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The reasons of bank stocks having negative OCF in certain years

QuestionsCategory: Financials QuadrantThe reasons of bank stocks having negative OCF in certain years
Ang Henry asked 5 years ago

Hi I’ll like to know the main cause of banks having -ve OCF in certain years, I’ve observed¬†that bank stocks have this type of characteristics across countries generally

2 Answers
Victor Chng Staff answered 5 years ago

Hi Henry,
 
I personally did not analyse banks before hence does not know the nature of the industry. Can you point me to one bank that have that characteristic so that I can take a look and see what is happening to the company.

Ang Henry replied 5 years ago

H Victor they’re OCBC,DBS and UOB and HSBC for instance

Victor Chng Staff answered 5 years ago

Hi Henry,
Ok give me sometime to look through it and get back to you

Ang Henry replied 5 years ago

Okay thank you!

Ang Henry replied 5 years ago

hi Victor do you have any findings yet?

Victor Chng Staff replied 5 years ago

Hi Henry, Sorry for the late reply, I totally forgot about it. It is my mistake. Anyway I checked on the cash flow statements of the banks already. The negative OCF is due to the loan to customers. Most of the time, the bank loan out more money than the deposit they are getting which eventually see a negative OCF.

Ang Henry replied 5 years ago

Hi Victor thanks for your follow up, should we be concerned about that since almost all banks has the similar trend.

Victor Chng Staff replied 5 years ago

Based on the nature of the business, There is absolutely no concern about their negative cash flow as long as they are able to get the loan back. The most important thing is to check their non performing loan (NPL) percentage. NPL lower the better. I hope I clear your doubts

Ang Henry replied 5 years ago

Hi Victor thanks for your follow up, should we be concerned about that since almost all banks has the similar trend.

Ang Henry replied 5 years ago

Ok how can we calculate the NPL?

Victor Chng Staff replied 5 years ago

You can find the NPL ratio in the annual report. The company will usually calculate out for you

Ang Henry replied 5 years ago

Ok how can we calculate the NPL?

Ang Henry replied 5 years ago

What is the safe ratio in your opinion? At what figures should we raise red flags?

Victor Chng Staff replied 5 years ago

NPL ratio = NPL/Total gross loans. I do not have a figure for that as I never use it before but to my understanding it should be a low figure. Of course if the NPL ratio hit 10% that will definitely raise a red flag. I do not know what exactly is the industry benchmark as I have never analyse bank before.

Ang Henry replied 5 years ago

What is the safe ratio in your opinion? At what figures should we raise red flags?

Ang Henry replied 5 years ago

Thanks for your insights Victor, I’ve learnt a lot from you guys ever since from the masterclass!

Victor Chng Staff replied 5 years ago

Hi Henry,

Thank you for your compliment. Glad that you have benefited :)