OCBC explains dividend policy to disgruntled investors

Disgruntled investors told OCBC bank bosses that the proposed dividend for the 2017 year was a far cry from the largesse being shown by DBS Bank and United Overseas Bank.
Disgruntled investors told OCBC bank bosses that the proposed dividend for the 2017 year was a far cry from the largesse being shown by DBS Bank and United Overseas Bank. PHOTO: ST FILE

OCBC chairman Ooi Sang Kuang outlined the bank's dividend policy yesterday after some investors complained that the lender is too stingy compared to its two local rivals.

Disgruntled investors told bank bosses at the annual general meeting that the proposed dividend for the 2017 year was a far cry from the largesse being shown by DBS Bank and United Overseas Bank (UOB).

Both those lenders have issued special dividends based on last year's results.

One OCBC shareholder even suggested yesterday that a special dividend be distributed to celebrate OCBC's 85th anniversary last year.

Mr Ooi told the 1,400 shareholders at the meeting that OCBC aims to ensure that dividends are sustainable and predictable.

He said the bank adjusts its dividend payout ratio to be higher in bad times, and lower in good times, while taking care to maintain enough capital to support business growth and strategic investments.

Mr Ooi noted that there are opportunities in its four markets - Singapore, Malaysia, Indonesia and Greater China - for it to grow organically.

In addition, the bank also needs to maintain prudent capital buffers to comply with Basel III requirements and cater for "black swan events".

"We think at this point in time, we don't really have excess capital. We have a level of capital that is adequate and comfortable in relation to the factors that I've mentioned," Mr Ooi said.

OCBC chief executive Samuel Tsien added that before last year, the dividend payout ratios for the other two local banks had been 30 per cent to 40 per cent of core earnings, whereas the reference rate became different in 2017. In comparison, OCBC has always maintained a dividend payout of 40 per cent to 50 per cent of its core earnings.

In the end, 99.96 per cent of shareholders present voted to approve the final dividend of 19 cents a share for the year to Dec 31, 2017.

The dividend is one cent higher than a year earlier, and brings its total payout in 2017 to 37 cents a share, up from 36 cents in 2016.

This was much lower than DBS', which last week at its own AGM approved a final dividend of 60 cents a share for last year - double that for 2016 - and a special dividend of 50 cents a share as a one-time return of capital and to mark the bank's 50th anniversary.

UOB has announced a final dividend of 45 cents a share for last year plus a special dividend of 20 cents, on top of an interim dividend of 35 cents that has been paid.

The disparity in dividends was despite comparable results across the three banks amid an emerging recovery in the oil and gas segment, with bad loans cushioned against further stress.

Mr Tsien reiterated that the risks in its energy book are "contained". The bank's annual report showed that transport, storage and communication - referring mostly to oil and gas assets in the offshore support services and vessels sub-sector - made up about $1.3 billion of the total $3.5 billion of the group's non-performing assets last year.

These vessels are still "intact and they are looking for charters", he said. As oil prices improve, there has been a significant increase in chartering inquiries and activities, but not yet any meaningful increase in charter rates.

"Ultimately these loans will depend on chartering of vessels to generate cash flow to pay (the loans) down. The fundamentals are now better, but we have not yet seen a significant pickup in cash flow for those loans to see any significant reduction."

OCBC shares added 15 cents to $13.80.

A version of this article appeared in the print edition of The Straits Times on May 01, 2018, with the headline 'OCBC explains dividend policy to disgruntled investors'. Print Edition | Subscribe