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Ocbc Bank Is The Longest Established Finance Essay


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OCBC Bank is the longest established and the third largest bank in Singapore which controlled by LEE family. OCBC was established in 1932 through the amalgamation of the three former banks serving the Fujian community in Singapore which are Chinese Commercial Bank LTD (1912), Ho Hong Bank (1917) and Oversea-Chinese Bank (1919). In early 1970s, it was a new era in the banking history in Singapore as the Government encouraged foreign banks to set up offices in the new republic. As a result, OCBC bought the Four Seas Communication Bank which established in 1954 to prepare for the new competition.

In the early 1990s, the government-linked Keppel Group bought the Asian Commercial Bank and renamed it as Keppel Bank. In 1998, Keppel Bank further merged with the Tat Lee Bank to form Keppel Tat Lee Bank which subsequent acquired by the OCBC group. The OCBC group had growth its total assets to S$277 billion as at December 2011. It has a network more than 500 branches and representative office in 15 countries including Malaysia, China, Hong Kong, Japan, Australia, United Kingdom and United State of American. Nowadays, OCBC Bank was the second largest financial services group in Southeast Asia by assets and one of the world highest rating banks, with an Aa1 rating from Moody's. It was ranked by Bloomberg Market as the world's strongest bank in 2011.

OCBC Bank offered a wide range of financial services including consumer, corporate and private banking, global treasury, corporate finance, capital market, assets management and stock broking services. OCBC Bank's insurance subsidiary, Great Eastern Holding, is the largest insurance group in Singapore and Malaysia by assets. It assets management subsidiary, Lion Global Investors, is one of the largest private sector asset management companies in Southeast Asia. Private banking services are provided by subsidiary Bank of Singapore, which continue to gain industry recognition in 2011 including being voted "Outstanding Private Bank in Asia Pacific" by Private Banker International.

In order to OCBC Bank growth in the future, OCBC had set a mission of "We help individuals and businesses across communities achieve their aspirations by providing innovative financial services that meet their needs." The mission will be achieving when the following value has been fulfil:

Customer - We listen to our customers and understand their needs. We build enduring relationships with them by delivering superior products and quality service.

People - We treat each other fairly and with respect. We support our colleagues and invest in their development to help them realise their full potential. We recognise and reward outstanding performance.

Teamwork - As team members, actively support each other across the organisation as we work towards common purpose. As individuals, we expect total responsibility from ourselves.

Integrity - Fair dealing is the basis of our business, we assume everything we do is in public view.

Prudent Risk Taking - We are prudent risk takers because our customers rely on us for safety and soundness.

Effectiveness - We actively invest in infrastructure, process improvement and skills to lower our delivery costs. We do the right things right the first time, on time, every time.


Part A.

Analyze to what extent these broad environmental forces have or will affect the achievement of the company's missions and objectives set by the company.

Banking industry is similar with other businesses which also have the same risks in business operation. One of which popular model to analyze is the PEST analysis. PEST analysis consists of Political factor, Economic factor, Social factor and Technological factor that will affect business operation. The module is applicable to bank, as bank is required to study and analyzed in order to be competitive in the market.

Our current assignment, we had chosen OCBC bank as our subject of studies. As per annual report its stated that its mission "We help individuals and businesses across communities achieve their aspirations by providing innovative financial services that meet their needs".

As banking industry in Malaysia are being regulated by government and government have high intervention, hence using PEST analysis is one of best method for bank to analyze its politic, economic social and technology. These few areas are very crucial for a bank to ensure its survivability and competitive advantageous.

Political Factor

Political factors include government regulations and legal issues and law and define both formal and informal rules for the firm which must operate. For examples tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability.

Banking industry in Malaysia can be considered as a safe industry because laws are made and banks are being monitor tightly compared to banks in the US.

In Malaysia, government is part of the industry, which is indirectly governed by the Minister of Finance (MOF). The central bank in Malaysia will be the regulator for banks in Malaysia that is called Bank Negara Malaysia (BNM). Laws, interest rate, rules and other that related to banking industry will be regulated by BNM, hence bankers will need to follow rules and guidelines by BNM in order to operate in Malaysia, or otherwise license will be revoked.

Despite this, banks have to be aware of current changes in finance and banking law, unlike in the US, which bank firms are treated as business firm whereby profit or loss is barred by the bank itself. Due to this bank in the US can collapse meanwhile banking industry in Malaysia can be considered as one of best system.

In addition, financial budget are proposed by the government, banks have to be aware of the proposed budget, to see if there is any new budget that will affects its mission statement. For example, the recent proposed budget which benefits the newly fresh graduate to purchase their first house, due to this the bank has to work out a feasible plan that will create win-win situation, and a solution that can uphold its mission.

