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Steering OCBC through a complex world
IN today's complex environment, the company's board must embrace a culture of openness to debate to ensure the trade-offs in decisions are thought through and managed, said OCBC's chairman Ooi Sang Kuang. The bank is also looking long-term at its ability to offer empathy to clients struggling in a volatile environment brought on by the dramatic plunge in oil prices, and have that empathy extend to society at large, such that there is sustainability behind OCBC's engagement with Singapore.
"The issues that companies contend with today are complex. They may require significant trade-offs," Mr Ooi said in an interview with The Business Times, as the bank won gold for Best Managed Board in the Large-Cap category this year at the Singapore Corporate Awards.
"Finding that delicate balance to a solution requires us to draw on the collective insight and wisdom of all board members. As board members, we ask questions to clarify our thoughts, challenge our assumptions and open ourselves to new avenues of investigation, all of which go towards good and sound decision-making."
For regional bank OCBC, such current issues under debate include robustness of controls to meet stringent and more complex requirements and in particular, with regard to anti-money laundering rules, data protection, and cyber security, said Mr Ooi.
Growth issues surrounding China and fintech have also become more pressing in recent times.
"China's economic transformation and its impact on the Asean region are closely evaluated. There are also new challenges posed by fintech (financial technology) that have come under intense debate by the board, and risen up the board's agenda priority list," he said.
This comes as the dramatic plunge in oil price has hurt Singapore's oil-and-gas players, and by extension, Singapore lenders. Mr Ooi is clear that the board - while not managing the company - has provided oversight by setting overall risk appetite and parameter with limits of exposure to various industries, asset classes and customer segments. "While prudent risk management for a sound loan book is critical, equally important to the board is the empathy that OCBC shows to our customers given the dramatic and rapid shifts that can happen in an operating environment, in this instance, of the oil and gas industry. Few had anticipated such a drastic turn. Many well managed companies with a long history in the oil and gas sector have been greatly impacted," observed Mr Ooi.
"Under such circumstances, it is important that OCBC plays a proactive role to help our clients through the difficult period. At OCBC, we take a longer-term view and we proactively act as an agent for sustainable growth. We carefully evaluate where help is needed to see businesses through choppy waters so that they can slowly but surely regain their stability again."
OCBC's board is satisfied that "early and proactive actions" have been taken to mitigate the impact from the drop in oil prices as much as possible, including restructuring clients' credit facilities to rematch their cash flows, and providing space for them to renegotiate new terms of contracts.
Mr Ooi also noted that the bank's exposure to oil and gas is not significant, standing at about 6 per cent of total customer loans. As at end March 2016, of the non-performing loans recognised for the sector which was mostly in the offshore and related services sector, 61 per cent of it - or S$547 million in loans - was still being actively serviced. And 58 per cent - or S$520 million - is still servicing interest as well as principal.
"These figures reflect OCBC's prudent stance in managing the portfolio. The bank classifies all loans that have been restructured as non-performing even when interest servicing is met, and in most cases some principal as well," said Mr Ooi.
"Our stress tests, based on pessimistic assumptions of oil prices, indicate limited impact on the bank."
OCBC's board also deliberates on broader issues such as the adoption of Singapore's sustainability agenda.
"An agenda of significance in impact on our society is our role in promoting good governance in the business sector and in the economy. As a leading financial intermediary in Singapore and the Asian region, we engage many sectors of the economy and society. Indeed, we are an integral part of society with the position and ability to foster and influence sustainable growth and development," said Mr Ooi.
"Certainly, we can play an active role as a catalyst for spreading good governance across businesses and the society at large. This will lead to a more competitive Singapore economy. There has to be a certain empathy for the society because what is good for the economy and the society will eventually be good for the bank. This is the kind of sustainability that OCBC stands for. It goes beyond turning in profits, to supporting policies that will propel the economy and the society forward."
Addressing broadly his chairman's fees - which are the highest of the three Singapore banks - Mr Ooi noted that since 2012, the remuneration committee has not increased the fixed portion of the chairman's fee even as OCBC has grown over the years to become one of the largest financial services groups in the region and one of the largest companies in market capitalisation. He abstains from the deliberations and the decision-making process on the chairman's fees.
"In general, the fees granted by the board to its chairman reflect a number of factors. These include, among others, the scope of his or her responsibilities, the scale and complexity of the business, and the specific role of the chairman as well as the time the individual is expected to spend at the organisation," said Mr Ooi.
"Banking as an industry has grown in greater complexities, and faces very high compliance and regulatory requirements that call for the upholding of the highest corporate governance standards. The chairman of a bank must provide effective leadership, continually enhance board process, ensure that the board agenda is drawn to bring to the board for deliberation, in a timely manner, emerging challenges and strategic issues."