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Oversea-Chinese Banking Corp Ltd O39

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Oversea-Chinese Banking Corporation's Third-Quarter Result Broadly in Line

Michael Wu, CAIA Senior Equity Analyst

Analyst Note

| Michael Wu, CAIA |

Oversea-Chinese Banking Corporation’s third-quarter result was broadly in line with net profit increasing by 5% quarter on quarter to SGD 1.22 billion, or 19% higher against the same period last year. While net profit continues to increase on a quarter-on-quarter basis as economic conditions around the region continue to improve, further lockdowns in Malaysia during the quarter did see a pick up in loans under relief from 7% last quarter to 20% of the Malaysia loan portfolio. Of this, around 80% are still performing and the loans were previously identified. At a group level, loans under relief makes up 2% of the total portfolio with 90% of the loans collateralised. The bank remains well provisioned with total allowance coverage on non-performing assets at close to 1 times. Non-performing loans was steady at 1.5% of total loans, and credit cost was 21 basis points in the third quarter, compared with 30 basis points last quarter. The decline in credit cost was due to a small reversal for Stage 1 and 2 allowances. We believe a pick-up in loans under relief is manageable as lockdowns in Malaysia have eased and economic activity slowly normalises. Still, we remain conservative with our credit cost assumption at 30 basis points of total loans. Our fair value estimate increases 5% to SGD 14.20 per share as we factor in higher associate income in fiscal 2021 and fee income in fiscal 2022. OCBC has underperformed its Singapore peers on a one-month and three-month basis, which is attributable to the bank’s exposure to Malaysia, in our view. We believe the risk priced into the current share price and the bank is trading on a fiscal 2021 dividend yield of 4.5%. The bank's common equity Tier 1 ratio of 15.5% remains above its earlier guided level of 12.5% to 13.5% and relative to peers with capital management initiative prospective at the end of fiscal 2021, in our view.

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Company Profile

Business Description

Based in Singapore, Oversea-Chinese Banking Corp. is a banking institution providing consumer and corporate banking and treasury services throughout Asia. OCBC Bank remains the longest-established Singapore bank, founded by the merger of three local banks in 1932. The group's operations include consumer banking; wealth management and private banking through the Bank of Singapore; small to midsize enterprise and business banking; corporate and institutional banking; and insurance through Great Eastern.

63 Chulia Street, No. 10-00 OCBC Centre East
Singapore, 049514, Singapore
T +65 63187222
Sector Financial Services
Industry Banks - Regional
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 30,538