Moreover, Malaysia is on a democratic based country, bankers too have to be aware of its change in political powers. Changes in political power will lead to change in rules and regulation hence banks policy will be affected.

With a government whom has high intervention in the industry and has high powers, bankers should be aware of its existence in the Mendelow matrix.

Economic Factor

Economic factors are factor that affect the purchasing power of potential customers and the firm's cost of capital. The examples of this factor are economic growth, interest rates, exchange rates and inflation rate.

No doubt in Malaysia we very much depended on the giants such as the US markets. Bear of bull markets are very much depending on their market condition.

For instance the recent fall of US which resulted in the collapse of Lehman Brothers very much affect the market here as not only bank affected , insurance company, AIG was on the hook of bankruptcy if there is no bailout from the government of the US. Warren Buffet once said that insurance company is one of the safest industries to invest in, if OCBC invest all its capacity in insurance company, this will greatly affect its mission as customer will lose confidence and would take out their money from the bank.

Despite this economy policy given by government such as in the recent proposed budget 2013, whether it will improve the economy or not is in a question. How it affects the bank on upholding its mission will depend on the bank strategy to overcome unforeseen circumstances?

Social Factor

As for social factor, it includes the demographic and cultural aspects of the external environment. This factor will affect customer needs and the size of the markets. Examples of social factors are health consciousness, population of growth rate, age distribution, career attitudes and emphasis on safety.

In the world of globalization, bankers have to carefully segment its markets to identify the "social" market. Without conducting a detailed and carefully segmentation of market, bank can hardly attract customers or uphold its mission. There are minorities that believe in keeping cash instead of taking the cash for investing purpose. Although the world is evolving into a better and more informative social, no doubt majority are in the mist about investing, with customers or soon to be customer who is lack of knowledge in investing field, bank have to play its role by explaining or expose information on investing to their customer and potential customer. This will then lead banks to uphold its mission.

Despite this, banks are also facing another problem, the "fast rich scheme" that is done by swindlers around. With swindlers around conning people's hard earn money throughout the years, no doubt the victim peers will tend to avoid investing or will not even have a thought on investing, they will rather keep cash in hand or even save it up into a biscuit containers

This issue will greatly impact OCBC bank to achieve its mission if remedies are not taken.

Technological Factor

Finally, the technological factor is factor that will affect the future economic benefit and achieving company objective.

With technologies improving every minute, banks have to be aware of how technologies can be useful in helping them to achieve its mission.

Bank mission is to help customer to invest their money instead of keep it in safe box. With the help of tech, banks can offer application for phones and computers to allow the customers to keep track of its investment instantly with a click of a button.

Bank like CIMB click is one of which that helps their customer in handling their investment and banking facilities provided.

If OCBC bank still does not evolve parallel with the technological changes, soon they will be left out and more customers will then choose other bank as their investing partners.

Q1) Part B

Analysis that the competitive forces that will intimately affect the operations and profitability / cash flow of the company.

We use Porter's 5 forces approach as a means to examining the competitive environment at the level of the SBU or the immediate environment of the organization, so as to provide an understanding of what forces influences the degree of competition and opportunities for building the competitive advantage. According to Porter, the state of competition in an industry depends on 5 basic forces; there are threat of new entrant, threat of substitute, threat of bargaining power of customers, threat of bargaining power of suppliers and threat of rivalry among the existing firms.

Threat of new entrant

Competitor's potential can influence the industry; this might affect ones survivability and profitability. Banking and finance industry influence the magnitude of the threat of new entrants. It can get a high profit with good management and it will attract more new entrants looking for the potential profit in banking service industry.

Threat of new entrant is an important factor in external competitive environment, thus, companies have to be prepared to face the external environment problem. In the competitive markets, new entrant into the same industry can pose a big challenge to company, because new entrant may have more effective strategies to attract customer such as the loan interest rate is cheaper, extent the time period of life insurance policy or more benefits in life coverage insurance policy. For example, Julybank is new entrant bank from Singapore, they have large financial outlay and capital investment in Malaysia, thus this pose a big challenge to OCBC bank to compete in banking and finance industry due to OCBC bank's promotion and offer are not attractive enough. It may cause loss of profitability in the long run.

Threat of Substitutes

Substitute product is product that performs the same function or satisfies the same need as an existing product. The threat from substitute products is particularly severe if the substitute products are effective. It influences the marketing mix which is product, price, place and promotion.

Change of the economic is also an important factor to this threat such as inflation factor to make customer switching their preference to substitute services. For example, the credit card holder of OCBC bank may changes to Public Bank due to OCBC banks credit card have to charge RM68 annual fees and Public Bank without charge any fees with Debit card and get a same function with Credit Card.

