Oversea-Chinese Banking Corp:Firing On All Cylinders as Econ

The Positives

    + Strong Insurance and Wealth Management. Profit from life assurance almost doubled YoYdue to a positive performance from Great Eastern Holdings’ investment portfolio as a result ofnarrowing credit spreads and gains from favourable interest rate movements. Wealthmanagement fee income grew 45% y-o-y as OCBC’s Bank of Singapore (“BOS”) AUM rose 46%y-o-y from US$61bn to US$89bn. Two-thirds of BOS’ AUM growth came from net new money.

    + NPL ratio stable and Oil and Gas exposures have declined. NPL ratio is stable at 1.3%, stableQoQ but higher than 1.1% in 2Q16. OCBC’s exposure to oil and gas loans have declined 9%QoQ as oil majors, and offshore support vessel (‘’OSV”) operators have deleveraged.

    + Stronger Net Interest Income (“NII”) was due to higher Loan-to-deposits ratio (“LDR”),gaping income and higher yields on customer loans. In our Banking Sector Report published inJanuary 2017, we explained how the expansion of LDR would help boost net interest incomegrowth. Management has indicated that they are comfortable to bring the LDR higher from thecurrent 85% to increase NII in the near term. OCBC was able to find opportunities to place outinterbank loans at a higher rate to achieve higher gaping income. OCBC was able to enjoybetter yields on customer loans by charging a higher spread on loans to customers’ overseasexpansion projects.

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