OCBC will take advantage of rising Asian wealth

PETALING JAYA: Singapore’s Oversea-Chinese Banking Corp (OCBC) plans to tap into several growth engines in the coming years, including increasing wealth in Asia through hubs in Singapore and Hong Kong, the Asean-China trade and investment, and the transition to sustainable development. low carbon world.

According to UOB Kay Hian (UOBKH) Research, the banking group will invest to strengthen its comprehensive regional franchise and accelerate its digital transformation.

With OCBC having a presence in Asean countries, including Malaysia, UOBKH Research believes that its outlook for Asean countries is positive.

This is due to the resilience of Asian economies, as well as the easing of social distancing measures and the resumption of air travel following the Covid-19 pandemic.

“In particular, Malaysia and Indonesia will benefit from the recovery in domestic consumption and rising energy and commodity prices,” he said in a research report.

According to the research house, management has forecast mid-to-high single-digit loan growth for 2022.

“The extent of loan growth depends on whether higher inflation affects customers’ expansion plans and the severity of slowing economic growth in response to higher interest rates,” said the research house.

The research house expects the net interest margin (NIM) to be higher between 1.55% and 1.58% from 1.54% in 2021, while credit costs are expected to be between 20 basis points (bps) and 25bps against 29bps in 2021.

The bank posted robust results for the first quarter of its fiscal year 2022 (1Q22), supported by a strong contribution from insurance as well as net trading income and a lower cost of credit.

OCBC reported a net profit of S$1.36 billion (RM4.27 billion) for 1Q22, down 10% year-on-year (yoy) but up 39% quarter-on-quarter (qoq).

Reported net income was better than expected as it beat UOBKH Research’s forecast of S$1.11 billion (RM3.49 billion).

The research house said loans were up 8% year-on-year and 1% year-on-year in 1Q22 as OCBC supported network customers in overseas expansion to acquire logistics, data centers and student housing.

Meanwhile, NIM rose three basis points qoq to 1.55%, benefiting from the 25 basis point hike in the federal funds rate in March and the associated increase in loan yields.

At the same time, there was a 10% year-on-year growth in its customer deposits, while its current and savings account or CASA ratio improved by 0.9 percentage points (ppt) year-on-year at 62.7%.

Fees fell 11% YoY but were flat QQ in 1Q22, while the contribution from Wealth Management fell 20% YoY but increased 3% QoQ.

However, OCBC’s assets under management or AUM grew 1% year-on-year to S$251 billion (RM789 billion).

“Wealthy clients have become cautious as they see the headwinds of the Russian-Ukrainian war and heightened geographic tension,” he said.

The bank’s contributions from life and general insurance held up at S$330 million (RM1.04 billion) in 1Q22, down 30% year-on-year but up 10 % quarter-on-quarter.

“It benefited from the mark-to-market gains from a decline in insurance contract liabilities due to the use of a higher discount rate to value those liabilities,” he said. .

“Net trading income was also high at S$225 million (RM707 million), he added.

The bank’s cost efficiency improved, with operating expenses down 7% quarter-on-quarter in 1Q22 due to lower discretionary spending and no one-time operating expenses compared to last quarter of its 2021 financial year.

However, the bank’s staff costs recorded a 7% year-on-year increase.

Speaking of non-performing loan (NPL) formation, the research house noted that NPL formation normalized at S$296m (RM930m) in 1Q22 after being hit in 4Q21 where NPLs were at S$1.06 billion (RM3.33 billion).

“The NPL balance slightly decreased by 0.7% QoQ due to recoveries and upgrades of S$240m (RM754m), mainly from the Offshore Support Vessel or OSV sector in Singapore “, did he declare.

The research house noted that the NPL ratio improved by 0.1 ppt qoq to 1.4%.

“Total provisions were 73% lower year-on-year at just S$44m (RM138m) as OCBC already made significant provisions for corporate loans in 4Q21,” he said. added.

The research house maintained its “buy” call with a target price of S$14.88 (RM46.80) per OCBC share.

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