When The Edge Singapore caught up with Helen Wong, group CEO of Oversea-Chinese Banking Corp (OCBC), in Shanghai late last year, she had just flown in from Dubai, following the COP28 conference. The breakthrough at COP28 came in the form of an agreement to call time on fossil fuel, but Wong was drawn by potential breakthroughs of other kinds.
For example, she saw how the Japanese are experimenting with wind and water to generate hydrogen. “There is plenty of water because of the sea but one needs to have a process to take the salt away,” Wong muses. “I’m quite interested to follow up on this, I thought this is something interesting because eventually technology will help solve some problems,” she adds.
Despite the December chill of Shanghai, Wong is keenly aware that the global climate crisis is but just the next winter away. “COP reminds us the world is getting hotter. If we cannot control the temperature rise by 1.5°C, it becomes 2°C or 3°C and then every country will have a lot of problems,” Wong notes.
Wong was in Shanghai a day earlier to oversee the last part of a rebrand of OCBC on Dec 6 along with a reset of its strategy before flying to Xiamen for a board meeting. Part of the rebranding involves a new logo and a PVA or purpose, value and ambition statement.
In Shanghai, a spectacular lion dance accompanied the launch of the new logo and photo sessions with the entirety of the Shanghai office in a plethora of red in front of the OCBC building in Lujiazhui, Shanghai’s new financial district.
The rebranding signifies more than just enhancing brand equity or adopting a refreshed logo — it reflects a strategic reset communicated across OCBC’s key markets, including Hong Kong, Malaysia, and Indonesia.
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Wong is keenly focused on leveraging trade, investment and wealth movements between Greater China and Southeast Asia to generate substantial revenue, supporting her pledge to allocate 50% of the bank’s earnings as dividends.
Generous dividend policy
Indeed, Wong has become popular among investors and shareholders because she changed OCBC’s dividend policy to a payout ratio of 50%. In FY2022 ended December 2022, OCBC’s payout ratio was 53%. Previously, OCBC’s dividend payout ratio rarely topped 43%.
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“Dividends to our shareholders is something very important for us because that represents the value,” Wong says, referring to OCBC’s PVA statement. “If we can make the group bigger and have higher profits, and we stick to our 50% dividend payout policy, that means everybody gets more money.”
In Wong’s view, changing the dividend policy is her way of making a commitment to shareholders. “In the past, we did not have this built-in. If we can continue to grow the group, eventually, dividends should continue to grow. I think that has been reflected in the share price performance in particular after we made a very clear announcement of the 50% dividend policy.”
Singapore banks are among the highest rated in the region and Asia. Part of the reason is Singapore’s AAA rating by Moody’s, S&P and Fitch Ratings, only one of around nine countries to have a AAA rating. Since banks cannot be rated higher than the sovereign rating of the country, OCBC, at the issuer level, is rated “Aa1/AA–/AA–” by Moody’s, S&P, and Fitch respectively, all three with stable outlooks.
As an example of the quality of OCBC’s securities including perpetual securities, on Jan 9, OCBC issued NC5.75 Singapore dollar additional tier 1 (AT1) securities, rated Baa1 at 4.05%. The pricing was at the compressed end of the spectrum as OCBC is viewed as a highly-rated bank. The expected issue ratings for the notes are “Baa1/BBB–/BBB+” by Moody’s, S&P and Fitch, respectively.
“The proposed Singdollar AT1 issue is likely to expand the Tier 1 capital of the bank; note that OCBC has historically called its capital securities at the first allowed date,” says Rena Kwok, credit analyst at Bloomberg Intelligence. AT1 capital is loss-absorbing and ranks behind equities.
“We are a highly-rated bank so shareholders should be comfortable investing with us. We run risks prudently and our promise is to treat customers and shareholders fairly so that they will believe this is a very good company to invest in,” Wong reiterates.
The starting point of OCBC’s strategy reset and its new tagline “For Now, and Beyond” are the megatrends of change buffeting the world today. This is depicted by the sails in OCBC’s familiar logo, which is now in its fifth generation. These megatrends include a multipolar world, geopolitical tensions, the constant shifting sands of supply chains and trade patterns, and the likelihood of China no longer being the world’s growth engine.
