OVERSEA-CHINESE BANKING CORPORATION LIMITED
Fitch Ratings has affirmed
The Outlook on the Long-Term IDR is Stable.
Key Rating Drivers
Ratings Reflect Standalone Strength: OCBC's Long-Term IDR is driven by its VR. The VR is in line with the implied VR and is underpinned by the bank's strong domestic franchise, diversified business model, and resilient financial performance throughout economic cycles.
Stable Operating Environment: We expect the operating environment for
Solid Franchise, Diversified Business: OCBC commands a strong market position in
Stable Risk Profile: OCBC has maintained steady underwriting standards amid global economic uncertainty to sustain healthy asset-quality performance. The 'a+' risk profile score is a notch lower than the business profile score, due partly to the bank's large overseas operations, which are mainly in markets rated lower than
Sound Asset Quality: The non-performing loan ratio remained low at 1.0% at end-1Q24 (end-2023: 1.0%). We expect it to rise moderately in the remainder of 2024, as the prolonged higher interest rates weigh on some borrowers' ability to service debt. However, we believe the bank maintains adequate general provisions against unexpected credit losses.
Improved Profitability: OCBC's operating profit/risk-weighted asset ratio rose to a record 3.6% in 2023 (2022: 3.0%), driven by a higher net interest margin and relatively benign credit quality. The strong momentum has carried into 1Q24. We expect the net interest margin to level off in the remainder of 2024 as global interest rates remain high, but net interest income for the full year should remain robust, and we forecast that double-digit fee income growth will sustain revenue upside.
Highest Capital Headroom: OCBC's common equity Tier 1 (CET1) ratio of 16.2% at end-1Q24 remained the highest among domestic peers. Fitch expects subdued loan growth and healthy internal capital generation to keep the ratio well above 15% over the next two years, despite the recently announced buyout of its insurance subsidiary. The loss-absorption cushion may diminish if OCBC makes a large acquisition, but this is not our base case.
Comfortable Liquidity Buffer: The loan/deposit ratio fell to 82% in 2023 (2022: 84%) on deceleration in loan growth and continued robust growth in fixed deposits. The all-currency liquidity coverage ratio of 155% and net stable funding ratio of 116% were comfortably above regulatory requirements.
Reliable State Support: The Government Support Rating (GSR) reflects the state's strong propensity to support OCBC, given its high systemic importance as a domestic systemically important bank. It also takes into account
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
IDRs and VR
A lower operating environment score of 'a+', due to a sharp economic slowdown in OCBC's key markets or significantly larger exposure to high-risk markets, may lead to a downgrade of the VR and Long-Term IDR. OCBC has the largest proportion of overseas loan exposure among local peers, resulting in the least headroom in its operating environment score before additional overseas expansion into regions with weaker scores than
OCBC's VR and IDRs could also come under pressure should financial metrics deteriorate significantly, for example, if:
the CET1 ratio declines and remains significantly below 14% without a credible plan to restore it to around this level, along with a weakening in the
the four-year average impaired-loan ratio worsens and rises above 2.0% on a sustained basis;
the four-year average operating profit/risk-weighted assets ratio falls below 2.0% for a sustained period.
Any downgrade of the Long-Term IDR would be limited to two notches unless the GSR is also downgraded.
Downgrades of the Short-Term IDR and short-term senior debt ratings appear unlikely in the near term, as it would require the Long-Term IDR to be downgraded by at least two notches to 'A' or worse, and the funding and liquidity score to simultaneously be lowered by at least one notch to 'a+'.
GSR
Any decline in the propensity of the authorities to provide extraordinary support could result in the GSR being downgraded. This could arise from a material reduction in OCBC's systemic importance or from the introduction of senior debt bail-in requirements in
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IDRs and VR
An upgrade of the VR and Long-Term IDR appears unlikely, as the ratings are already near the top of Fitch's global rated-bank universe. Long-term upward rating momentum would involve a stronger capital position and franchise outside
The Short-Term IDR is already at the highest level of the scale and cannot be upgraded.
GSR
The GSR may be upgraded if
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
OCBC's senior unsecured debt instruments represent its unsubordinated obligations and are equalised with its Long- and Short-Term IDRs.
OCBC's Basel III Tier 2 subordinated notes are rated two notches below the VR to account for loss severity risk, which reflects their subordinated status, the absence of going-concern loss-absorption features, and the partial or full write-down feature at the point of non-viability, as determined by the
The Basel III Additional Tier 1 securities are rated four notches below the VR, comprising two notches for non-performance risk and two notches for loss severity risk. This reflects the securities' deep subordination status and fully discretionary distributions.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The senior debt ratings are sensitive to OCBC's Long-Term IDR. The subordinated and Additional Tier 1 securities are sensitive to the VR.
VR ADJUSTMENTS
The business profile score of 'aa-' has been assigned above the 'a' category implied score for the following adjustment reason: business model (positive).
The capitalisation and leverage score of 'aa-' has been assigned above the implied category of 'a' for the following adjustment: leverage and risk-weight calculation (positive).
The funding and liquidity score of 'aa-' has been assigned above the implied category of 'a' for the following adjustment: deposit structure (positive).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
OCBC's GSR is linked to
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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