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Second Quarter Profits Dip 8% at OCBC

Ser Jing - Checking in on OCBC's First Quarter Results (pic) Banks DBS (SGX: D05) and United Overseas Bank (SGX: U11) had posted record half-year profits each of S$1.84b and S$1.5b yesterday.

Unfortunately, Overseas-Chinese Banking Corporation (SGX: O39) was unable to continue the record-breaking streak and found itself with a 13% year-on-year decline in half-year profit to S$1.29b.

Its first quarter results are found here. Let’s see how OCBC performed for the second quarter.

The bank’s quarterly total core income had crawled up by 3% year-on-year to S$1.57b, driven by small increases in both net interest income and non-interest income.

Net interest income had moved up by 3% to S$961m on the back of broad-based loan growth, which overcame a 0.13 percentage-point decline in net interest margins to 1.62% compared to a year ago.

Interestingly, all three banks – OCBC, DBS and UOB – had told a similar story of net interest income growth that’s driven by an increase in loan volumes which helped offset a decline in net interest margins.

OCBC’s non-interest income, which is comprised of fees & commissions income, life assurance profit, and ‘other’ income, inched up by 2% to S$606m.

The main contributor to the modest growth in non-interest income was an increase of 9% to S$347m for fees & commission income (from the provision of wealth management, brokerage, and investment banking services among others) in addition to a rise of 33% to S$149m for net trading income, a component of ‘other’ income.

Life assurance profit, on the other hand, had declined by 78% to S$16m due to rising long-term interest rates and widening credit spreads that led to a markdown in market prices for the securities of the bank’s subsidiary, Great Eastern Holdings.

The bank’s increase in total operating expenses, up 9% to S$718m as a result of an expanded headcount, had outpaced its top-line growth. In addition, there was a 124% increase to S$83m for impairment & loan-loss-allowance charges. These factors ultimately resulted in OCBC posting an 8% decline in quarterly profit to S$597m.

OCBC’s asset-quality, in terms of its loan-portfolio, has improved as its non-performing-loan (NPL) ratio for the quarter declined by 2 basis from a year ago to 0.7%.

The bank’s balance sheet remains strong and “well capitalised”. Capital adequacy ratios (CAR) for OCBC, a measure of a bank’s ability to absorb losses, remain well above the Monetary Authority of Singapore’s requirements.

The bank’s Common Equity Tier 1 CAR stands at 14.9%; Tier 1 CAR’s at 14.9%; while Total CAR is at 16.8%. MAS require banks to have these ratios at 4.5%, 6% and 10% respectively.

OCBC has declared an interim-dividend of 17 cents for the half-year, an increase of 1 cent from a year ago.

Samuel Tsien, Chief Executive Officer of OCBC, commented on the bank’s quarterly results, “Our quarterly and first half results underscored the continued strong performance of our customer franchise. Broad-based loan and deposit growth, a stable net interest margin, record high income from fees and commissions, strong insurance product sales at Great Eastern all contributed to our underlying performance.

We are also pleased with the increased contributions from our Malaysian and Indonesian banking subsidiaries, which reflected the results of our focused strategy of deepening and diversifying our business franchises in the region.

 Despite the partial erosion to our earnings in the second quarter from the unrealised mark-to-market losses at our subsidiary Great Eastern, the momentum in our customer flow business remains strong. Coupled with our sound capital, funding and liquidity position, we are well-placed to make further inroads into the Group’s key markets, while being alert to possible continued uncertainties in the global economy.”

OCBC’s shares are currently exchanging hands at S$10.61 apiece at the time of writing. At that price, shares of the bank are selling for 1.6 times its net asset value and carry a forward dividend yield of 3.2% based on the annualised half-year pay-out of 17 cents per share.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.