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Instead, different growth engines within Asia are emerging, namely Asean and Indian subcontinent. Both regions have important roles in new supply chains. The rise of friend-shoring or near-shoring benefits Asean as it treads the fine line between Europe, the US and China. Companies from all three regions want to shift some of the supply chain into Asean as a risk mitigant.
To recap, regional trade, intra-Asean and intra-Asian trade are nothing new. However, the Regional Comprehensive Economic Partnership (RCEP) — which went into effect at the beginning of 2022 — is also likely to lead to an increasingly inclusive and open economic and trade relationship within the region. Both China and Asean are signatories of RCEP.
Asean has been China’s largest trading partner for two years running while China has been Asean’s largest trading partner for 13 straight years. “Asean has taken over from the EU as China’s largest trading partner since 4Q2019 and has remained China’s largest trading partner since then. As of 3Q2023, China-Asean bilateral trade accounted for 15% of China’s total goods trade,” notes Tommy Xie, head of Greater China economic research, OCBC.
When asked about global trends impacting OCBC, Wong says: “We’ve always mentioned geopolitical tensions and the high interest rate environment, watching out for recession or stagflation risk, and the impact on [trade, investment and wealth] flows.”
“We feel we are in the right place, even in difficult and challenging times because the intra-Asian flow is going to continue,” Wong continues, pointing out that trade has doubled between China and Asean within a decade.
Indeed, a Jan 12 report by Bank of America (BoA) says that Asian economies are emerging as significant players in international trade, investment, as well as the global value chain (GVC).
“Our analysis shows both complementary and substitution features within the China-Asean nexus. On one hand, we see intensified bilateral trade activities between China and Asean across industries. China has also become a larger intermediate products supplier as well as a foreign investor in Asean in both labour-intensive and capital-intensive manufacturing sectors. But at the same time, strategic sectors in China, notably electronics and electrical sectors, may face higher substitution risks from Asean economies,” says the BoA report by its GEM Asia economics team.
The most notable trend in 2023, though, is the slowdown in China and the hesitant recovery after the lifting of the pandemic lockdowns. Both the inability to recover quickly and geopolitical tensions have caused supply chains and the GVC to shift, and OCBC is looking to take advantage of this shift.
The BoA GEM Asia economics team says: “In particular, we expect Asean to see an accelerating pace of FDI [foreign direct investment] inflows into its resources, advanced manufacturing and related services sectors. The export sectors in Asean should enjoy faster growth across the board with support from China’s GVC exports. Such expected co-evolvement could post a ‘win-win’ scenario for both economies.”
According to the BoA report, a comparison of GVC exports over the past decade shows China playing an increasingly central role in global supply chains, even in the face of trade diversion, while Asean is assuming a larger role.
Despite the falling share of US imports, China’s global export share rose from 18.5% in 2013–2018 to 19.6% in 2019–2022. Meanwhile, Asean’s global export share rose from 8.2% to 9.4%, with the Philippines, Malaysia and especially Vietnam seeing notable export share gains (see sidebar on trade).
Wong knows a thing or two about China. She spent much of the 40 years of her banking career in Greater China, namely Hong Kong and mainland China, of which 27 years was at HSBC where her last role was chief executive of Greater China.
“If you look at the willingness of the Chinese to venture out, there were a few phases in the past. Initially, Chinese companies went abroad to look for resources; then China went out to look for technology. As China becomes more powerful, they’re going out for investment,” says Wong.
In her own experience since joining OCBC in 2020, Wong has seen Chinese companies buying up material in resource-rich Indonesia for electric vehicle factories. More recently, instead of buying technology and resources, Chinese companies are investing in Asean because they have the technology.
More than that, Wong sees in places such as Indonesia the potential she once saw in China (now with an ageing and shrinking population) many decades ago. In Indonesia, the Chinese are targeting young consumers with technologies that could enable the country to leapfrog old economic orthodoxies into a new economy comprising digital banks, e-commerce and social media.
Earlier last year, the bank arranged for 10 of the small to medium-sized tech companies in China to meet with 21 of its Indonesian customers. They were in medicine, fintech and other technology areas. Indonesia — like other Asean countries — has its own laws and regulations which companies need to navigate.
