What’s Coming Next For OCBC Bank And the Rest Of The STI?

Small, medium, and large companies alike in Singapore have been struggling for some time now, and OCBC Bank hasn’t been immune to the declines. Unfortunately, economic conditions in the region have been far from positive to say the least, and when it comes to corporate growth, it is something that economic conditions must support. Unfortunately for the STI as a whole, and companies in the banking and financial services sector like OCBC Bank, it seems as though more declines are on the horizons. Recent economic news was released from Singapore, showing that the economic struggles in the region are far from over. Today, we’ll talk about the data that was released, what it means for OCBC Bank moving forward, and what it means for the STI as a whole moving forward. So, let’s get right to it…

Recent Economic News From Singapore

As mentioned above, the economic conditions in the Singaporean region haven’t been positive to say the least. Unfortunately however, things seem to have gone from bad to worse with the country’s most recent economic release. In the first quarter, it was announced that the economy in Singapore grew by 1.8% on a year over year basis. At first glance, that seems like incredible growth. However, when we look at the quarter over quarter view, things aren’t quite as appealing as they seem.

On a quarter over quarter, seasonally-adjusted annualized basis, the fact that economic struggles in Singapore are far from over becomes incredibly clear. Looking at it from this angle, we see that the Singaporean economy actually only grew by 0.2% in the quarter. This shows a drastic slowdown from the 6.2% we saw in the previous quarter.

The Singaporean Ministry of Trade and Industry believes that the declines in economic growth are the result of global economic hardships. Here’s what the Ministry had to say in a recent note…

“The Global economic outlook has weakened since early 2016, with global growth for the year now expected to be broadly similar to that in 2015. In particular, the growth outlook for the advanced economies has deteriorated marginally…”

What This Means For OCBC Bank

When it comes to the banking and financial services sector, companies are heavily swayed by economic conditions in the region where they do their work. After all, banks make the majority of their money in two ways, and both of them are heavily affected by economic conditions…

  • Market Commissions – Investment banks make the most money when economic conditions are positive. That’s because these banks make their money through commissions on the investments their clients make. When economic conditions are positive, investors tend to take a more aggressive approach, leading to larger revenues for the banks they work with when making their investments. However, when economic conditions are negative, investors simply aren’t as active. This generally leads to declines for investment banks.
  • Interest On Loans – Another way that banks drive the money in is through interest on loans. When economic conditions are positive, consumers tend to take out more loans, and perhaps more importantly, pay their loans on time. However, under negative economic conditions, consumers are less likely to take out loans, and many loans go into default, harming banks.

Given the ways that banks like OCBC Bank make their money, it only makes sense that the tough economic news out of Singapore is likely to have an increasingly negative affect on the value of OCBC Bank and other banking stocks in the Singaporean region.

The STI As A Whole Is Likely To Continue Struggling

Throughout most of the year, the STI has been riding downtrends as it still works to recover from the global market declines felt early on. Unfortunately however, it seems as though more declines are coming. With tough economic conditions on the forefront, there’s simply not enough supporting growth in the index at the moment.

What Do You Think?

Where do you think OCBC Bank and the STI are headed moving forward? Let us know your opinion in the comments below!