Formed in 1932 from the merger of 3 local banks, Oversea-Chinese Banking Corporation Limited (SGX:O39), or OCBC for short, is the longest established bank in Singapore. It is also the 2nd largest financial services group in Southeast Asia by assets. The Singapore bank is one of the world’s most highly-rated banks, where it was given a credit rating of Aa1 by Moody’s and AA- by both Fitch and S&P.

OCBC’s key markets are in Singapore, Malaysia, Indonesia, as well as in Greater China, where it offers a broad array of commercial banking, specialist financial and wealth management services, ranging from consumer, corporate, investment, private and transaction banking to treasury, insurance, asset management, and stockbroking services. Currently, the banks has close to 420 branches and representative offices in 19 countries and regions.

Finally, the bank is also a constituent of Singapore’s benchmark Straits Times Index (or STI for short) where it has the 2nd heaviest weightage (at 13.6% as at 08 April 2024; DBS has the heaviest weightage in the index at 21.5%).

Following the conclusion of the financial year on 31 December 2023 (i.e., FY2023), OCBC have published its annual report, which you will find the key highlights to in this post, together with details of its upcoming annual general meeting.

Let’s begin:

Summary of OCBC’s Annual Report for FY2023

Record Financial Results:

• Net profit rose to an all-time high of $7.02 billion, with Return on Equity at 13.7% (up from 11.1% in 2022).
• Total income was up 20% to $13.5 billion, on the back of broad-based growth – with net interest income reaching a new high, where it increased by 25% to $9.65 billion, driven by a 5% asset growth and a 37-basis point expansion in net interest margin in 2.28%; non-interest income also increased by 7% to $3.86 billion, largely attributed to improved trading income and investment gains.
• Cost-to-income ratio improved to 38.7%, as income growth far outpaced the increase in expenses.
• Capital and liquidity positions remained strong, with Common Equity Tier 1 Capital Adequacy Ratio at 15.9%, mainly attributable to profit accretion, RWA (Risk-Weighted Assets) optimisation, and positive movement at its fair value reserves (supported by an $839 million in net fair value gain on Fair Value through Other Comprehensive Income financial assets, compared to $2.42 billion of losses a year ago – reflecting higher mark-to-market gains and active positioning of the bank’s debt securities against the backdrop of a volatile market environment).
• Asset quality remained healthy with non-performing loan ratio dropping to 1.0% from 1.2% a year ago. Total credit costs were at 20 basis points, mainly comprising of allowances for non-impaired loans, as the bank continued to pre-emptively set aside allowances.
• Final dividend payout of 42.0 cents was declared, bringing the full-year 2023 dividend to 82.0 cents (up by 21% from 68.0 cents declared in 2022), and representing a payout ratio of 53% (in-line with the bank’s target to distribute a target payout of 50% to its shareholders, barring unforeseen circumstances).

Capitalising on Vast Opportunities in Asia and Beyond:

• Inclusive of Bank of Singapore (a standalone leading private bank in Asia), Great Eastern Holdings (the oldest and most established life insurance group in Singapore and Malaysia), and Lion Global Investors (one of the largest asset managers in Southeast Asia), OCBC Group has a strong presence and capabilities in the top 7 ASEAN markets.
• Pending regulatory approvals, OCBC Indonesia (previously known as OCBC NISP) will be acquiring PT Bank Commonwealth (which is Commonwealth Bank of Australia’s Indonesia unit), with more than 1 million customers added to the bank’s franchise as a result – where the bank’s capabilities in wealth management and auto joint financing will broaden OCBC Indonesia’s product offerings and diversify its customer acquisition channels.
• Great Eastern Holdings, through its subsidiaries in Malaysia, is set to acquire AmMetLife Insurance Berhad and AmMet Life Takaful Berhad for an estimated RM1.121 billion, pending regulatory approvals – the move will allow Great Eastern Holdings to offer its insurance and takaful solutions to AmBank’s 3 million customers, providing it with an expanded distribution network in Malaysia.
• In March 2023, the bank opened a new branch in Wuhan (being the capital city of Hubei, and one of China’s largest transport, industrial, and manufacturing hubs, Wuhan serves as an effective gateway to Hubei province and the Central China region for OCBC), and the bank currently have a total of 60 offices and branches in Mainland China, Hong Kong, and Macau.
• OCBC also has a 20% stake in Bank of Ningbo – which is one of the fastest growing commercial banks in China, as well as one of the country’s significant domestic banks. This broadens OCBC’s scope to support China’s businesses that wish to expand into ASEAN region, as well as support ASEAN businesses looking to enter the Chinese market.
• OCBC has offices in London, New York, and Sydney to support its network corporate customers in expanding and investing beyond Asia. This is on top of the Bank of Singapore having a presence in Dubai, London, and Luxembourg, allowing the Group to serve the Middle East and Europe regions, which have the third and fourth most ultra-high-net-worth individuals respectively.