“Our Indonesian operations are very old. We are 80-plus years old. We introduce customers which suit the Chinese. The China+1 strategy is occurring with increasing speed and they are focusing on a few geographies that we have a presence,” Wong says. She reckons that Penang in Malaysia is of interest to the Chinese with its advanced manufacturing while Vietnam has become very much part of the GVC.
When Wong took on the group CEO role on April 15, 2021, OCBC’s regional footprint was already in place. It is one of the largest foreign banks in Malaysia where it operates as OCBC Malaysia and OCBC Al-Amin, an Islamic bank. The 90- or 110-year-old OCBC (depending on which point the counting starts) is the oldest homegrown bank in Singapore and has operated in Malaysia for that time as well.
In Indonesia, OCBC acquired PT Bank NISP in phases starting in 2004. It now owns more than 85% of NISP which was renamed PT Bank OCBC-NISP. NISP had been a joint-venture partner of OCBC’s since 1996.
With the recent rebranding, the entity is referred to as OCBC Indonesia. In November 2023, OCBC Indonesia announced the acquisition of PT Bank Commonwealth from the Commonwealth Bank of Australia.
Last year’s reset is part of OCBC’s effort to adopt the “one group” approach. “We have a very clear strategy with a platform for colleagues to work together, believing in the power of one group,” Wong says.
The “one group” approach is also embedded in OCBC’s PVA. As Wong describes, the purpose statement is to enable people and communities to realise their aspirations. “This includes stakeholders which are all employees, customers and shareholders,” she adds.
“It’s a very powerful, simple sentence and then we base our purpose on our five values, LIFRR. L stands for lasting values, I stand for integrity, F stands for forward-looking, and the two Rs stand for respect and responsibility. If we live up to the same values (the V in PVA), we can help fulfil our purpose statement with our ambition (the A in PVA) to be Asia’s leading financial services partner, for a sustainable future,” Wong describes.
3Q outperformance
In 3QFY2023, OCBC reported both q-o-q and y-o-y increases in net profit; held its NIMs (net interest margin) steady and eked out loan growth. The “one group” approach is an efficient way for the bank to operate and work together as one. As employees work easier, faster and better, OCBC can better manage its liquidity and funding including raising Casa debt issuance and so on. “And we are able to maximise capital efficiency so that we can generate more with less,” Wong says.
As part of the reset, OCBC isn’t just a service provider but a partner to its customers, she adds. “We feel that employees will be inspired, that they will be exposed to not just one role or job, but to many roles. Because we have this purpose, and we talk about an ecosystem, that means the people and the stakeholders you touch will be much wider as well. We want our people to be able to find a better career development in OCBC,” Wong elaborates.
Did the “one group” approach play a part in OCBC’s 3QFY2023 outperformance versus peers?
Risk management is a key pillar in outperformance as it stymies credit costs and helps to maintain a strong portfolio. The stronger the portfolio, the more customers the bank can “capture”, Wong believes. “We still have loan growth even in a challenging environment and we have additional deposit growth. We are very careful about managing our funding as well, including Casa and our own debt issuance. The balance is about maximising our capital so that we can generate more with less.”
Sustainability is not just about financing, although it is a very important part. “By getting ourselves squarely and firmly in the ecosystem we would then be able to maximise the value,” she adds, as the bank helps corporates and SMEs to transition out of a high carbon environment.
In her view, the various parts of the bank — risk management, loan growth, liquidity, fee income, sustainability, wealth management and so on — are part of the “one group” approach. Wong goes on to describe the importance of transaction banking and cash management as part of the “one group” approach.
Cash management leads to more low-cost Casa. “That’s why our NIM is quite well protected. We get more Casa not just from cash management but from our SME clients through our digital banking. Our SMEs opened accounts faster. We have a system to help our SME clients analyse their data so that they know how their business is performing,” Wong describes.
Take F&B outlets as an example. OCBC can capture the payments of all the F&B outlets of a client. With this data, the SME customer can target promotions or the use of certain credit cards or payment methods. “In 2022, in Singapore, we have pre-approved credit lines for SMEs based on data,” Wong reveals. This platform has been launched in Malaysia and is being rolled out in Hong Kong.
