Early yesterday morning (31 March 2022), Singapore’s longest established bank in Oversea-Chinese Banking Corporation Limited (SGX:O39), or OCBC for short, released its annual report for the financial year ended 31 December 2021 (i.e. FY2021.)
I have studied the bank’s report to receive the latest updates from the management and in today’s post, you’ll find a summary of the salient points I’ve compiled (for the benefit of those who do not have the time to go through it), along with details about its upcoming annual general meeting (AGM), along with questions I have submitted to the bank’s management alongside my registration to attend the meeting.
2021 Financial Performance:
- Total income: Up 5% to S$10,596m (FY2020: S$10,139m), contributed by a 14% climb in its non-interest income to a record S$4.74b (due to a 12% improvement in its net fee income to a new high of S$2.25b from broad-based growth on the back of higher transaction volumes and customer activities, along with wealth management fees surpassing the S$1b mark for the first time), a 64% growth in the bank’s profit from life insurance to S$1.14b (driven by favourable market conditions and higher operating profit from Great Eastern Holdings’ insurance business), and a 11% rise in its wealth management income.
- Net Profit: Up 35% to S$4,858m (FY2020: S$3,586m), underpinned by strong growth in its non-interest income and lower allowances (of just $873m, substantially lower than the S$2.04b a year ago), which offset a decline in net interest income amid a low interest rate environment.
- Return on Assets: Up 0.3 percentage points (pp) to 1.13% (FY2020: 0.85%)
- Return on Equity: Up 2.0pp to 9.6% (FY2020: 7.6%)
- Non-Performing Loans Ratio: Unchanged at 1.5%
- Common Equity Tier 1 Capital Adequacy Ratio: Up 0.3pp to 15.5% (FY2020: 15.2%)
- Dividend Per Share: 53.0 cents/share, which is the same as FY2019 (pre-Covid)
OCBC’s Progress in Terms of their 4 Strategic Priorities:
1. Forging a “One Group” Integrated Approach:
- Instituting structural re-organisation (with the appointment of a Group COO, Head of Global Wholesale Banking, and Head of Greater China) with clearly-defined responsibility and accountability across markets (through the enhancement of their matrix reporting structure from 1st January 2022 to achieve greater alignment of their Corporate Strategy and operations across the subsidiaries and markets.)
- Building a more diversified and comprehensive platform in Greater China (through the creation of a new Greater China division, expanding its team of corporate, commercial, and wealth management bankers, along with stepping-up of coverage teams to jointly service customers holistically), and enhance Group capabilities to support customers venturing into Singapore and Asean (where the bank broadened its China Business Office coverage in Malaysia, Indonesia, Thailand, Vietnam, and Myanmar.)
- Bringing together all wealth capabilities and harness synergies across the Group, with the launch of Group Wealth Platform in 2020 (and extending it across all customer segments from Bank of Singapore to OCBC premier customers in Feb 2022) that taps into OCBC’s wealth management expertise and synergies.
2. Seizing Opportunities and Unlocking Value from Asia’s Growth:
- Unlocking value from high-growth and new economy sectors including advanced smart manufacturing, real estate, infrastructure, data centres and logistics, telecommunication, digital services, healthcare, sustainability and green financing, mobility, as well as artificial intelligence and data-driven banking and wealth management services.
- Deepening connections with partners (with Bank of Ningbo, Bank of Shanghai, China Guangfa Bank, China CITIC Bank, and Ping An Bank) to increase customer base, and integrating OCBC into industry value chains (such as connecting trade finance digitalisation across the supply chain ecosystems for customers through their partnership in Trade Data Exchange and investment in trade finance blockchain platform, Kongo.)
- Providing support to increase ASEAN-Greater China flows to grow franchise along the regional corridor with the reorganisation of Greater China division, expansion of China Business Office coverage in ASEAN, augmentation of Greater China Transaction Banking and Investment Banking propositions.
- Enhancing Group wealth management capacities to capture growth, through the strengthening of hub capabilities across Singapore, Hong Kong, Dubai, and London, enlarging of Bank of Singapore’s dedicated Family Office Advisory Unit, and expanding of its offshore Premier Private Client and Premier Banking proposition in key Asian markets.