There are many ways for a customer to satisfy his needs from substitute product or service available in market. Customer will make a comparison between their prices, quality, and the benefits customer want based on their buying motive and make procurement decision. The final decision of customer is depending on their preference. Customer preference is a very important factor to the company as customer can always find a substitute and they are not worried that they can't get a better plan for them. OCBC bank have to make research on what is the public preference and needs such as more ATM machine all around, it can attract more customer create an account. Customers will always prefer to pay for the same quality of services with cheaper price. So OCBC bank is facing a huge threat from substitutes as they only have a few brand outlets compare with other bank which is not convenient for customer.

Threat of Bargaining Power of Buyers

The bargaining power of consumer described as the market output, the ability of consumer to put the firm under pressure, which also affects the consumer's sensitivity to price changes. Consumers power is the forces that influence the value of a product produced by an industry. The bargaining power of consumer is representing by how many of pressure they can give to the banking and finance industry. This bargaining power can be used to reduce profits of the bank through price reduction, increase in customer preference.

Banking and finance industry only sell services to customer, for example financial service, OCBC bank need consumers to use their financial services. Without customers, OCBC bank will not be able to earn any profits. So customer is said to have influence power over the bank. Customer can make a choice to invest in which bank he prefers such as Hong Leong Bank or Public Bank. Customer will always chooses the plan that gives the same benefit but comes with lower investment price and lets customer feel more worthy.

Threat of Bargaining Power of Suppliers

The bargaining power of suppliers is also described as the market inputs. Suppliers of raw material, components, labor and services to the firm can be source of power over the firm. When there are only few substitutes. Suppliers may refuse to work with the firm. Supplier with influence power will be able to influence the profitability.

The power of suppliers will be increase when there is a very high switching cost from one supplier to another supplier, in this situation, the price of demand normally will be higher than normal price. For example, the ATM machine of the OCBC bank used outsources of security company, such the alarm alert system, installation of CCTV, thus security company have more economic power than OCBC bank because OCBC bank do not have sources install the system by their own firm.

Threat of Rivalry among existing firm

The intensity of competitive rivalry major determines the competitiveness of industry. Rivalry among industry may affect the profit though some of factor, increase innovation, advertising and improve service and products among other competitor. Competition between existing industries will be high if the industry has a lot of competitor in same size and same strategies.

Banking and finance industry in our country had large number of competitor, there are increasing the competition with the same type of customer and services type. OCBC bank had provided financial service such as free financial consultation with financial advice for customer. On the other hand, our competitor, Citibank are also providing free financial analysis to customer. There is greater rivalry competition in equal power and size for market competitor rivalry. Banking and finance industry has limited and not much different feature in services compared to others, such as fixed deposit, personal loan, home loan etc. There are low of switching cost exist to alternative service, therefore, high difficult to banking and finance industry exist for compete with other competitor.

Q1) Part C

Porter's national competitive advantage 'diamond'

Porter (1990) argued that the creation of such competitive advantage does not happen merely by chance. He contended that there are four key elements that will constitute the 'diamond of national advantage'. The four elements are: factor condition, demand condition, related and supporting industries, and firm structure, strategy and rivalry.

Since OCBC Bank is an international bank and the head quarter placed at Singapore, therefore porter diamond is relevant to applied. So the 'diamond' of OCBC Bank will base on the Singapore national condition as following:

Factor Condition

These are the basic factor endowments referred to in economic theory as the source of so called comparative advantage. The factor condition can be divided into two sorts:

Basic factors which are defined as generic factors that are available to all general activities airport, seaport, raw material, semi-skilled or unskilled worker and initial investment capital. These are largely 'natural' and not created as a matter of policy or strategy.

Singapore is a small island country situated at the tip of Peninsular Malaysia. Singapore had perfect advantage on geographical location which located at the central between the East and the West which made it an ideal place for OCBC bank to develop an international financial hub. Singapore location also is an ideal place to set a network which people all around the world can be gather in one place since it is located central between the East and the West.

Advanced factors are the important factors that generate the competitive advantage such as infrastructure, level of training and skill, research and development and etc. as OCBC Bank is providing financial services, advanced factor should included productivity ,communication infrastructure, sophisticated and specialised worker, research and development and etc. As Singapore was proactive in improving the country facilities as the research and development expenditure in 2008 was contributed 2.66% of GDP which is the highest among the other country like China, Malaysia, and Hong Kong. Therefore, OCBC will be competitive since the government is concern about the research and development which will improve country's skill base. Besides that, Singapore government had relaxed their policy on employment of foreign worker and on immigration. This action had created good feedback as the high-skilled worker has been attracted to the energetic business environment. As at 2010, percentage of international migrant to Singapore in total population is 38.74%. Hence, OCBC bank can recruit the skills and experiences from the different country to develop a world class banking services.

Demand Condition

Demand condition are important to the home market since the demanding buyer in the home market is pressure the firm in order to meet the highest standard. Therefore, when a firm is facing a sophisticated and demanding home market, the firm is forced to innovative and sell better-quality products to the market.

