JPMorgan cuts OCBC to neutral, targets $8.30

Stock Name: OCBC Bk
Company Name: OVERSEA-CHINESE BANKING CORP

Research House: JP Morgan Chase

Price Call: HOLD

Target Price: 8.30

JPMorgan has downgraded Singapore’s Oversea-Chinese Banking Corp (OCBC.SI) to neutral from overweight and cut the price target to $8.30 from $11.00.

JPMorgan said it has cut OCBC’s earnings estimates by 28% for 2012 and 2013 on the back of slower loans growth and higher credit costs. The estimate reduction is part of an industry-wide revision amid increasing risks in the global economy.

While the greater focus on wealth management is a structural positive, it will lead to greater earnings cyclicality.

JP Morgan also noted that OCBC’s loan-to-deposit ratio, at 90%, makes it more difficult for the bank to increase lending further. For U.S. dollar-denominated loans, the loan-to-deposit ratio stood at 156%, the highest among Singapore’s three banks.

Intensifying competition for deposit across the lenders will lead to pressure on net interest margin, it added. 

At 9:43 a.m., OCBC shares were down 2.4% at $8.51. The stock has fallen nearly 14% so far this year.