Oversea-Chinese Banking Corp Limited (SGX: O39), or OCBC, is one of the three main local banks listed in Singapore. The company recently published its annual report for the year ending 31 December 2018. Given that reading an annual report is one of the best ways to keep up with a company’s developments, I decided to go through OCBC’s latest annual report to understand the company’s prospects and how it had performed in 2018.
Generally, when reading an annual report, I pay close attention to the letter to shareholders that the company’s chairman and/or CEO writes. Today I want to share one interesting thing from this letter: management’s outlook for 2019.
To start, the company gave an overview of the outlook of macro environment. Here are the key themes mentioned:
“Global economic outlook for 2019 has turned more challenging as growth momentum has softened. The slowdown of the world’s economy and in the major industrial countries is further clouded by the uncertainties surrounding the outcome of the United States-China trade conflict, the possibility of a disorderly withdrawal of the United Kingdom from the European Union and the stance of monetary tightening in the United States. Global geo-political rivalry and the diminishing support for globalisation following the rise of populism, are expected to exert further pressure to re-order the established international norms and multi-lateral arrangements. These developments have undermined the conduct of world trade and finance, and greatly dampened business and consumer confidence.
Then, the bank expands on one of the major themes, which is the U.S.-China trade war and how Asian countries will be affected:
“There however, remains hope that out of the intense negotiations, a trade deal between the United States and China could be reached. Geo-political tensions between the world’s two largest economic powers and stronger economic headwinds require us to be extra vigilant to the possible emerging risks.
Being highly trade-oriented, the underlying growth drivers of the Asian countries are expected to be negatively impacted by the global economic slowdown and the disruptions in trade and capital flows. The Asian region is however expected to benefit from the rearrangement out of China’s global supply chain, as manufacturing and services activities are realigned to other countries for cost competitiveness and country of origin. The fundamentals supporting Asia’s growth remain sound. Asian regional integration efforts have accelerated over the past years and this positive development is expected to be further supported by the collective commitments to conclude the Regional Comprehensive Economic Partnership (RCEP). On balance, Asia as a region can continue to outperform the rest of the world.”
And last but not least, how the bank is positioning itself in light of the trends above:
“The operating environment within our core markets in 2019 requires us to be alert to the risks and be proactive to seek growth opportunities. We will be resourceful in running our business while we take comfort that the OCBC Group enters 2019 on a sound and solid footing. We have built an integrated franchise and are now embarking on a transformation journey to embrace digital technology across the Group. We however remain focused on our strategy of deepening and growing the Group’s well-established franchise in key business segments and markets across our strengthened regional and international network. Our business strategy is well-supported by a strong balance sheet, ample capital and diversified sources of funding, while our established track record of cost discipline, as well as our prudent risk practices and sound credit management will enable us to continue to manage and grow our business despite an increasingly uncertain and volatile environment.
We will continue to invest in our brand, people, systems and technology. Collectively, we now have in place the reinforcing synergies of our multi-faceted assets to create long-term sustainable growth, support our customers and fulfill our obligations to our stakeholders.”
The Foolish bottom line
In sum, OCBC expects 2019 to be a challenging year, driven by major themes like a trade war, Brexit, slower economy growth, and monetary tightening. On its own, the bank is focused on growing its established segments in a prudent manner, as well as deepening its digital transformation.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore recommends Oversea-Chinese Banking Corp Limited