OCBC Bank - Maybank Research 2022-02-23: Too Much Of A Good Thing?

OVERSEA-CHINESE BANKING CORP (SGX:O39)

OCBC Bank - Too Much Of A Good Thing?

OCBC (SGX:O39) missed 2021 earnings. While rising rates could be a boon to interest income, their larger dependence on markets-linked income sources exposes it to volatility and lowers earnings visibility in the current geo-political backdrop.
There is limited guidance on its large CET1 capital base – be it for higher dividends or M&A. This could depress medium term ROEs vs peers.

While we do not expect a cap on growth from potential regulatory action against recent tech failures, it does create a negative newsflow overhang.

OCBC's management estimates a 100bps rise in interest rates could add ~S$670m to NII. In 2021, would have been an 11% NII jump. Nevertheless, OCBC is guiding for flat NIMs y-o-y, which may indicate competitive pressures.
Based on our macro 2022E SORA forecasts of +54bps y-o-y, we have raised 2022- 23E NIM growth assumptions from 5-9bps to 8-10bps.
On the other hand, close to 50% of OCBC’s non-interest income is linked to market volatility – insurance, trading, investment securities. For DBS (SGX:D05) and UOB (SGX:U11), this is 20-38%. In the current geo-political environment, this brings additional risks to earnings visibility and could offset NII gains, in our view.

OCBC is increasing investments in integration, technology and employee capabilities to drive Malaysia. With potentially stronger new strategy driven loan growth, risks of higher NPLs need to be considered.

We expect credit charges to fall from pandemic 2022-24E ROE to be 122-363bps below DBS and UOB. With 7% upside, downgrade OCBC to HOLD.
See

Thilan Wickramasinghe Maybank Research | https://www.maybank-ke.com.sg/ 2022-02-23

SGX Stock Analyst Report HOLD DOWNGRADE BUY 14.04 DOWN 14.670