OCBC (SGX:O39)’s 1Q23 earnings were ahead of MIBG and Street's forecast. Stronger NIMs, better trading and lower provisions helped.
Rising funding costs and limited opportunities to grow loans could cause NIM trajectory to turn negative. Fee income, led by wealth management, could provide some offset.
- Read this at SGinvestors.io -
We lower target price for OCBC to S$13.19. Maintain HOLD.
Higher NIMs, but falling momentum. Non-interest income recovering
While NIMs expanded +75bps y-o-y in 1Q23, they fell -1bps q-o-q. Fixed deposits have increased to 43% of total deposits (28% 1Q22). Loan-to-deposit ratio (79.2%) has fallen to a historical low. This could likely pressure NIM trajectory to turn sequentially negative.
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Slower macro conditions are likely to impact loan demand going forward, we believe. We have lowered loan growth forecast by 1-3% in 2023-25E.
Fee income saw a 14% q-o-q turnaround. Wealth Management was a key driver and indicates customers are taking more risk. Improved visibility on interest rates should catalyse further growth here, we believe.
Asset quality is a critical known unknown
Read more at SGinvestors.io.
Above is an excerpt from a report by Maybank Research. Clients of Maybank Securities may be the first to access the full PDF report @ https://www.maybanktrade.com.sg/.
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