they are written off as expenses which comes directly out of the bank’s profit. With a ratio of 1.62%, the bank faces an appropriate level of bad loan, indicating prudent management and an industry-average risk of default.
Does DBS Group Holdings Understand Its Own Risks?
The ability for DBS Group Holdings to forecast and provision for its bad loans accurately serves as an indication for the bank’s understanding of its own level of risk. If it writes off more than 100% of the bad debt it provisioned for, then it has poorly anticipated the factors that may have contributed to a higher bad loan level which begs the question – does DBS Group Holdings understand its own risk?. DBS Group Holdings’s low bad loan to bad debt ratio of 86.25% means the bank has under-provisioned by -13.75%, indicating either an unexpected one-off occurence with defaults or poor bad debt provisioning.
Is There Enough Safe Form Of Borrowing?
DBS Group Holdings makes money by lending out its various forms of borrowings. Deposits from customers tend to bear the lowest risk given the relatively stable amount available and interest rate. As a rule, a bank is considered less risky if it holds a higher level of deposits. DBS Group Holdings’s total deposit level of 78.49% of its total liabilities is within the sensible margin for for financial institutions which generally has a ratio of 50%. This indicates a prudent level of the bank’s safer form of borrowing and a prudent level of risk.
Next Steps:
The recent acquisition is expected to bring more opportunities for D05, which in turn should lead to stronger growth. I would stay up-to-date on how this decision will affect the future of the business in terms of earnings growth and financial health. The list below is my go-to checks for D05. I use Simply Wall St’s platform to keep informed about any changes in the company and market sentiment, and also use their data as the basis for my articles.
Future Outlook: What are well-informed industry analysts predicting for D05’s future growth? Take a look at our free research report of analyst consensus for D05’s outlook.
Valuation: What is D05 worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether D05 is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
