OVERSEA-CHINESE BANKING CORP (SGX:O39)
OCBC - Widening Green Footprint
Green banking prospects, but watch for volatility
- OCBC (SGX:O39) has been strategically widening their Green banking franchise through increasing sustainability-linked funding & product volumes. But it is still exposed to multiple ESG risks – particularly contagion from its customers. The group may also face cyber-security and data protection risks as banking increasingly becomes digital, which is being accelerated by COVID-19.
- Overall, we believe OCBC’s ESG risks are typical for a D-SIB operating in Singapore or Malaysia.
- Strong capital levels and balance sheet liquidity should provide regional opportunities as economies open up. But volatility in its insurance business and trading income may lower near term earnings visibility. Maintain HOLD.
Expanding Green banking footprint
- Sustainable financial commitments made up 30% of incremental loans in 2019. It has set a target of reaching SGD25bn of sustainable and green investments by 2025 (with current portfolio around SGD11bn). The group is also leading Green-funding league tables regionally. We believe these should support OCBC in building a sustainability-linked banking franchise going forward. Strategically, this may provide market share opportunities, especially regionally where domestic banks may not have the expertise in executing such products.
Governance, cyber-security key risks
- OCBC has had two major service disruptions from IT infrastructure issues in the past ten-years. Increasing digitization may expose the group to risks on its technology infrastructure. The group has developed frameworks and policies to respond to these. However, we believe more disclosure is needed on its risk mitigation and control practices. We note OCBC does not produce a detailed, separate Sustainability Report. See more details in the Sustainability Tear sheet in PDF report attached below.
Near-term volatility. HOLD
- Nearly 60% of OCBC’s loan portfolio is outside Singapore. The group is well positioned from a capital and liquidity standpoint to benefit from supply chain relocations to ASEAN and MNCs diversifying funding sources, we believe. Nevertheless, its insurance business and trading activities opens it to relatively higher earnings volatility than peers – especially in current liquidity driven market conditions.
- Maintain HOLD.
- See OCBC Share Price; OCBC Target Price; OCBC Analyst Reports; OCBC Dividend History; OCBC Announcements; OCBC Latest News.
- OCBC to report 2Q20 results on 7 Aug. See 1H2020 Earnings Schedule for STI Constituents.
Thilan Wickramasinghe
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-07-15
SGX Stock
Analyst Report
9.460
SAME
9.460
