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OCBC’s Share Price is Touching a 52-Week High: Can the Bank Continue to Do Well?

OCBC (TSI photo by Royston Yang)
OCBC (TSI photo by Royston Yang)

The local banks have delivered a spectacular performance for 2023.

Surging interest rates have lifted net interest margins across the board, resulting in a sharp jump in net interest income.

OCBC Ltd (SGX: O39) is no exception.

The lender saw its share price hit a 52-week high of S$13.89 recently and is up 5% year-to-date.

Investors, however, will be curious to know if the bank can continue with its strong performance.

Let’s find out.

A stellar set of earnings

OCBC ended 2023 with a bang as the bank released an impressive set of earnings.

Net interest income climbed 25% year on year to S$9.6 billion, buoyed by an improvement in its net interest margin (NIM) from 1.91% in 2022 to 2.28% in 2023.

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Non-interest income also served up a 7% year-on-year increase to S$3.9 billion, taking the bank’s total income up 20% year on year to S$13.5 billion.

The blue-chip lender’s net profit clocked in at a record S$7 billion for 2023, up 27% from a year ago.

A final dividend of S$0.42 was declared, slightly higher than the prior year’s S$0.40, taking the full-year dividend to S$0.82 or 53% of OCBC’s earnings.

Interest rates set to be “higher for longer”

With higher interest rates doing most of the heavy lifting, investors should be pleased to know that interest rates look set to stay higher for longer.

Earlier this week, the head of the US Federal Reserve, Jerome Powell, said that the fight against inflation could take “longer than expected”.

The central bank is looking for inflation to hit its long-term target of 2% but recent data shows that this process will take longer than anticipated.

As a result, investors now believe that an interest rate reduction will be pushed back to September instead of being done in June.

They are also betting on just one or two rate cuts for 2024, down from an initial six at the beginning of this year.

Should interest rates remain elevated, OCBC will benefit as its NIM will be maintained at current levels.

A sanguine outlook

CEO Helen Wong also offered a sanguine outlook for this year.

Even though global growth is expected to slow down in 2024, Asia should perform better.

OCBC believes that its NIM will hover in the range of 2.2% to 2.25% while credit costs will remain low at 0.2% to 0.25%, implying that the bank does not see distress among its borrowers.

A refreshed logo and new tagline

Source: OCBC 2023 CEO Presentation

OCBC unveiled a new logo and tagline in July 2023 (see above).

The new tagline now reads “For now, and beyond”, reflecting the bank’s DNA of always taking a long-term view in all its dealings and investments.

This rebranding is an extension of its One Group strategy and seeks to continuously improve the bank through its Purpose Values Ambition (PVA) activation.

To this end, OCBC will focus on four growth priorities to capture regional trade, investment, and wealth flows.

The first is to capture rising Asian wealth with its Singapore-Hong Kong hubs.

The second is to support ASEAN-Greater China trade and investment flows while the third involves unlocking value from new economy sectors.

The fourth pillar is to drive the group’s transition to a sustainable, low-carbon world.

Incremental revenue in the next three years

With this sharpened focus, OCBC expects to deliver S$3 billion in incremental revenue by 2025 on top of its current growth trajectory.

The bank will make further investments into its wholesale banking business by building up its transaction banking capabilities in Greater China with an investment of more than S$50 million over the next three years.

In tandem with this objective, OCBC will grow its pool of bankers to support its regional push.

It plans to increase the number of corporate and commercial bankers by 30% to around 400 this year.

For its Wealth Management arm, OCBC aims to double the assets under management (AUM) of its Premier Banking and Premier Private Client segments for Greater China by 2025.

Over in Singapore, the bank is looking to grow its private banking subsidiary’s AUM to US$145 billion by next year.

At the same time, OCBC is also growing through acquisitions.

The lender acquired PT Bank Commonwealth in Indonesia in November 2023 for S$191 million, adding more than one million customers to its network.

In October 2023, OCBC’s insurance arm, Great Eastern Holdings (SGX: G07), acquired AmMetLife Insurance and AmMetLife Takaful in Malaysia for approximately S$325 million.

Get Smart: Encouraging long-term prospects

OCBC is in a great position to benefit not just from higher interest rates, but also from its rebranding and refreshed strategy.

Investors need to be patient to see the fruits of these initiatives but it could be well worth the wait.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

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