Chin Yee
Group Chief Financial Officer
In my view, 2023 was a milestone year for OCBC. Not only did we achieve a strong set of results, we also made strategic moves that will drive our growth for years to come. The theme of this annual report – “The Strengths of One Group, The Power of One Brand” – captures our focus in a nutshell. We have doubled down on our unique One Group proposition to assist our customers as we pursue growth across ASEAN and Greater China, and will continue to do so, as guided by our corporate strategy.
A clear dividend policy resulting from focused capital management
Capital management is integral in supporting our growth ambitions. I shared last year that this is one of my key priorities as Group Chief Financial Officer. One year on, I am glad to report that we have made good progress. We have done so by adopting a more structured approach. Taking the cue from our corporate strategy, we can better forecast, plan and allocate our capital. In doing so, we aim to strike an optimal balance between maintaining a strong capital position to support business growth and buffer for uncertainties, and increasing shareholder returns. It was our focus on capital management that enabled us to announce a clear and transparent dividend policy in February 2023. We said that we aim to pay out 50% of our earnings to shareholders. This gives a clear indication of the confidence that we have in our ability to generate high-quality earnings and long-term growth, as well as our commitment to deliver long-term shareholder value.
Allocating capital to drive our ASEAN-Greater China ambitions
Good capital planning and resource allocation has also enabled us to take advantage of inorganic growth opportunities. When such opportunities arise, we will always evaluate them to gauge whether it is a right fit for our franchise and culture at the right price. It was in Indonesia – one of our core markets – that we found such an opportunity. At the end of 2023, we announced that, pending regulatory approvals, our subsidiary OCBC Indonesia would be acquiring PT Bank Commonwealth, Commonwealth Bank of Australia’s Indonesia unit. This acquisition is strategic given our focus on capturing ASEAN-Greater China trade, investment and wealth flows. PT Bank Commonwealth complements OCBC Indonesia’s business with little overlap in customer base – we will potentially add more than 1 million customers to our network from this acquisition. Their strengths in wealth management and auto joint financing will broaden our franchise. To me, this acquisition is a good example where we assessed the potential returns and determined the strategic fit based on our corporate strategy, before deciding that this is where we want to park our capital.
Great Eastern Holdings announced a strategic acquisition in 2023 as well – AmMetLife Insurance and AmMetLife Takaful in Malaysia – pending regulatory approvals. With this acquisition, Great Eastern Holdings would be able to offer its insurance and takaful solutions to three million AmBank customers, providing it with an expanded distribution network in Malaysia. Like the PT Bank Commonwealth acquisition, the synergies are apparent. As other opportunities come along in future, we will evaluate them using similar strategic lens.
Tapping innovative, diversified sources of funding
Another important part of capital management is finding innovative, diversified funding sources to support growth. In addition to our strong deposit base which currently forms a large proportion of our funding sources, we also tap on wholesale funding markets across currencies and capital instruments. There are two such issuances in 2023 that I would like to cite. In May, OCBC Sydney Branch priced A$1 billion of three-year senior floating rate green notes, the largest single-tranche deal by a Singaporean issuer in Australia. This issuance was primarily used to fund our Sydney Branch locally to support lending to a wide range of corporations – many of whom are our network corporate customers. This is our third green bond issuance, in line with our Group’s commitment on sustainability. In recent years, we do see a growing portfolio of Australian green projects that we can support to drive the country’s transition to a low-carbon economy.
Following this, in August, we priced a $550 million 4.50 percent perpetual capital securities first callable in 2029. This was the first Singapore Dollar Additional Tier 1 (AT1) bond since the write-down of certain AT1 bonds following the banking turmoil earlier in 2023. While there was apprehension around AT1 bonds following the write-down, the negative sentiment had calmed by then. The issuance attracted robust interest from investors as they searched for high-quality names to invest in. We believe our strong capital and liquidity positions, and high credit rating throughout the banking turmoil were important considerations and these gave investors the confidence to participate in our bonds. Notably, we achieved the tightest spread on record in the Singapore Dollar Bond Market for the AT1 issued. We will continue to calibrate our issuances to sustain a strong foothold and brand name in the bond market.
Solidifying our strengths and transforming for the future
What is next for Group Finance? The immediate challenge is softening interest rates. As our Group CEO Helen mentioned in her message, proactive management of our balance sheet has been crucial. It helped us make the most out of a rising interest rate environment. This was reflected in our record-high net interest income and significant net interest margin expansion in 2023. As interest rates come down, we must be similarly agile to seize a different set of opportunities. Can we build up our loan volume and capitalise on the revival of business and trade activities? How do we manage our funding sources and costs? Would we be able to capture the rising wealth, investment and insurance flows when market conditions improve? Therein lies the sound fundamentals of OCBC Group’s business structure. Our comprehensive banking, wealth management, insurance and asset management franchise makes us unique. When the business landscape is not conducive for a certain business pillar, we rely on the others for growth, and this is how we protect our earnings during different phases of the interest rate and business cycles.
When we talk about the future, digitalisation naturally comes into play. Group Finance is taking a three-pronged approach in our digitalisation journey. First, we continue to keep up with and invest in technology to refresh core applications to enable straight-through processing, richer analysis, timely reporting as well as nimble forecasting and planning. Second, we progressively deploy robotics process automation (RPA) to streamline finance processes and drive operational efficiencies. We already have quite a few RPAs in operation. The savings in man hours and derived efficiencies are substantial. Finally, we need to focus on strengthening our business analytics and machine learning capabilities to proactively provide insights and foresights to businesses and management for timely and effective decision making. This would require us to invest resources into leveraging new technologies and extracting more value from data. We have already made much progress on the data analytics front, and going forward we will invest in harnessing the transformative capabilities of generative AI.
I am looking forward with excitement to what the future has in store and the opportunities that await. But at this juncture, I would like to take a pause to thank all my colleagues in Group Finance and across OCBC, for the commitment, good work and strong collaboration in 2023. To the wider investment community as well – thank you for your support. We deeply value the active engagements that we had with you in 2023 which gave us ample opportunities to update you on OCBC’s developments. We look forward to working even more closely with you in future.