OCBC Bank (SGX:O39) published their latest annual report for the financial year 2019 ended 31 December 2019 two days ago (on 14 April 2020), and being a shareholder of the bank, I have gone through the report to learn about the latest developments, and also their outlook in the year ahead, from the bank’s top management.

I have taken notes of key pointers to take note of as an investor of the bank and you can check them out in today’s post:

Message from Chairman Ooi Sang Kuang and Group CEO Samuel N. Tsien:

  • In 2019, challenging environment as a result of escalating trade conflicts between US and China, disputes between US and its trading partners in Europe, uncertainties surrounding Brexit, social unrest in Hong Kong, and instability in Europe, resulted in global economic conditions weakening, and subsequently, the US Federal Reserve announced 3 interest rate cuts in the second half of the year. This negatively impacted the banking sector due to weaker net interest margins, and the weaker operating environment added further pressure on loan growth and asset quality.
  • However, OCBC’s diversified franchise across businesses and geographies, and sound strategic positioning have allowed them to deliver another consecutive year of record earnings – where its net profit rose 8% to a record S$4.87b, driven by robust performances across their banking, wealth management, and insurance businesses.
  • The bank’s return on equity in FY2019 was at 11.4%, with core earnings per share at S$1.14 (up 8% compared to the previous year.)
  • Healthy fundamentals allowed the Board to declare a final dividend payout of 28 Singapore cents/share (subject to approval by the bank’s shareholders in the upcoming annual general meeting), bringing the total dividend payout in FY2019 to 53 Singapore cents/share, a 23% rise from a total of 43 Singapore cents/share declared in the previous year.
  • During the year, the bank have launched a wide spectrum of digitally-enabled products for both their retail and corporate customers with many first-in-markets (such as being the first in Singapore to allow their customers to have a consolidated view of their account transactions and cards spending to help them manage their finances, and also the ability for their customers to scan a QR code using the OCBC Pay Anyone app to withdraw cash at their ATMs in Singapore.)
  • In light of the Covid-19 outbreak in Singapore, the bank have also engaged and provided customised financial assistance to customers whose operations are impacted.
  • Outlook in the year 2020 ahead is now heavily clouded by severe disruptions in the global supply chain, and the growing scale and magnitude of the impact from the outbreak as it manifested itself across the globe, creating a sharp fall-off in demands across many industries and businesses – among the worst hit are those in the retail, travel, hospitality, and transportation sectors.
  • Beyond the Covd-19 outbreak, other downside risks remain, including the upcoming US Presidential Election, phase 2 trade negotiations between US and China, uncertainties surrounding new agreement between the United Kingdom and the European Union, and social issues in Hong Kong. Also, in the longer term, risks from the impact of climate change and the increased risks of natural disasters to businesses.
  • Moving forward in the year ahead, the bank will continue to exercise heightened vigilance over their credit portfolio, and monitor for early signs of weaknesses while proactively engaging and supporting their customers. They will also be forging ahead with their digital transformation across the Group as they expand their digital platform and partnerships to advance the creation of a vibrant ecosystem with their partners.
  • On top of that, the bank also has a target to build a sustainable finance portfolio of S$10b by 2022 – at the end of 2019, their sustainable finance assets had totalled to more than S$8b, with close to S$4b in 2019 alone.

Impact on the Issuance of Digital Banking Licenses by the Monetary Authority of Singapore (MAS) on OCBC:

One of the questions that is of concern to shareholders is the impact of the new digital banks may have on the existing banks, such as OCBC.

Group CEO Samuel Tsien addressed this concern in the bank’s 2019 annual report, and I quote (this can be found in Page #18 of its 2019 annual report):

“Competition has always been intense for the banking industry. We will always invest, innovate and stay relevant to meet the evolving needs of our customers.

In a way, we welcome our new peers operating under the new digital licences to join us. We are partners and peers. We make financial services more complete for the community. A digital bank can serve segments which may currently be underserved. Outside of Singapore, they may even play a bigger role. Globally, 1.7 billion adults are estimated to be unbanked.

The cost model is very different for a digital bank than a conventional bank. The infrastructure set-up of a conventional bank has to be very comprehensive as it offers total relationship banking, deals with all types of customers and offers a wide variety of products. If one just focuses on a specific segment, the requirements would be less complex and, when supported by technology, it can be more cost efficient but the breadth of coverage will be narrower.

At OCBC, we are very clear – we want to serve the entire community. We deploy technology to digitalise our processes and channels to enhance customer experience, but we will not “digitise” our customers. Our banking is relationship based.

We are a bank, a digitally-empowered bank, centred on our customers, not a technology company. To support our customers better, we have accelerated our digital transformation journey through innovations and by forging new partnerships and ventures. Today, nine in 10 of our new SME business accounts are opened digitally. We now enable start-ups to open an account immediately after incorporation, and not even have to wait one day. We actively support the use of PayNow in Singapore, and as a result, about half of all PayNow corporate registrations are with us.

The application process for our consumer banking products is now entirely digitalised, paperless and fuss-free. Customers can now apply for and instantly use credit cards, debit cards, personal loans, bank accounts and lines of credit after their applications via digital channels.”

Postponement of the Upcoming Annual General Meeting (AGM):

In a separate note, the bank noted that, subject to further directions or statements that may be issued by the Ministry of Health or other relevant authorities in light of the ongoing Covid-19 situation from time-to-time, the bank intends to hold its AGM as soon as practicable, and no later than 29 June 2020.

At the time of writing, no dates have been fixed, and I will be providing further updates via The Singaporean Investor’s Telegram channel (you can follow the site’s broadcast channel here), as well as in InvestingNote (you can follow my updates in the site here) as soon as I have them.

You can read the full note from the bank regarding the postponement of the AGM here.

Download Your Copy of the Annual Report:

You can download your copy of OCBC’s latest 2019 annual report here.

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

Are You Worried about Not Having Enough Money for Retirement?

You're not alone. According to the OCBC Financial Wellness Index, only 62% of people in their 20s and 56% of people in their 30s are confident that they will have enough money to retire.

But there is still time to take action. One way to ensure that you have a comfortable retirement is to invest in real estate investment trusts (REITs).

In 'Building Your REIT-irement Portfolio' which I've authored, you will learn everything you need to know to build a successful REIT investment portfolio, including a list of 9 things to look at to determine whether a REIT is worthy of your investment, 1 simple method to help you maximise your returns from your REIT investment, 4 signs of 'red flags' to look out for and what you can do as a shareholder, and more!

You can find out more about the book, and grab your copy (ebook or physical book) here...