SINGAPORE (July 12): Credit Suisse is downgrading its rating on Oversea-Chinese Banking Corporation (OCBC) to “neutral” from “outperform” with a lower target price of $10.90 given the bank has limited scope to raise its dividends given its current capital position.
In a Wednesday report, analysts Danny Goh and Dawei Lee notes that OCBC’s CET1 ratio of 12.2% as at 1Q17 is the lowest among the three main Singapore banks.
The analysts also believe there could be downside risk to the management’s previous guidance for FY17 net interest margins (NIMs) to be at approximately 1.67%, similar to FY16 levels, given the divergence between local interest rates and US rates.
To reflect this divergence, they have reduced their FY17E NIM forecasts for the bank to 1.65% from 1.69% previously, while also tweaking non-interest income and operating expense assumptions to reduce their FY17/18 profits estimates by 1.2-2.2%.
“Unlike its peers who could potentially look to return capital to shareholders, we believe that OCBC is still exploring ways to further shore up its capital position through divestment of non-core assets, [and] risk-weighted asset (RWA) optimisation efforts such as moving Bank of Singapore to internal ratings based approach from standardised approach,” say Goh and Lee.
Shares of OCBC are trading six cents lower at $10.73 as of 12.20pm.
