Has OCBC share price peaked? After hitting a 5-year high of $13.30 on 31 July 2023, OCBC share price declined to $12.30 as at 18 August 2023. Year-to-date, OCBC share price remains flat despite the bank delivering good financial result on the back of the interest rate hikes. What could be the reasons for the sterile form of OCBC share price?
On 4 August 2023, investors got a rude shock as OCBC announced a net profit of just $1.71 billion for 2QFY2023. On a quarter-to-quarter basis, this represented a 9% decline. Among the three banks, OCBC Bank fared the worst as DBS’ net profit increased 2% while UOB declined by 6%. The weak result of OCBC’s 2QFY2023 was glossed over by the interim dividend, which was raised to $0.40, up 43% year-on-year.
OCBC attributed the second quarter income decline to higher allowances. Total allowances for 2QFY2023 were $252 million, up from $110 million in 1QFY2023. Among its non-performing assets, the largest amount came from Greater China ($829 million). Given the recent bankruptcy filed by Evergrande, investors could be concerned by OCBC’s exposure to the ailing Chinese real estate property sector. Hence, the current bearish form of OCBC share price.
According to the latest financial result, the amount of loan exposure to Greater China stood at $73 billion as at June 2023. 33% of the loans were booked outside of China but with credit risks traced to China while 9% of the loans were booked in China where credit risks reside. This means that the overall loan risk exposure to China amounted to $30.66 billion while the loan risk exposure for Hong Kong amounted to $35.77 billion.
Based on media reports, Evergrande had borrowed from various banks in China and Hong Kong. As Singapore banks typically do not disclose the identities of their clients (due to Banking Secrecy Act of Singapore), it is unclear to me if OCBC’s Wing Hang Bank in Hong Kong or OCBC’s Ningbo Bank in China had lent to Evergrande. If so, then the amount of allowances or non-performing assets may climb in the coming months.
OCBC owns two banks in China – Wing Hang Bank and a 20% stake in Bank of Ningbo. Thus, it is not unreasonable for investors to be worried over the potential fallout from the embattled Evergrande Group. Even though the Monetary Authority Singapore (MAS) had confirmed in 2021 that Singapore banks had “insignificant” exposure to Evergrande, this is a space that investors should monitor closely as there is a possibility that the collateral damages to OCBC’s income might be significant.Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am not vested in this counter at the moment.
OCBC share price looks to China growth
Whilst the ongoing interest rate hikes will be a formidable tailwind for OCBC share price, the lack of a significant bank asset acquisition under the tenure of CEO Helen Wong have left many investors feeling disturbed. After all, DBS and UOB had acquired Citibank’s assets in Taiwan and ASEAN respectively in 2022. Even more puzzling is the perennial shares buybacks by OCBC. As at 14 August 2023, the number of treasury shares stood at 19,499,057.
Typically, listed companies conduct shares buybacks for a few reasons. In this case, I honestly doubt the management does shares buybacks to strengthen OCBC share price nor to enhance the Return on Equity (ROE). Instead, the shares buybacks could be to build up the treasury shares to fund merger and acquisition activities. Previously, I was under the impression that OCBC might be privatizing Great Eastern Holdings. However, this did not happen. Instead, it is very likely that OCBC might be looking at using the [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]Lifetime Membership
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