Banking industries in Singapore had dominated the GDP for 18.1% in 2010. It shows growth financial services. In respect of the sophistication of the demand it could said that Singapore financial consumers were less demanding and sophisticated due to the pass rules restriction. However, since the Singapore government deregulated the rule in 1999, the government has introduced more qualifying full bank licenses to the foreign bank. Besides, Singapore government encourage the domestic bank to consolidate their operation in order to compete in future competition offering by foreign bank player. Hence, the foreign bank would certainly drive up the innovative and sophistication of consumer. The more the foreign competitions in the country, OCBC bank have to force to come out an innovative and quality financial product and services in order to meet the local consumer. Furthermore, increases in the sophisticated demanding in the country, OCBC bank able to serve the global with world-class quality in order to compete in international.

Related and Supporting Industries

The internationally competitive firm must have, initially at least, enjoyed the support from the world-class producer of components and related product. Moreover success in the related industry maybe due to expertise accumulated elsewhere.

A world-class related and supporting industry can have the most effective influences on the rapid development of the banking and financial industries due to the related and supporting industries can be cost effective and be incredible attractors. This will attract more foreign bank investor to Singapore. Nowadays, Singapore government had emphasised on the information technology. The reason of the government development this industry is to develop a world-class IT infrastructure for the information economy. The IT industry provides the hardware and the software not only supporting the banking industries but also the other industries as well. The rise of IT will improve the inter-connection between the worlds where the financial services can be serving to the customer through the IT network. Hence, by the advance technology had been developed in the Singapore, OCBC can now inter-connected the branches with IT network. IT also enable customer to experience the world-class financial service through the world-class database and information available in the network.

Firm Structure, Strategy and Rival

This refers to the manner in which an industry has been created, organised and managed and the nature of domestic competitors that could help a nation to achieve sustained competitive advantage.

When Singapore government authorise the qualifying full bank licenses to the foreign bank, the local bank such as OCBC bank is trying to strategy their firm in order to compete with the foreign bank. Since the OCBC is the longest bank established, it is capable hold its own domestically against the major international bank. Besides, it also increase the competition between the domestic banks to comes out an innovative and quality financial service in order to gain market share and compete with the foreign bank. The will and motivation of improve and compete with others will bring OCBC bank to the international level and gain market share in around the world.


Part A

An analysis into the portfolio (operating segments) of the chosen corporation with respect to the following dimensions:

Apply an appropriate model to evaluate the attractiveness of the different business portfolio of the chosen corporation.

All businesses need to focus on those areas of activity that give them competitive strength and the greatest opportunity for future growth. I think the most appropriate model to evaluate attractiveness of OCBC Group on the different business portfolio is BCG portfolio matrix. The BCG matrix is a portfolio planning model that had been created by Bruce Henderson for the Boston Consulting Group in early 1970's. BCG is an analysis tool that helps corporations with analyzing their business units or product lines.BCG Matrix (2x 2 matrixes) is a 4 basic categories matrix that helps to determine their future potential of the corporate product and business. The 4 basic categories is Stars, Question mark, Dogs and Cash Cow. It provides a graphic representation for an organization to examine different business in its portfolio on the basis of their related market share and industry growth rates.

The two measures in the model which represent the respective axes are market share and market growth. Market share is the percentage is calculated as the firm's market share against their largest rival. The higher your market share, the higher the proportion of the market you control. Market growth rate is the annual percentage change in sales volume in the industry as a whole or we call it market's attractiveness. Corporate that have low growth are ones where the total market is mature and slow growing. Resources are allocated to the business units according to their situation on the grid. Each of these cells represents a particular type of business.

OCBC Group offers a range of specialist financial services that included consumer, corporate investment, premier and transaction banking and global treasury services. OCBC Group's businesses are presented in the following customer and product segments: Global Consumer Financial Services, Global Corporate Banking, Global Treasury and Insurance. The main rival of OCBC Group is Citigroup because presented their product portfolio in same segments.

Global Consumer Financial Services

Global Consumer Financial Services comprises a full range of products and services offered to individuals, including deposit products (checking accounts, savings and fixed deposits), consumer loans (housing loans and other personal loans), credit cards and wealth management products (unit trusts, banc assurance products and structured deposits).


For year 2011 OCBC achieved RM 468 million operating profit compared to the year 2010 RM 525million, there is a decrease of RM 57 million on operating profit which is -11%.


For year 2011 OCBC achieved RM 2,606 million operating profit compared to the year 2010 RM 2,624 million, there is a decrease of RM 18 million on operating profit which is -1%.

Global Corporate Banking

Global Corporate Banking serves business customers ranging from large corporate and the public sector to small and medium enterprises. The products and services offered include long-term loans such as project financing, short-term credit such as overdrafts and trade financing, deposit accounts and fee-based services such as cash management and custodian services.


