OCBC still plagued by challenges from Wing Hang Bank takeover

Despite beginning to deliver on some aspects.

When OCBC acquired Wing Hang Bank last year, it set itself up for a year of transition and challenges. In fact, analysts think that the acquisition overhang would last for more than a year and sometimes far longer.

According to Jefferies Singapore, though the bank is getting the quick wins (WHB's non-interest income was up 53% QoQ and LDR inched up 2ppt QoQ to 80.5%), the harder bits still needs to be addressed.

Jefferies says that first, WHB's deposit franchise is predominantly time deposit based and savings deposit ratio of 14% is below system share of 20%.

Second, onshore China entities are not yet integrated. The entities are engaged in different business lines (WHB in SME/retail while OCBC China is in corporate) and revenue can be in a state of flux when the two businesses are aligned.

Third, OCBC-WHB have still to fully adopt the group's risk management practices. According to the 2014 Annual report, it appears lending to institutional and corporate customers for OCBC-WHB is done by separate credit committee.

Fourth and lastly, HKMA's change in RWA weighting for HK mortgages in March will weigh in on CET1 accumulation and asset disposal are easier-said-than-done. Finally, AUM is unchanged at US$51B for the past few quarters. Also, the number of regional WM centres stayed unchanged at 52 from 2013; it would be nice to see some WHB branches being converted to WM centres. That said, management is cognizant and is introducing new products; for example, OCBC 360 will be introduced in WHB to shore up savings deposits.

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