It’s déjà vu.
Just like last year, I was back in Marina Bay Sands again, a day after I fetched my daughter home from a show the previous evening.
The difference? She watched “Wicked” this round and I was attending OCBC Ltd (SGX: O39) AGM, instead of DBS Group (SGX: D05).
This was a meeting that I looked forward to attend. Primarily because this was the first AGM of a Singapore major bank, after the tariffs chaos.
Below are my key takeaways from the OCBC AGM, observed until my departure around 3 pm due to prior commitments. Kindly note that these are my personal interpretations of the presentations and discussions, and not transcripts.
Navigating the current turmoil
Tech Long (Head, Global Wholesale Banking) shared in his presentation that from the conservations with their customers, there are typically three strategies in which businesses tackle the issues.
- Renegotiate price: Sharing tariff burden among producers, middleman, brand owners and consumers
- Market diversification: Export to non-US markets
- Production optimisation: For companies with multiple factories: exports to the US supported by factories in lower tariff countries
Whichever strategy, it will negatively impact the businesses. He also opined that it’s premature to consider supply chain reconfiguration, given its complexities and trade policy uncertainty with US.
While acknowledging the increasing uncertainties highlighted, CEO Helen shared that OCBC’s strategic approach remains: “One Group”, AI, and sustainable net-zero future.
The “One Group” approach particularly stood out to me as it provides the company with the strategic flexibility to allocate capital across its diverse business units based on prevailing conditions.
For example, a Singaporean working in Hong Kong might desire a relationship manager there while maintaining their assets in Singapore.
I appreciated the clarification that “One Group” doesn’t imply uniformity of thought or a lack of diverse perspectives; rather, it’s about optimising resource availability for OCBC’s various businesses, ultimately benefiting both customers and the group.
Her steadfast commitment to a sustainable net-zero world is also noteworthy. I like how she remains unfazed by the reversal of environmental policies under the Trump administration, emphasising the continued demand for a transition towards a greener world.
NIM, ROE and profitability
Helen said that with the imminent announcement of 1Q 2025 coming up, she could not provide any guidance.
However, she offered some general insights into net interest margin (NIM). With the interest rate reduction since last year, a higher impact on NIM is anticipated.
This potential negative effect, though, could be partially offset by increased loan growth and fees income. Helen reaffirmed their expectation of three rate cuts for the full year.
Turning to return on equity (ROE), Helen explained that the planned capital distribution over the next two years is projected to reduce the capital base, thereby improving ROE by approximately 1%, assuming all other factors remain constant.
For the numerator of the ROE equation, focusing on profitability, Helen pointed to the high-ROE Wealth Management segment as a crucial growth engine, a perspective that resonates with DBS’s stance.
She clarified that this applies not only to Bank of Singapore but to the entire group. With Singapore and Hong Kong remaining key and growing financial centers, the group’s efforts last year to recruit more relationship managers for deployment in these locations, as well as Dubai, are strategic.
Notably, Helen pointed out that money might not stay permanent in one region and hence the importance of their “One Group” approach to effectively capture the flow of money across regions.
In response to shareholder concerns about the potential impact of currency movements on the bottom line, Helen assured them that managing such fluctuations is a routine part of their operations.
The group has a well-established hedging framework to address these movements. She pointed out that there isn’t a direct correlation between US dollar depreciation and OCBC’s profit, as it depends on the bank’s hedging strategies.
This also applies to RBM (Renminbi) assets, which constitute about 4% of the group’s total assets, a proportion similar to the global circulation of the RMB.
I heard enough
Ultimately, it’s clear that the future holds inherent uncertainties.
Just as I shared with my daughter last night – that despite life’s unknowns, we continue to make choices and live – I heard enough from Helen to believe that she and her team are well-prepared to navigate any upcoming turmoil.
To be clear, a downturn in world’s economic activities would impact OCBC in the short term, but I’m confident in their ability to weather the storm and emerge stronger over the next five to ten years.
Click here to access management’s presentation slides prior to the AGM.
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