To The Moon

$OVERSEA-CHINESE BANKING CORP(O39.SI)$appears to be under greater selling pressure compared with its local peers $DBS GROUP HOLDINGS LTD(D05.SI)$ and $UNITED OVERSEAS BANK LIMITED(U11.SI)$this morning. I took the opportunity to dollar cost average into OCBC by taking advantage of the price weakness. Thanks to Tiger Brokers' stock voucher and commission-free card which helped me to reduce my cost of ownership!

I took comfort that the bank has been repurchasing 200,000 shares daily since 30 August last month. Although the daily purchase quantity is small compared with its market capitalization, it is still a reassuring sign that the management believes that the bank is currently undervalued.

Despite headwinds from new launches of digital banks like GXS Bank established by the Grab-Singtel consortium and Trust Bank set up by Standard Chartered Bank and FairPrice Group, giving rise to concerns of attritions in Current Account Savings Account (CASA) deposits at the incumbents like DBS and OCBC, as market competition intensifies for retail deposits with attractive interest rates offered by the digital banks to attract new depositors made possible by their lower overhead costs given the absence of physical bank branches, DBS and OCBC should fare well.

At the end of the second quarter of 2022, CASA ratios stood at a high 72% for DBS, 61% for OCBC and 54.7% for UOB. The CASA ratio reflects the proportion of a bank's total deposits in both current and savings accounts. The reported long queues at banks as fixed deposit interest rates rise, despite the availability of online account opening and placement of FDs, also suggests that many depositors, especially the elderlies, remain more comfortable with physical banks and have more faith dealing face-to-face with the bank officers.

The rising US interest rates on the back of a hawkish Fed hiking rates to rein in a surging inflation will also help to improve the net interest margin. Hence, I remain optimistic of the performance of our local banks which are well-capitalized, especially OCBC which has the highest dividend yield among its peers despite lowest payout ratio, suggesting potential for further dividend growth.

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