OCBC buckles up for bumpy ride as credit quality deteriorates

Sluggish loan demand aggravates the situation.

All eyes are currently on the banking group as it is currently cornered by headwinds accelerating in all directions. Given its adequate capitalisation and proven risk management track record, can OCBC weather this storm?

According to analysts from Barclays, OCBC’s credit cycle is deteriorating as the NPL ratio ticks up.

“Management explained that the higher NPLs were largely due to a few large corporate exposures in oil and gas related industries and they have been actively managing this portfolio. Oil and gas exposure declined to 6% of total loans to $13b,” Barclays said.

Meanwhile, OCBC’s loan growth remain muted, registering a 1% uptick ytd, as economic headwinds and political issues strike the region.

“We believe demand for US$ financing will continue to slow given US$ appreciation against major currencies, leaving OCBC with excess US$ funding (US$ LDR was 66%, lowest level since disclosure began in 2007). Margin was 1bps lower q/q, at 1.66%, due to lower interbank yields and LDR,” Barclays said.