Brokers' take

OCBC > Neutral RHB Research Inst, Sept 27 Sept 27 close: S$10.82 Target price: S$11.50

THE US Federal Reserve cut the federal funds rate (FFR) at the mid-September FOMC meeting. Going forward, more cuts are expected. Given the historical positive correlation between the US FFR and 3-month SIBOR, we expect further softness in the latter. This is negative for the net interest margins (NIMs) of the three Singapore banks. Market talk of OCBC's interest in buying Bank Permata may also cap OCBC's share price.

Our sensitivity analysis shows that OCBC has sufficient capital to acquire Permata. Assuming an aggressive scenario where OCBC acquires 100 per cent of Permata at 1,700 rupiah per share in cash, this would hypothetically lower OCBC's common equity tier 1 ratio to 12.5 per cent (from pre-acquisition's 14.4 per cent), which is still higher than regulatory requirements.