Following a meeting with OCBC’s management, RHB sees “no major surprises” ahead. The bank’s two-year, $2.5 billion capital return plan “is intact”, says RHB, and should help investors “tide through this uncertain period”.
That said, the bank has noticed “some cautiousness” among wealth management customers in 2Q2025 so far, says RHB. “But, on the flipside, this means OCBC’s clients are not highly leveraged.”
Around 60% of wealth management assets under management (AUM) are deployed in investment products. Amid the “steep fall” in interest rates year to date, management believes there could be improved wealth management opportunities ahead, especially if market sentiment picks up, according to RHB’s analysts.
RHB is sticking to its “neutral” call on OCBC with an unchanged $17.50 target price, or roughly 9% above its traded price, inclusive of a 6% projected FY2025 yield. RHB’s target price includes a 2% ESG premium based on RHB’s proprietary methodology.
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Key points
OCBC says 67% of its loan book is to clients that are more reliant on domestic demand, which are “more resilient”.
The bulk of OCBC’s Hong Kong dollar-denominated loan exposure is on floating rates. Hence the Hong Kong Interbank Offered Rate’s (HIBOR) recent sharp decline could lead to some asset yield pressure, notes RHB.
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That said, there are several mitigating factors. Its Hong Kong dollar mix is just 10% of loans and with the build-up of high-quality assets “largely done”, OCBC can “ease up” on deposit gathering, especially for costlier wholesale deposits, says RHB.
OCBC says it has not seen any particular areas coming under stress. RHB believes the drop in HIBOR should be positive, “at the margin”, for OCBC’s Hong Kong commercial real estate exposure and supportive of asset quality.
Also, OCBC has a “liquid” balance sheet, with 1Q2025 loan-to-deposit ratio (LDR) at 79%, notes RHB. “We see room for the LDR to rise.”
Finally, the relief from deposit rate cuts should start being felt, says RHB. OCBC’s net interest income (NII) sensitivity guidance is for $5 million per basis point (bp) of change in policy/benchmark rate.
According to RHB, OCBC thinks its 2025 credit cost guidance of 20 to 25 bps is intact and its general provisions over performing loans level of 0.9% is “adequate for now”.
Great Eastern
On June 6, OCBC announced it would support Great Eastern Holdings’ (GEH) proposal to delist with a $900 million conditional exit offer at $30.15 per share for the 6.28% GEH shares it does not own.
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RHB does not expect this to have a material impact on OCBC. “Assuming the privatisation route goes through, the impact to return on equity (ROE) and earnings is not expected to be material,” add the analysts, at less than a 1% increase to patmi.
While OCBC’s common equity tier-1 (CET-1) ratio could be reduced by some 40 bps, this should not derail its capital return plan, adds RHB.
Conversely, if GEH stays listed, OCBC will retain its economic interest in the firm despite holding Class C shares, says RHB. “There is no change to the bank’s share of the insurer’s profits it can recognise.”
As at 11am, OCBC shares are trading 2 cents lower, or 0.12% down, at $16.02.
