DBS Shares: Your Complete Guide 2021 [Updated]

I’m going to talk about DBS shares today.

DBS Bank (SGX:D05) is the titan of Singapore’s financial industry.

Before I get down into details, here’s what you need to know about banks.

Banks are simple businesses.

They take other people’s money (as deposits), then lend it out to companies and people who need money at a higher interest rate.

Now here’s why DBS can be at the top of their game.

The thing is, DBS has amassed a huge volume of deposits. 

In fact, DBS holds a 25% market share in Singapore’s deposits.

While OCBC and UOB has 17% and 21% market share respectively. 

You can find my OCBC Shares: Your Complete Guide 2021 here. 

DBS knows the key to a great banking business is not about lending money at the highest possible interest rate. 

Because that will be too risky.

But DBS focuses on collecting as much deposits instead.

I’ll explain.

Amassing huge deposits give DBS huge financial firepower. 

Or what I call “scalability”.

Years back, DBS bought over Post Office Savings (POSB) last time. 

And it was pivotal to DBS. 

Back then, in 1976, POSB had one million depositors and deposits crossed the S$1 billion mark.

POSB was flushed with deposits.

POSB was one of the biggest banks in Singapore then. 

And had the largest number of bank branches found in the neighbourhood of Singapore.

By buying over POSB, DBS can reach out to as many people as possible through POSB’s extensive network.

And over time, DBS built an impressive amount of deposits.

And over time, DBS also established itself as a safe and reliable bank. 

People trust the red and black logo.

This is DBS’s true “competitive moat” — A strong deposit franchise.

DBS can pay its depositors a very low interest rate this way.

Paying very cheap deposit rates, DBS can lend to high-quality, blue-chip companies at a low interest rate. 

And still make money.

This is called the net interest margin. It measures the profit difference in what DBS makes from lending out money and what interest rate DBS pays to depositors. 

Also, DBS return on equity (ROE) has averaged 12% (excluding the COVID pandemic in 2020).

ROE measures how much a bank makes for every dollar of shareholders’ money invested in the bank. 

With so much deposits, DBS has the firepower to lend to as many companies and individuals as possible. 

This is how DBS wins the volume game. 

And because it has so much deposits, DBS can choose to not lend out all their deposits.

And still make money. This makes it a safe bank.

For instance, in Dec 2020, DBS lends out S$371 billion to companies and individuals. 

But it holds a total S$465 billion of deposits (see Casa, FD and others below). 

DBS “loans-to-deposit” ratio is 80%, This means it lends out less than the money it keeps. 

Loans-to-deposits ratio is a great measure to see a bank’s financial position.

And that’s why DBS is resilient to many economic crisis.