- Driving scalable growth through accelerating digitalisation, and enhancing product differentiation (with the bank expanding its RoboInvest thematic portfolio offerings for its customers to build personalised holdings according to their risk appetites and objectives.)
- Deepening its collaboration with regional banks (such as with Ping An Bank under China’s Wealth Management Connect scheme) and developing ecosystem partnerships (the bank partnered with the operator of electric vehicle charging solutions to provide electric vehicle loans and charging points, along with with Bank of Singapore expanding its partnerships and product ecosystems with independent asset managers, Bank of Ningbo, private markets, asset management, insurance, and family offices) to grow wallet share and drive client acquisition.
3. Accelerating Digital Transformation:
- Increasing its digital penetration of customer segments (through the acceleration of digital adoption from account opening to sales, along with the integration of business financial management capabilities into the digital banking business platform for SMEs) to deliver a superior customer experience.
- Faster speed to market, with the launch of several innovative first-to-market initiatives (including face recognition for ATM banking transactions in Singapore, direct payment of taxes via digital banking, along with the instant buying/selling of gold and silver paper bullion), enabled by strategic ecosystem, selective fintech and technology partnerships.
- Enhancing customer engagement, gaining new insights, and managing cyber risk – particularly, the bank made significant advancements in development and deployment of cloud infrastructure, data and artificial capabilities, and at the same time, augmented security, availability and reliability of data, systems, and application stability.
4. Driving Sustainability and Integrating ESG Across the Group:
- Formulated a new comprehensive Climate Strategy which outlines their 5-year plan to accelerate sustainable transactions (where the plan includes a new sustainable portfolio target of S$50b by 2025, retrofitting of assets to increase energy efficiency and investing in low-carbon technologies and renewables, prioritising procurement of more environmentally-friendly products and services, and the launch of OCBC Climate Index in August 2021 to measure awareness and influence behavioural change.)
- Developing and supporting their employees to help them realise their full potential (where the bank invested S$20m from 2018 to 2020 through OCBC Future Smart Programme to equip its employees with digital skills, along with committing another S$30m over 3 years for the second phase of OCBC Future Smart Programme, with an emphasis on deepening understanding in sustainability and how it applies into employees’ roles.)
- Supporting customers impacted by the pandemic (through delivering government loan relief programmes to individuals, SMEs, and corporate customers across core markets), along with actively engaging and involving communities (where the bank aims to support 1 million vulnerable individuals in core markets by 2023.)
- Strengthening their corporate governance – where the bank was the first to establish a dedicated Board Ethics and Conduct Committee, on top of its Culture and Conduct Dashboard (developed in 2021) to measure ethics and good conduct.
- Operating environment expected to improve if Covid-19 evolves into a more liveable endemic.
- However, geopolitical conflict in Eastern Europe is expected to exert a damping impact on global genomic growth and cause inflation to rise significantly following the sharp increase in prices of energy and commodities.
- On top of that, disruptions in global supply chain, trade settlements, and capital flows could place a further drag on global output growth over the contractionary impact of higher interest rates as monetary policy transitions towards normalisation in the US.
Details of OCBC’s AGM:
OCBC will be holding its 85th AGM on Friday, 22 April 2022, at 2.00pm. Due to the current safe management measures in place, the meeting will be conducted online (no physical attendance allowed), and shareholders who would like to attend can register here (take note that the deadline to do so will be on Tuesday, 19 April 2022, at 2.00pm.)
I have already registered to attend the meeting as a shareholder of the bank, along with the following 2 questions for the management:
- With China still in a lockdown (due to a resurgence in the number of cases in the community, particularly in business hubs like Shanghai), and borders pretty much remaining closed, coupled with Hong Kong still battling with yet another wave of Covid, may I know the extent to which OCBC’s businesses will be affected (considering the bank’s bank’s focus is in the Greater China region.)
- In light of the situation between Russia and Ukraine, I’d like to find out if the bank have any clients with business exposure in either/both of the countries. And if so, may I know the risk level (in terms of capital.)
For those who are interested in reading a summary of the AGM (which I always do whenever I attend a company’s AGM/EGM), stay tuned for an update in due course.
Disclaimer: At the time of writing, I am a shareholder of Oversea-Chinese Banking Corporation Limited.
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