OCBC's Strategic Share Buybacks Signal Confidence in Southeast Asia's Growth

OCBC, Singapore’s second-largest bank by assets, has reaffirmed its commitment to shareholders with a recent SG$6.1 million share buyback, part of a broader SG$2.5 billion capital return program. The move underscores the bank’s confidence in its financial strength and its belief that its shares remain undervalued amid Southeast Asia’s economic recovery.

The Buyback in Context

On January 9, 2025, OCBC repurchased 350,000 ordinary shares at SGD 17.5 each, marking the latest step in its shareholder-friendly strategy. This transaction forms part of a 225 million-share repurchase mandate approved in April 2024, which allows the bank to buy back up to 5% of its issued capital. Despite this ambitious target, OCBC has been deliberate in its approach, repurchasing only 12.2 million shares (0.27% of issued shares) by early 2025. This cautious pace reflects a focus on preserving capital flexibility while navigating macroeconomic uncertainties.

The buyback is complemented by a robust dividend policy. In February 2025, OCBC proposed a final ordinary dividend of SGD 0.41 per share, alongside a special dividend of SGD 0.16, bringing total payouts to SGD 1.01 per share—60% of its FY2024 net profit. Combined with the buybacks, this program aims to deliver significant value to shareholders.

Why Now? The Financial Case for Buybacks

OCBC’s decision is underpinned by record financial performance. In FY2024, net profit rose 8% to SGD 7.59 billion, driven by:
- Record net interest income of SGD 9.76 billion (up 5% YoY), supported by a growing loan book.
- A 22% surge in non-interest income to SGD 4.72 billion, fueled by wealth management fees (up 22%) and strategic acquisitions like its increased stake in Great Eastern Holdings (GEH).
- Strong asset quality, with a non-performing loan (NPL) ratio of 0.9% and a common equity tier 1 (CET1) ratio of 15.1%—well above regulatory requirements.

The bank’s shares trade at a price-to-book (P/B) ratio of 1.2x, below its five-year average of 1.4x and lagging peers like DBS (1.6x) and UOB (1.5x). Management views this undervaluation as an opportunity to boost earnings per share (EPS) by reducing the share count. With 4.498 billion shares outstanding, even modest buybacks could amplify EPS growth, particularly in a low-interest-rate environment.

Risks and Regional Opportunities

While OCBC’s strategy is compelling, risks remain. Its largest loan segment—Singapore’s housing market—exposes it to property sector volatility. Additionally, geopolitical tensions and potential ASEAN economic slowdowns could impact loan growth. However, OCBC’s diversified income streams and regional footprint mitigate these risks.

• Wealth management: AUM rose 14% to SGD 299 billion, with fees contributing SGD 4.89 billion to revenue (34% of total).
• Sustainable financing: Loans grew 31% YoY to SGD 50 billion, targeting sectors like technology and energy.
• ASEAN expansion: The integration of PT Bank Commonwealth into OCBC Indonesia and partnerships in Vietnam position it to capture SME lending opportunities.

CEO Helen Wong emphasized the bank’s focus on “long-term capital efficiency,” noting that buybacks align with its disciplined approach to capital allocation.

Conclusion: A Strategic Bet on Value Creation

OCBC’s share buybacks and dividend hikes reflect a well-calculated strategy to reward shareholders while maintaining flexibility for growth. With a CET1 ratio of 17.1% (post-Basel III reforms), the bank is financially resilient to navigate challenges like NIM compression and rising operating costs.

The data supports this thesis:
- Share count reduction: Even a 5% buyback could boost EPS by ~5%, assuming stable earnings.
- Valuation upside: At 1.2x P/B, OCBC is undervalued relative to its peers and historical averages.
- Dividend yield: The 60% payout ratio translates to a ~5.9% yield, attractive in a low-rate environment.

While risks like Singapore’s housing market and geopolitical instability linger, OCBC’s diversified franchise and ASEAN leadership position it to capitalize on the region’s recovery. For investors, the buybacks signal a bank betting on its own future—and shareholders stand to gain.

In a landscape where Southeast Asia’s economic potential remains underappreciated by global markets, OCBC’s actions are both prudent and opportunistic. The bank’s disciplined capital management, paired with its regional dominance, makes it a compelling play on the region’s long-term growth.