Positioning for a Sustainable Future:

• A Board of Sustainability Committee was formed in February 2023, which will provide the board oversight of sustainability matters for OCBC.
• In September 2023, OCBC exceeded $50 billion in sustainable financing commitments, well ahead of its 2025 target.
• A Group Chief Sustainability Officer has been appointed in 2023, with one of the priorities being to fulfil OCBC’s commitments as a signatory (since 2022, and less than a year later, the bank announced science-based decarbonisation targets for 6 of the most greenhouse gas emission intensive sectors it financed to achieve net zero by 2050, and they are: Power [55% reduction by 2030, and 100% reduction by 2040], Oil and Gas [35% reduction by 2030, and 95% reduction by 2050], Real Estate [alignment delta ≤ 0 for both 2030 and 2050], Steel [13% reduction by 2030, and 94% reduction by 2050], Aviation [66% reduction by 2030, and 100% reduction by 2050], and Shipping [alignment delta ≤ 0 for both 2030 and 2050]) of the Net-Zero Banking Alliance (NZBA).
• Board composition is refreshed periodically to ensure a diverse and well-balanced representation of gender, experience, skills, and age.
• The bank have also invested $30 million through 2025 to help its employees progress in their careers and make them more resilient.
• In 2022, OCBC announced the completion of Phase One of its 7-year digital core roadmap, where it invested $250 million to accelerate digital transformation. Currently, Phase 2 is well under way, with the bank investing another $300 million between 2023 and 2025. This is on top of the bank strengthening its AI architecture – where there are more than 4 million decisions made by AI daily, and the management expect volumes to more than double in the next 12-24 months.

Outlook Ahead:

• Navigating the complex geopolitical environment in 2024 will continue to be very challenging.
• Notwithstanding the possibility of interest rate cuts over the course of the year, the fact is that interest rates will remain elevated and that will challenge financial abilities of some businesses and individuals to service their existing loans.
• Management will continue to be highly vigilant and nimble in taking the decisive action where needed, and expressed their confidence of the bank’s ability to deliver greater value into the future.

Details of OCBC’s 87th Annual General Meeting

When? Tuesday, 30 April 2024
Time? 2.00pm
Where? Sands Expo & Convention Centre, Level 4, Roselle and Simpor Ballrooms, 10 Bayfront Avenue, Singapore 018956

Do take note that the management will be giving a presentation of the bank’s financial performance from 1.00pm – 1.45pm on the very same day – which you, as a shareholder, can attend as well. Based on my experience from attending the AGM last year, they will go straight into the Q&A session and voting of the resolutions at 2pm.

No pre-registration is needed if your shares are held in a CDP account, as verification will be done on the spot. However, if your shares are held in a custodian account, you will need to contact your brokerage to appoint you as a proxy to attend the meeting.

Shareholders do not have the option to attend the meeting virtually.

Questions? You can send them via email at OCBCAGM2024@ocbc.com by 5pm on 18 April 2024. I have submitted the following question on the 2 acquisitions (1 by OCBC Indonesia, and 1 by the Malaysian subsidiaries of Great Eastern Holdings):

“Are there any indications when the regulators will give their “green light” on the following 2 acquisitions:

(i) PT Bank Commonwealth by OCBC Indonesia;
(ii) The acquisition of AmMetLife Insurance Berhad and AmMetLife Takaful Berhad by the Malaysian subsidiaries of Great Eastern Holdings.

Also, are there any projections on how much (in percentage) terms, will the acquisitions contribute to the bank’s total income for FY2024 ahead (assuming the acquisitions are completed in the financial year)?

[Update on 25 April 2024: OCBC have published their responses to questions submitted by shareholders (including the one I’ve asked about above) yesterday (24 April) evening, and you can find it in the PDF here.]

Closing Thoughts

With interest rates still at elevated levels in 2023 (and this is good for the banks as far as the growth of their net interest incomes are concerned), it is little surprise there that OCBC’s financial results for the year (compared to the year before) is a record breaking one – particularly, its net income rose to an all-time high of S$7.02 billion.

Dividend payout for the year was up by 21% to 82.0 cents, and this represented a payout ratio of about 53% – in-line with the management’s target to maintain a dividend payout ratio of about 50% (which was mentioned by the bank’s Chairman Mr Andrew Lee when a question about it was raised during its AGM last year).

Looking at the bank’s financial performances ahead, I am of the opinion that it will, at the very least, be about the same level as this year – no doubt the US Federal Reserve have signalled 3 interest rate cuts for the year (at the time of writing), but so far we have not seen any interest rate cuts just yet. Also, any interest rate cuts will likely (again, in my personal opinion) lead to an increase in loan volumes (barring any unforeseen circumstances) – which will support its net interest income.

In terms of its dividend payouts, my opinion is it will at least be able to match last year’s dividend payouts – the management did not declare any absolute values, just that they will maintain a payout ratio of 50%.

Finally, due to time constraints, I will not be attending this year’s AGM.

With that, I have come to the end of my share on key pointers to take note in Oversea-Chinese Banking Corporation’s latest annual report for FY2023. As always, I hope you have found the contents presented in this post useful. However, do take note that all opinions expressed above are purely for educational purposes only, and you should always do your own due diligence before making any investment decisions.

Related Documents

• Annual Report
• Letter to Shareholders
• Sustainability Report for FY2023
• Notice of AGM
• Proxy Form
• Request Form

Disclaimer: At the time of writing, I am a shareholder of Oversea-Chinese Banking Corporation Limited.

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