For year 2011 OCBC achieved RM 1,500 million operating profit compared to the year 2010 RM 1,265 million, there is a decrease of RM 57 million on operating profit which is +19%.


For year 2011 Citibank achieved RM 6,273million operating profit compared to the year 2010 RM 8,446 million, there is a decrease of RM 2,173 million on operating profit which is -26%.

Global Treasury

Global Treasury engages in foreign exchange activities, money market operations, fixed income and derivatives trading, and also offers structured treasury products and financial solutions to meet customers' investment and hedging needs.


For year 2011 OCBC achieved RM 780 million operating profit compared to the year 2010 RM 582 million, there is a increase of RM 198 million on operating profit which is 34%.


For year 2011 Citibank achieved RM 4,874 million operating profit compared to the year 2010 RM 5,225 million, there is a decrease of RM 351 million on operating profit which is -7 %.

Market growth

Market growth rate = (industry sales this year - industry sales last year) ÷ industry sales last year

Global Consumer Financial Services

Year 2011 operating profit RM 468 million.

Year 2010 operating profit RM 525million.

Market growth rate = (RM 468 million - RM 525million) ÷ RM 525million

= -0.11

= -11%

Global Corporate Banking

Year 2011 operating profit RM 1,500 million.

Year 2010 operating profit RM 1,265 million.

Market growth rate = (RM 1,500 million - RM 1,265 million) ÷ RM 1,265 million



Global Treasury

Year 2011 operating profit RM 780 million.

Year 2010 operating profit RM 582 million.

Market growth rate = (RM 780 million - RM 582 million) ÷ RM 582 million



Growth is seen as the best measure of market attractiveness. According to research and calculation done, Global Treasury is currently having the highest market growth rate among the portfolios of OCBC Group which is 34%. It is followed by Global Corporate Banking which is having a market growth rate of 19%. Global Consumer Financial Services are having the lowest market growth rate which is only 0.7%. Others revenue portfolios such as consignment revenues, cafes, exports etc are having a total growth rate of 4.58%.

Relative Market Share

Market Share = Business segment revenue in this year÷ Rivalry business segment revenue in this year

Global Consumer Financial Services


Year 2011 operating profit RM 468 million.


Year 2011 operating profit RM 2,606 million.

RM 468 million ÷ RM 2,606million


Global Corporate Banking


Year 2011 operating profit RM 1,500 million.


Year 2011 operating profit RM 6,273 million.

RM 1,500 million ÷ RM 6,273 million


Global Treasury


Year 2011 operating profit RM 780 million.


Year 2011 operating profit RM 582 million.

RM 780 million ÷ RM 582 million


From the BCG matrix we can see that

Global Corporate Banking

Question marks stage. Most of the business start with this stage, they will absorb great amount of cash if the market share remain unchanged Question marks represent business units having low relative market share and located in a high growth industry are commonly known as problem children. These products are in a high growth market which means that it is early in the product life cycle and therefore has the potential to repay present investment over its life cycle. The low relative market share, however, means that this business unit is unlikely to survive in the long run because it will have a lower cost competitor.. This is potential for a company to go into star and cash cow but eventually but can become a dog. They often require more cash to be invested in them than the return. If sufficient cash isn't available, they often fail. The main feature of a problem child is that a lot of money must be invested for it to gain a bigger market share. Global Corporate Banking's in OCBC Group operating profit after allowances grew 19% to RM 1,500 million in 2011. Higher net interest income, led by robust loan growth, and fee income more than offset lower net interest margin, higher expenses and portfolio allowances. For 4Quarter year 2011, operating profit after allowances rose 17% year-on-year to RM 370million, but registered a decline of 10% compared to the previous quarter, largely attributable to higher allowances.

Global Treasury

Stars, very competitively strong due to high relative market share, although their current results will be poor due to the need to invest considerable funds into keeping up with the market growth rate. They often generate a profit but may not always generate sufficient cash to sustain them. If a product is able to stay in this position, it should eventually become a cash cow when growth slows down and investment requirements diminish. Stars are leaders in business, it require huge investment to maintain its large market share. It leads to large amount of cash require and cash generation meanwhile attempts should be made to hold the market share otherwise the stars will become Cash cow. Global Treasury's operating profit in year 2011 grew 34% to RM 780 million, as significantly higher fees and commissions from cross selling activities more than offset the drop in trading income and higher expenses. Operating profit in 4Quarter year 2011 rose 129% from a year ago and 137% quarter-on-quarter to RM 307million, driven by higher net interest income and stronger trading income. BCG recommends the strategy to apply in this stage is to hold the market share by investing sufficient to match the commitment of rival and the requirements of the marketplace.

