CIMB analysts worry over OCBC's asset quality

CIMB notes 3 key factors that make OCBC most vulnerable to ill effects of Euro crisis.

Here's from CIMB:

We are still wary of an eventual European banking crisis even if Asian corporate balance sheets are cashed
up and prepared.

We do expect the credit cycle to deteriorate but do not expect credit costs to merely simmer like the GFC, not balloon like Asian Financial Crisis.

OCBC rode through the GFC best (lowest NPL ratio), but it does not necessarily guarantee that it will emerge as the best credit risk yet again.

With the lowest provision coverage, least aggressive general provisioning in the last three years plus a nascent rising NPL trend, we think that OCBC’s earnings has the most headwinds from credit costs.

Less dollar funding to pursue

US$ lending opportunities Dollar liquidity is nowhere as tight as last year but if a crisis transpires, dollar liquidity could be an issue yet again. Dollar loans will then have the best pricing upside.

OCBC, like DBS, could have more limited volume upside drivers vs. UOB, since it has a higher USD-LDR. As such, we think that there is less likelihood for NII upside.

Tough markets for WM and insurance

OCBC’s strengths are its WM and Insurance franchise. Volatile markets make private clients risk averse and it
is difficult to milk the Bank of Singapore franchise in this environment.

Earnings contribution from GEH could likewise spring downside surprises in such markets. 

Also, sustained low interest rates and flat yield curves make it more difficult for insurance to price products and nake money.

We do not think the environment is great for OCBC’s main revenue engines. As capital markets whipsaw, we see more headwinds for OCBC’s markets-related revenues streams, vis-à-vis peers.