It’s poised to see more asset quality deterioration.
With earnings visibility still weak and asset quality bound to further deteriorate, OCBC is on the brink of a watershed moment. According to a report by Maybank Kim Eng, how management navigates through its first crisis after taking over the helm will direct the bank’s market position in the coming years.
The report notes that though group NPLs have remained stable, OCBC should brace for further asset quality deterioration, especially in the transport sector and in Indonesia.
Moreover, OCBC management is of the belief that provisions are sufficient for now, and has been as proactive as possible. However, sinking oil prices are likely to bear down on the O&G support services segment, which is likely to be classified under the transport sector. OCBC’s NPL level in critical offshore and Indonesia is less than half that of UOB’s.
The report further notes that fully loaded CET1 improved to 11.8%, including the recognition of the revised definition of RWA to include loan commitments. As a result, RWAs surged by $2b. OCBC management expressed that it is comfortable with anything above 11.4%. The report asserts, though, that with current levels not too far off and $1.47b to be paid out as dividends, OCBC should keep a cautious eye on its lending.
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