Consumer Financial Services

Dogs are the cash traps. It doesn't have potential to bring in much cash. Products with a small share of a market with slow (or negative) growth are called dogs. They often show an accounting profit, but all of this must be reinvested to maintain their place in the market, leaving no extra cash for reinvestment elsewhere. Based on OCBC Group year 2011 annual report stated, the reason for operating profit after allowances of the consumer segment declined 11% to RM 468 million in 2011 is due to the strong fee and commission income were offset by a decline in net interest income, and an increase in expenses and portfolio allowances. OCBC Group should cut down this business segment because it's at decline stage. Dogs come into being from 2 directions that is,

First, former cash cows that have lost market share due to management's refusal to invest maturity

Secondly, former question marks which still had a low relative share when the market reached maturity.

BCG recommends divestment or dropped the segment of business that inside dogs stage. Before making decision OCBC Group need to figure out is this global consumer financial services still make a positive contribution. Other than that, OCBC need to consider the impact to the group of dropping this service, the influence of the overall image of the company. The main feature of a problem child is that a lot of money must be invested for it to gain a bigger market share. The risk is that this high investment product could become a liability if it doesn't move towards the cash cow position and become a market leader, so a company must decide between investing large sums in the product to build market share and dropping it before it absorbs unnecessary amounts of money that it won't be able to repay. This can mean selling it to a rival such as Citigroup or shutting down the segment of business to liquidate its assets for investment in more promising business segment.

Q2) Part B

Evaluate the efficiency and effectiveness in the utilization of the liabilities in funding the related assets of the business portfolio. Key performance indicators, both financial and non-financial are needed. This will satisfy the implementation and control aspects of the examination syllabus.

Financial key performance indicator is a financial value that can be adopted to measure the performance of a bank such as profitability analysis. Profitability analysis is refers to statement of comprehensive income and statements of financial position to calculate financial ratio in order to comparing the ratios to see whether is a bank is performing good or bad.

The financial key performance indicators for OCBC bank are:

Liability over asset ratio

Liability over asset ratio is measurement of the proportion of assets which are financed through debts. If the ratio less than one, it is indicated that a bank is financed through equity. If the ratio is greater than one, it is indicated that a bank is financed through liabilities. This also can help to evaluate the efficiency and effectiveness in the utilization of the liabilities in funding related assets of the business portfolio.


Liability over asset ratio = Segment liabilities/Segment assets

Global Consumer Financial Services

Liability over asset ratio

= $43,411 million/$32,902 million

= 1.31

Global Corporate Banking

Liability over asset ratio

= $59,638 million/$74,434 million

= 0.8

Global Treasury

Liability over asset ratio

=$36,177 million/$47,218 million

= 0.76

From the calculation above, the liability over asset ratio of Global Consumer Financial Services is greater than 1. This is indicated that this portfolio is efficiency and effective to utilize liability in funding assets. The ratio of Global Corporate Banking and Global Treasury are lesser than 1. This had showed that these two portfolios are financed through its equity. However, high liability over asset ratio is high leveraged. Global Consumer Financial Services may face liquidity problem if creditors start to demand repayment of liabilities or increase in interest rate.

Return on Equity (ROE)

Return on equity is an indicator to determine a bank's ability to generate profit for each unit of shareholder's equity. High percentage of ROE indicates that a bank is able to generate its growth from existing investment, vice versa.


ROE = Net profit after taxes/Ordinary equity




= $2,312 million/$20,675 million



= $2,253 million/$18,894 million

= 11.9%

From the calculation above, OCBC had performed slightly worse in return on equity in 2011 if compare to previous year. This is because of the growing of net profit and equity in OCBC in 2011. OCBC's customer-related businesses had boosted the net interest income and fee income causes the net profit increase. [1] Also, OCBC's equity had increased due had issue $50.7 million new ordinary share on 7 October 2011. Low ROE causes investors and potential investors may loss confident on OCBC's investment. However, although OCBC is performs worse, ordinary share increase may increase the voting power during shareholder elections.

Return on Assets (ROA)

Return on assets in an indicator to measure how efficient is a bank of management of using its assets to generate profit. High percentage of ROA indicates that a bank is generating more profit and investing less on assets. Whereas, low percentage of ROA shows that a bank is asset-intensive.


ROA = Net profit after taxes/Total assets




= $2,312 million/$228,670 million



= $2,253 million/$181,797 million

= 1.24%

From the calculation above, OCBC's ROA had decreased in 2011 if compared to previous year due to the net profit and total asset of OCBC had increased. The asset of OCBC was growth proactively because of balanced with disciplined risk management. [2] However, decrease in ROA may show that OCBC is inefficient use of its assets.

Net interest margin (NIM)

Net interest margin is measurement of the difference between a bank's interest income and the interest paid, relative to the total interest earning assets. The higher the net interest margin, the more profit is generate.


