OCBC and UOB: Positive Earnings and Future Prospects

Following the recent release of quarterly results by the five REITs I owned, two of the three local banks Oversea-Chinese Banking Corporation (SGX: O39) and United Overseas Bank (SGX: U11) reported their results over the past two days. The last bank DBS Group Holdings (SGX: D01) will report its results next Tuesday.

In short, I am pleased with the performance of both banks.

OCBC 9.3% year-on-year (YoY) growth in net profit was a pleasant surprise to me. Despite a lower net interest margin (NIM), it managed to increase its net interest income (NII) YoY. The strong growth in non-interest income also provides reassurance that it can offset a possible drop in NII even if NIM declines in the coming year.

While UOB’s results were not as impressive as OCBC’s, they still represented a stable and commendable performance. True to its commitment to balancing growth with stability, the bank is prudent with its finances and takes a long-term view of growth.

There are reasons to be optimistic about even stronger performance ahead. Here are some takeaways from the media briefing webcast:

• The CEO believes the upcoming rate cut is beneficial for the economy.
• The CFO is confident the bank can manage the gradual decrease in NIM.
• Citi-integration costs are expected to be halved in the next few quarters, with only Vietnam’s integration remaining.
• Initial teething problems in Thailand have been resolved.
• There are early signs of increased cross-selling from the Citi-integration in Malaysia, Indonesia, and Thailand.
• The CEO’s response to recent retirement speculation resonated with me. He emphasised that the bank’s values and culture are more important than any individual, suggesting a focus on long-term sustainability.

I am confident that both banks can continue to perform well in the second half of the year and likely into the next year. With a 50% dividend payout policy, I expect gradual dividend increases. Additionally, I remain hopeful for a special dividend next year when UOB celebrates its 90th Anniversary.

Note: Just found OCBC webcast: https://www.youtube.com/watch?v=rdp7JEt6QGE

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