Summary notes on the Singapore Banks
OCBC
Last update: 2016 Aug 25th
Oversea-Chinese Banking Corp Limited (SGX: O39) is one of the biggest companies in Singapore’s stock market with a market capitalisation of S$35.3 billion. In fact, OCBC is Singapore’s second largest bank and longest established bank. OCBC has operations in 15 countries and counts insurer Great Eastern Holding Limited (SGX: G07) as a subsidiary.
Oversea-Chinese Banking Corp Limited (SGX: O39) is one of the biggest companies in Singapore’s stock market with a market capitalisation of S$35.3 billion. In fact, OCBC is Singapore’s second largest bank and longest established bank. OCBC has operations in 15 countries and counts insurer Great Eastern Holding Limited (SGX: G07) as a subsidiary.
Revenue Sources
Based on the latest 2015 annual report, its different revenue sources are as follows:
Observations
1. Net interest income = traditional banking business of borrowing and lending
Implications: A rising interest rate environment would be beneficial for the bank’s net interest income. Since the net interest income is heavily affected by the difference between the interest paid to borrow (i.e. from depositors and other financial institutions) and the interest it receives from loans it has given. The rates are affected by the prevailing interest rate environment.
2. Other revenue streams = non-interest income, activities in other types of banking activities that are not part of borrowing and lending.
Observations
1. Global Corporate / Investment Banking segment = institutional clients (large and small companies as well as governmental organisations) with banking services such as long-term project financing, short-term trade financing, and corporate finance advisory services.
2. Global Consumer / Private Banking segment = banking products and services to individual customers with banking services such as deposit products (savings accounts for instance), credit cards, and personal and housing loans.
3. Insurance = OCBC’s 88% ownership of Great Eastern Holding Limited (SGX: G07), one of the oldest insurance companies in Singapore with services such as in life assurance and general insurance.
4. OCBC Wing Hang comes from OCBC’s 2014 acquisition of the Hong Kong-based Wing Hang Bank, China based.
Topline Revenue
Recommended topline revenue figure is somewhere in the range of 4.5% or greater, relative to its assets.
Over the past five years, the bank’s revenue as a percentage of assets has hovered around the 2% mark.
Operational Highlights
1. Net interest income declined due to a drop in interest earning assets, which offset an improvement in the net interest margin.
2. Net interest margin of 1.68% for the second-quarter of 2016, up a notch from the 1.67% recorded in the second-quarter of 2015.
3. Non-interest income had declined due to lower contribution from Great Eastern, ]hampered by lower brokerage and investment banking income.
4. As of 30 June 2016, OCBC’s customer loans stood at $205 billion, down 2% from a year ago.
5. $246 billion in customer deposits, unchanged from a year ago.
6. The loan to deposit ratio was 82.2%, down from the 84.3% recorded last year.
7. Non-performing loan (NPL) ratio was 1.1%, a deterioration from the NPL ratio of 0.7% seen a year ago.
Based on regulatory requirements from the Monetary Authority of Singapore, banks in Singapore must have the following Capital Adequacy Ratios (CARs): Common Equity Tier 1 (CET1) CAR of at least 6.5%; Tier 1 CAR of at least 8%; and Total CAR of at least 10%.
OCBC’s CARs are way higher than the standards MAS have set. The bank reported CET1, Tier 1, and Total CARs of 14.9%, 15.5%, and 17.5% respectively.
No comments:
Post a Comment