OCBC's growth dampened as US Fed cuts rate

NIM forecast has been slashed to 1.68% as NPL ratio could rise to 1.9%.

OCBC’s net interest margin (NIM) is expected to shrink due to the US Federal Reserve’s federal funds rate (FFR), with provision assumptions likely to raise over global travel restrictions, according to a RHB report.

The US Fed announced another FFR cut on 15 March to the current upper bound of 0.25%, with the three-month Singapore Interbank Offered Rate (SIBOR) falling to 1.22%. With the two successive cuts, OCBC’s NIM forecast for 2020 has been reduced from 1.73% to 1.68%, said analyst Leng Seng Choon.

There is likely a 2% overall loan contraction for OCBC as investments are likely to dampen given the global travel restrictions and plunge in crude oil prices, with Malaysia alone accounting for 10.8% of the bank’s 2019 global loans.

OCBC could see an increase in NPL ratio to 1.9% and provisions by 10% to $1.08b (US$756m) as asset quality declines due to weak economic growth. Net profit forecast has been slashed 8% to $4.17b (US$2.92b) with further cuts if the coronavirus pandemic worsens.