Oversea-Chinese Banking Corp’s Fiscal 2021 Result in Line, Excess Capital Remains a Drag on ROE

While Oversea-Chinese Banking Corp’s fourth-quarter and full-year 2021 results were in line with our expectation, the lack of any capital management initiative, in our view, disappointed, and the bank continues to retain a high level of capital. Our fair value estimate is increased to SGD 16 from SGD 14.20 as we revise our net interest margin higher in the medium term and for net interest margin to increase one year earlier in 2022. Management guided net interest margin to be in the range of 1.50% to 1.55% and sensitivity of a 4.5-basis-point increase in net interest margin, for a 25-basis-point parallel upward shift in the yield curve. We expect net interest margin to increase by a total of 30 basis point over the explicit forecast period, compared with 12 basis point earlier. Our forecasts assume net interest margin to be at the high end of management guidance at 1.55% with full impact on the interest rate increase in 2022 to flow through in 2023, resulting in net interest margin of 1.70%.