NIM = Net interest income/ Total interest earning assets




= $3,410 million/$182,930 million



= $2,947 million/$148,773 million

= 1.98%

From the calculation above, NIM of OCBC had decreased. This may due to the low interest rate environment. Since OCBC have lower NIM in 2011, this had indicated that OCBC is generates lesser profit in interest income.

Non-interest income to total income

Non-interest income to total income is an indicator of measurement of the percentage of bank's total income that have been generated by non-interest related activities such as fees and commission, trading gain, etc. High percentage indicated that a bank is not relying on its lending activities to generate profit.


Non-interest income to total income = (Total income - Interest income)/Total income



Non-interest income to total income

= $2,212 million/$5,622 million


Non-interest income to total income

= $2,378 million/$5,325 million

= 44.7%

From the calculation above, non-interest income to total income of OCBC had decreased. This is because of OCBC's total income increase due to strong growth wealth management income, fund management and investment banking fees, trade-related fees and service charges. [3] However, low percentage of non-interest income to total income had showed that OCBC is relying on its lending activities to generate profit.

Loan to deposit

Loan to deposit is an indicator that measures the amount of a bank's loans divided by the amount of its deposits.


Loan to deposit = Loans and bills received/non-bank deposits



Loan to deposit

= $133,557 million/$154,555 million


Loan to deposit

= $104,989 million/$123,300 million

= 85.1%

From the calculation above, OCBC's loan to deposit had increased due to increasing of loans and deposits. This had showed that OCBC might not able to cover any unforeseen fund requirements by its liquidity due to high loan to deposit ratio.

The non-financial key performance indicators are:

Employee's capacity

Employee's capacity can be evaluated through performance of the employees. Performance of the employees can be seen from the achievement of target sales of an employee or collect feedback from different sources such as supervisors, customers and suppliers. OCBC should be monitors and evaluates its employees' performance on a regular basis in order to implement its objectives effectively. This may motivate the employees thus improve their performance. [4] 


Reputation of OCBC can be measured through emotional appeal, product and services and workplace environment. Emotional appeal is refers to how much is OCBC is liked and respected whereas product and services can be measured through the perceptions of quality, innovation, value and reliability. Also, workplace environment is refers to management quality, culture and employees quality. [5] 

Customer's satisfaction

Customer's satisfaction can be evaluated through customers' feedback such as surveys, complains and repeat sales. OCBC should be respond quickly on customers' feedback in order to understand and meet the demand of customers.

Corporate social responsibility

Corporate social responsibility is measure through complying with relevant laws and regulations to determine how OCBC to manage and integrate impact on society and the environment. This may help to enable a benchmark on their performance.

According to IFRS 8 segment reporting, an entity should disclose information to enable users of its financial statement to measure the nature and financial effects of the business activities in which it engages and the economic environments in which operates. [6] ;

Customer and product segment engages in global responsibility for their respective areas.

OCBC's customer and product segment are included Global Consumer Financial Services, Global Corporate Banking, Global Treasury, Insurance and others. The items of the statement of financial position are:

Internally transfer price

Revenues and expenses are attributed to each segment

Transactions between business segments are recorded within the segment as if they are third party transactions and are eliminated on consolidation. [7] 

Geographical segment engages in providing products and services within a particular economic environment which contain different risks from other economic environments. OCBC's geographical segment included Singapore, Malaysia, rests of South East Asia, Greater China, other Asia Pacific and rest of the world. There are no other individual country contributed more than 10% of consolidated total income and total assets except for Singapore and Malaysia. Hence the geographic information is prepared according to the country in which the transactions are engaged and presented after elimination of intra-group transactions and balances. [8] 

Q2) Part C

Recommendation to improve the portfolio performance based on the 'change triggers' identified and evaluated.

According to the BCG analysis carried out, we can see that OCBC bank business portfolio is basically being categorized into 3 categories. The Global Corporate Banking is in the "Question Mark" stage, the Global Treasury is currently inside the "Star" stage and the Consumer Financial Services is being put in the "Dog" stage. From there, OCBC Bank needs to figure out the most suitable strategies for each of their business segment according to the 'change triggers' that are identified and evaluated from previous sections.

Consumer Financial Services

The Consumer Financial Services is in the "Dog" because their products and services have neither high market shares nor high growth rate. Their market growth rate for the year 2011 is in negative figure which is -11 while their relative market share compared to Citigroup is only 0.18.

Failure in this segment is mainly because of the decrease in individual's wealth due to economic downfall which causes individuals to reduce the usage of all the services provided by the Global Consumer Financial Services. This phenomenon is expected to be continued for the coming few years. Another reason for their operating profit to be declined is due to decline in net interest income, increase in expenses and portfolio allowances.

