SINGAPORE (Jan 5): OCBC’s banking operations are holding up well on their own, apart from the strong showing by its wealth management and insurance operations which will remain a key differentiator of growth versus peers, says DBS Group Research.

In a Thursday report, DBS analyst Lim Sue Lin says OCBC's NIM is gradually improving and that the trend should hold up in 2018. Year to date, loan growth is strong at 5.5% versus FY17 forecast of 7%. Management has also guided 7-8% loan growth for FY17-18.

Meanwhile, asset quality issues pertaining to the oil & gas segment have been dealt with and sufficient provisions have been made. More importantly, a visible improvement in asset quality -- contrary to stabilisation -- could mark a strong re-rating catalyst, says Lim.

However, there needs to be a further evaluation on the impact to the implementation of the IFRS9/SFRS109, pending clarity on certain aspects especially with regards to the tax treatment on general provisions. Capital enhancement measures are underway and should be made clear during the release of its FY17 results in February 2018.

Following the positive macro dataset released, DBS has further tuned up our loan growth assumption for FY18-19 to 8% from 7%, lifting our FY18-19 earnings forecasts marginally. Sustained upward trajectory of SIBOR/SOR should re-rate NIM higher by 4-5bps.

"Our earnings forecasts remain above consensus. We reiterate our BUY rating and nudged up our target price to $14.00," says the analyst.

As at 3.40pm, shares in OCBC are down 8 cents at $12.87 or 11.5 times FY18 forward earnings.