OCBC's earnings will suffer significantly if bad debts head higher.
Here's more from CIMB:
Kudos to deposit gathering efforts
We note OCBC’s initiatives in building up a base of low cost deposits. Efforts in recent years include Baby Bonus accounts and Frank for students and young adults. Coupled with sleek marketing campaigns, OCBC could gain traction with young depositors over time.
Fee income volatility
In a low interest rate environment, banks are focusing on non-interest income streams to provide earnings support.However, OCBC’s volatile non-interest income streams do not give us much confidence. In addition, OCBC has made low provisions over the past three years. The impact on its earnings could be significant if system bad debts head higher.
We think that freed-up capital from its sale of APB and FNN shares could act as ammunition for astute acquisitions in the coming downturn. OCBC has consistently stated that proceeds from its non-core sale will be re-invested in financial services. We think that a timely acquisition at reasonable valuations may catalyse the share price.
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