In general cases most company will choose to either divest or drop the business segment. But it cannot be applied to OCBC bank because a bank that does not provide any saving or loan services to individuals is very unlikely to be accepted by the public. Regardless how bad the economic become, individuals will always need the bank to save their money. Dropping this business segment will show a negative message to the public that OCBC bank does not care about individual which will have a huge negative impact towards the company image. Since dropping or divesting is out of the equation, the only option left is to improve their current product or services.

Declined in net interest income may be caused by a few factors such as lower interest rate charged by competitors, amount of interest paid or decrease in the number of credit card holders. Therefore, OCBC Bank should compare their interest rate with Citibank's rate and try to make an improvement to reduce the difference in interest rate between two banks. They should try to pay back their liabilities such as loan as soon as possible so that the interest charged on them will be lower.

Also, they should find ways to increase amount of credit card uses. They can increase or improve the benefits provided to consumers that use their credit card such as cash rebates, special discounting rate on certain places like petrol station or restaurant. They can also try to charge lower annual fees for both principal and supplementary card.

Global Corporate Banking

The Global Corporate Banking currently is being placed in the "Question Mark" stage because their product and services have low relative market share compared to their main competitors which is only 0.24 and high market growth rate which is 19%. Nowadays, there are more and more companies being set up and they will need bank to provide financial services to them. Therefore, it is wise for OCBC bank to improve this business segment's relative market share and try to move it from "Question Mark" section to "Stars" section.

The main reason for this business segment to have their operating profit to increase 19% is mainly because of higher net interest income caused by robust loan growth, fee income. Therefore, OCBC should find ways to improve their loan plan to attract more corporate to loan money from them. For example, they can reduce the annual compound interest rate but extend the payment period, even though there are reduces in annual interest income but it can be offset by the longer payment period and they usually receive even more since the interest earned from compound interest are higher after each years.

Other than earning more interest income, lowering interest rate should be able to attract more customers which also mean that OCBC bank can earn even more fees from those new customers.

Global Treasury

The Global Treasury is the main sources of income for OCBC Bank. Their product and services are currently having 34% of market growth rate and 1.34 relative market shares compared to main competitors Citibank. This is why they are currently positioned in "Stars" segment. Therefore, it is important for Global treasury to maintain its position as long as possible and retain market shares so that it will fall to "Cash Cow" section and not "Dogs" when the growth rate decreases.

Global Treasury operating profit has increased significantly in year 2011 compared to 2012. The main reason for this success comes from significantly increase in fees and commissions from cross selling activities. In order to attract even more cross selling activities, OCBC Bank can try to beat other competitors by charging lower fees and commissions. Same like charging lower interest rate, there may be lower amount of service fees and commissions obtain from each individuals but the shortage can be offset from the amount earned from new customers.

Another way to improve performance is to hire employees that have good negotiation skills. Employee with better negotiation skill will be able to achieve the best scenario for both parties involved in the cross selling activities. From there, Global Treasury will be able to improve their reputation and thus attracting new clients and even earn higher commissions from their existing clients too.

OCBC Financial Key Performance Indicator

Based on the financial Key Performance indicator calculated at early section, there are a few sections that can be improved so that shareholder's wealth can be maximized.

Return on Assets (ROA)

The first part is the Return on Assets (ROA). Calculation indicates that OCBC is currently not as efficient as previous year in using their assets to generate profit. Since OCBC has brought in new assets in the year 2011, they should also dispose all the assets that are not fully function or not very efficient and those assets that have been used for a very long time.

Return on Equity (ROE)

Another part that needs to be improved is return on equity (ROE). Calculations show that OCBC is currently not performing not as well as previous years. This may be due to the increased in ordinary shares issued or the bad performance by the Consumer Financial Services segment. In order to attract new shareholders to increase capital, OCBC need to make sure that the Consumer Financial Services segment bounce back as soon as possible. If they manage to do that, the ROE will increase rapidly.

Loan to Deposit

From the Key Performance Indicator calculations we can see that OCBC bank is having higher loans to deposits percentage. This indicates that OCBC liquidity is not well which also means that they may miss out many golden investment opportunities due to lack of cash. Missing out investment opportunities means those shareholders wealth are not being maximized. To prevent thus, OCBC should settle some of their loans before starting to get loans again.

Non-interest Income to Total Income Percentage

Compared to year 2010, OCBC is earning less income from non-interest activities. OCBC can change such situation by improving their reputation by advertising more, improving their customer services and also can conduct survey on what consumer expect the bank to provide to them other than providing loans, financing and other financial benefits.

Net Interest Margin (NIM)

Decrease in Net Interest Margin may be caused by lower interest charged on consumers. This is done so to attract more consumers or due to economic downfall. Either way, OCBC needs to find out ways to advertise their latest interest rate to the public and try to gain their attention towards OCBC.

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