Oversea-Chinese Banking Corp Limited’s Latest Earnings: A 14% Jump in Profit
Oversea-Chinese Banking Corp Limited (SGX: O39), which is better known as OCBC, reported its 2017 first quarter earnings this morning. The reporting period was for 1 January 2017 to 31 March 2017.
As a quick background, OCBC is one of the three major banks based out of Singapore. It is the longest established bank here and has operations in 18 countries and territories. The insurance services provider Great Eastern Holding Limited (SGX: G07) is a subsidiary of OCBC.
You can catch the results of OCBC’s previous quarter here.
Below is a quick rundown on OCBC’s income (essentially the “revenue” for the bank) for the reporting quarter:
1. Net interest income fell by 3% year-on-year to $1.27 billion.
2. Non-interest income was up 30% compared to the same period last year, ending at $977 million.
Taken together, OCBC made $2.25 billion in total income for the first quarter of 2017, 9% above 2016’s first quarter.
On the expense side of things:
1. OCBC’s operating expenses rose 5% year-on-year to $973 million for the first quarter of 2017.
2. Allowances for loans and impairment for other assets was relatively flat at $168 million.
OCBC also recorded a 7% increase in share of results of associates to $114 million. Taken together, OCBC’s net profit attributable to shareholders in 2017’s first quarter net profit was $973 million, 14% higher compared to 2016’s first quarter.
The bank ended the reporting quarter with a net asset value of $8.67 per share, up 2.1% from end-2016 and up 5.7% from a year ago.
Net interest income fell due to compression in loan yields. OCBC recorded a net interest margin of 1.62% for the first quarter of 2017, down from 1.75% in the first quarter of 2016.
Meanwhile, the sharp increase in non-interest income came partly from a 70% increase in wealth management income that’s partly attributable to OCBC’s November 2016 acquisition of the wealth and investment management business of Barclays in Singapore and Hong Kong.
OCBC’s customer loans was up 8% from a year ago to $225 billion. The non-performing loan ratio was 1.25% as of 31 March 2017, an increase from 1.04% a year ago. Elsewhere, OCBC ended the reporting quarter with $265 billion in customer deposits, up from $242 billion a year ago. The bank’s loans-to-deposits ratio in the first quarter of 2017 was 83.6%, down from 84.7% a year ago.
Based on regulatory requirements from the Monetary Authority of Singapore, banks in Singapore must have the minimum of these Capital Adequacy Ratios (CARs): Common Equity Tier 1 (CET1) at 6.5%, Tier 1 at 8%, and Total at 10%. OCBC can be considered well-capitalized as its CARs are comfortably higher than MAS’ requirements at 13.3%, 14.2% and 16.5% respectively.
Samuel Tsien, the bank’s chief executive officer, summarised the bank’s reporting quarter with the statement below:
“We are pleased to report a rise in first quarter earnings. Our results reflect the underlying strength and diversity of our banking, wealth management and insurance franchise.
We achieved broad-based loan growth, grew our private banking AUM, and reported significantly higher fee income. Our Hong Kong, Malaysian and Indonesian banking subsidiaries saw higher year-on-year earnings growth in local currency terms and Great Eastern continued to deliver robust underlying total weighted new sales and new business embedded value growth.
The overall quality of the loan portfolio remained stable. Although the stress in the oil & gas support services sector is continuing, sufficient provisions have been made. We have a strong capital and liquidity position, and launched our maiden Covered Bond Programme which further diversified our funding base.
While we see some sectorial strength in the domestic economy, this is not yet broad-based, and we remain watchful to the persistent headwinds in the operating environment. Our core businesses are resilient, we remain prudent and focused on our strategic priorities, and are well-placed to capture opportunities as they arise”
OCBC’s shares opened trading at $10.42 each this morning. At that price, the bank has a price-to-book ratio of 1.2 and a dividend yield of 3.5%.