HONGKONG (June 19): Oversea-Chinese Banking Corp is aiming to double profit before tax contributions from its business in China’s Greater Bay Area to $1 billion by 2023, its CEO Samuel Tsien told reporters at a press conference in Hong Kong on June 14.
This increased level of profits will be supported by a 15% per annum rise in loans in the GBA, from about $35 billion currently to some $80 billion by 2023. OCBC is also expected to see its headcount in the region rise over the next five years, from about 3,000 currently to 4,200. The group is budgeting to spend $200 million on its expansion drive in the GBA. “Of these investments, two-thirds is for IT and one-third for people,” says Tsien.
Last year, China began referring to a “Greater Bay Area” comprising Guangdong, Hong Kong and Macau. Since then, the term has come to represent a broad initiative to link up nine key cities in the Pearl River Delta region - namely, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen, and Zhaoqing - with Hong Kong and Macau, to form a formidable integrated economic and business hub. The GBA covers less than 1% of China’s land area and it is home to less than 5% of country’s total population; but it contributed some 12% of China’s GDP last year.
The nine PRD cities within the GBA alone are said to have chalked up GDP of US$1.1 trillion last year. That’s more than Indonesia’s GDP of US$1 trillion. By some estimates, the GBA’s GDP could hit US$2 trillion by 2020. That would be equivalent to the projected GDP of the Greater Tokyo Bay area, and significantly more than the projected GDP for the San Francisco Bay Area and the New York metropolitan area, of US$1.1 trillion and US$1.6 trillion, respectively.
Tsien figures OCBC is in strong position to capture the burgeoning regional flows of capital, trade and wealth created by expanding economic activity in the GBA. “It is one of the strongest banks in the world. It is one of the few AA-rated banks in the world,” he says. In addition, OCBC currently has 89 branches in the GBA, 11 of which are in the PRD area. More importantly, OCBC is a well-recognised bank in Southeast Asia, where it has some 470 branches. “One of the first areas the GBA is expected to increase [capital] flows with is the Southeast Asian region, the ASEAN region,” Tsien says. “OCBC is strong in Singapore, Malaysia, in Myanmar, in Thailand, Vietnam.”
Responding to questions from reporters, Tsien said that capital flows emanating from China’s GBA could be a particularly potent earnings driver for OCBC. These flows are related to China’s much-talked-about “One Belt One Road” initiative. While the BRI is widely associated with big infrastructure projects, it also includes other forms of low-key outward investment by China, according to Tsien. For instance, he notes that OCBC has facilitated investments by Chinese companies in alumina and zinc plants in Indonesia. “We are not only financing those plants, we are also capturing all of the trade business that comes along with them,” he says.
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For 1Q2018, OCBC reported a 29% y-o-y rise in net profit after tax to $1.11 billion. The improved performance was underpinned by strong net interest income growth, higher wealth management income, lower allowances and increased contributions from its overseas banking subsidiaries, OCBC said.
Shares in OCBC are down 4.2% this year. The stock is currently trading at 1.3 times its net asset value of $9.21 per share as at March 31 (before revaluation surplus).
