Oversea-Chinese Banking Corp Limited’s Latest Earnings: Net Profit Soars 22%
Oversea-Chinese Banking Corp Limited (SGX: O39), which is better known as OCBC, reported its 2017 second quarter earnings this morning. The reporting period was for 1 April 2017 to 30 June 2017.
As a quick background, OCBC is one of the three major banks based out of Singapore, along with DBS Group Holdings Ltd (SGX: D05) and United Overseas Bank Ltd (SGX: U11). OCBC is the longest established bank in Singapore, and has operations in 18 countries. The insurance company, Great Eastern Holding Limited (SGX: G07), is OCBC’s subsidiary.
You can catch the results from OCBC’s previous quarter here.
The following’s a quick rundown on OCBC’s income (essentially the “revenue” for a bank) for the second quarter:
1. Net interest income rose 7% year-on-year to $1.35 billion.
2. Non-interest income was up 34% compared to the same period last year, ending at $1.05 billion.
Taken together, OCBC made $2.40 billion in total income for the second quarter, 17% higher than the total income for the same period a year ago.
On the expense side of things for the reporting quarter:
1. OCBC’s operating expenses rose 6% year-on-year to $992 million.
2. Allowances for loan and impairment of other assets surged 93% to $169 million.
OCBC also recorded a 17% year-on-year increase in its share of results from associates, netting $119 million in the reporting quarter. Putting the pieces together, the bank’s net profit attributable to shareholders for the second quarter of 2017 was $1.08 billion, 22% higher compared to 2016’s second-quarter. OCBC also ended the reporting quarter with a net asset value of $8.73 per share, up 6.6% from a year ago.
The bank had declared an interim dividend of 18 cents per share, unchanged from a year ago.
OCBC’s quarterly net interest income grew because of strong lending growth across corporate and consumer customers. The bank recorded a net interest margin (NIM) of 1.65% for the second quarter of 2017, down from the 1.68% recorded in the second quarter of 2016, but up compared with the NIM of 1.62% for 2017’s first quarter.
Meanwhile, the 34% increase in non-interest income came from a 45% jump in wealth management fee income that came partly on the back of the inclusion of Barclays PLC’s former wealth and investment management business in Singapore and Hong Kong. OCBC acquired the business in November 2016.
OCBC’s customer loans was up 11% from a year ago to $229 billion. The non-performing loan ratio was 1.3% as of 30 June 2017, an increase from 1.1% a year ago, but steady compared to the first quarter of 2017. Elsewhere, OCBC ended the reporting quarter with $264.4 billion in customer deposits, up 7% from $246.3 billion a year ago.
Based on regulatory requirements from the Monetary Authority of Singapore, banks in Singapore must have the following Capital Adequacy Ratios (CARs): Common Equity Tier 1 (CET1) CAR of at least 6.5%; Tier 1 CAR of at least 8%; and Total CAR of at least 10%. OCBC can be considered well-capitalized as its CARs are comfortably higher than MAS’ requirements at 13.0%, 13.9%, and 16.1% respectively.
The bank’s chief executive officer, Samuel Tsien, summarized the quarter with the statement below:
“Strong business momentum was achieved across all three business pillars – banking, wealth management and insurance. Income growth was broad-based, lending activities were up, AUM continued to rise, and underlying insurance business growth continued. OCBC Group maintained its healthy capital, funding and liquidity positions, and the overall loan portfolio remained sound, with the NPL ratio stable over the last three quarters.
Stronger consumer sentiments were noted in key economies, but overall economic growth in the region is expected to only be moderate and event risks remain. We will pursue prudent business growth, focusing on our key markets and core business lines.”
OCBC’s shares opened at $11.28 each this morning. The bank’s shares traded at a price-to-book ratio of 1.3 at that price and had a dividend yield of 3.2%.