Banking across borders
During the interview, Wong mentions the importance of risk management several times. When a bank manages its credit well, it will have fewer provisions to make and more profits to distribute to shareholders. Frontline relationship managers want growth but risk managers are looking at what can grow. The “one group” approach gets them both in the same spectrum. In her view, the “one group” approach is a necessity in cross-border flows.
For instance, when a Chinese customer is encouraged to open his advanced manufacturing facility in Penang, who is remunerated? The relationship manager in Malaysia or the relationship manager in China?
“In this case, your management analysis becomes very important. If I am responsible for the risk in China, how do I work with the overseas team to assess the growth of the Malaysian entity?” she asks rhetorically. The risks that may surface in Malaysia are best assessed by the Malaysian team.
“We need to truly understand what we are exposed to, and how we make our clients successful. Every support function needs to be able to do that, for example, if I want to remunerate my Chinese colleagues because the customer is going overseas but the loan is booked in Malaysia, how do I encourage the staff to do well? Management information and management analysis become very important. Our relationship managers need to know how we have successfully covered the clients so that they bank with us in multiple jurisdictions and with multiple products,” Wong explains.
“When you know what the whole group is doing, you can allocate your resources and look after your risks better.”
In 2017, after raising its investment in Bank of Ningbo to 20%, OCBC and Bank of Ningbo signed a 10-year strategic cooperation agreement “to deepen collaboration across a broad range of business areas, intensify knowledge sharing and scale up staff training”. At the time, the announcement said that the “initiative accelerates the efforts of both banks in growing their businesses and serving the onshore and offshore needs of customers in China’s Greater Bay Area and Southeast Asia”.
When asked if OCBC planned a higher stake in Bank of Ningbo following the raising of ownership of commercial banks by foreign entities, Wong says: “It’s not something we can talk about much at the moment. We are quite happy with our relationship with Bank of Ningbo.”
She reveals that Bank Of Ningbo has been sending teams to Malaysia and Indonesia, while OCBC has benefited by “going deep into the China market. Through it and our own operations, we will be able to serve Chinese companies or MNCs who adopt the China + 1 strategy. In fact, we have won a major mandate for a US company in Singapore and we can help them look after some of their needs in other Asean countries.”
In 1HFY2023, OCBC’s associates — which is likely to be mainly Bank of Ningbo — contributed $510 million net of tax (up 2.2% y-o-y) to profit before tax of $4.329 billion (up 39.8% y-o-y). In 3QFY2023, OCBC reported a net profit of $1.81 billion, 21% higher y-o-y and 6% higher q-o-q. Net profit for the nine months of 2023 was $5.4 billion, up 32% y-o-y.
Analysts have pointed out that the anticipated interest rate downcycle will hurt Singapore banks. Rate cuts are expected to result in NIM compression and lower net interest income in 2H2024 and 2025, says Jonathan Koh, an analyst at UOB KayHian. “Our top pick is OCBC due to its commitment to maintain the dividend payout ratio at 50%, consistency in delivering growth in quarterly earnings, focus on trade and investment flows within Asean and a defensively low 2024 P/B of 1.06x. It has the highest CET1 CAR of 14.8% and lowest NPL (non-performing loan) ratio of 1.0% as of September 2023,” Koh writes in his report.
Although the interest rate cycle, and possibly loan growth, wealth management fees and other non-interest income may vary somewhat from bank to bank, OCBC has an advantage over peers, analysts say. Goldman Sachs, which downgraded United Overseas Bank U11 (UOB) to neutral from buy, and DBS Group Holdings to sell from neutral, has retained its buy on OCBC.
“We view dividend support as important as we head into a rate cut cycle, which should provide share price support. We view OCBC’s willingness and capability to increase dividend payout positively, expecting 60% in 2026 from 53% in 2022, which should remove the drag on ROE,” the Goldman Sachs report states. During OCBC’s 2QFY2023 results briefing,
Wong had already outlined that her strategic reset aims to generate an additional $3 billion in revenue over three years. “The $3 billion captures everything — cross-border investment and trade flows, the new economy as we serve customers better, sustainable financing. We are tracking quite well against the target. The additional revenue is how we can serve customers. If we can acquire more private banking customers who are business owners, they may consider banking with OCBC, leading to more business. It’s a web that captures many things. But our colleagues need to learn to be part of one group.”
