Oriental Bank of Commerce (OBC) delivered a weak core performance with reported loss of R1.3 billion (est. of earnings of R2billion), primarily led by weak core operating profit (-9% y-o-y to R5.5 billion) and high NPL provisions (R14.3 billion – second highest in the history of the bank; est. of R6.1 billion).
Slippages and net slippages were elevated at R27 billion and R24 billion (annualised slippage ratio of 7.3%), with slippages from restructured portfolio at R9.2 billion.
Restructured pool was at 4.5% of loans. NII was 13% below estimate, led by a 52bp q-o-q decline in NIM. This was on account of Rs 1.4 billion of reversal of interest on S4A and SDR accounts.Operating expenditure was 24% below estimate, as the bank changed its depreciation policy, leading to a write-back of R1.6 billion. Trading gains were high at R7 billion (est. of R3.2 billion; 129% of core operating profit). CASA grew strongly by 33%, with SA deposits up 37% y-o-y and CASA ratio up 580bp q-o-q to 32.3%.
Loan book declined 3% y-o-y. While the bank has already classified and provided a large proportion of its loan book as bad over last few quarters, a sharp rise in slippages is concerning. Despite undemanding valuations, we maintain ‘neutral’ due to its weak return profile.