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Oversea-Chinese Banking Corp Limited’s Latest Earnings: What Investors Should Know

Oversea-Chinese Banking Corp Limited (SGX: O39) – or better known as OCBC – reported its fiscal fourth quarter earnings for the year ended 31 December 2014 yesterday. The reporting period was for 1 October 2014 to 31 December 2014.

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 15 countries. The bank also counts insurer Great Eastern Holding Limited (SGX: G07) as a subsidiary.

You can catch up with OCBC’s third quarter earnings here.

Financial highlights

Here’s a quick rundown on OCBC’s income (essentially the “revenue” for a bank) given in the latest earnings release:

  1. For the fourth quarter, net interest income for OCBC rose by about 24% to $1.25 billion on a year-on-year comparison. OCBC finished 2014 with $4.74 billion in net interest income, 22% above 2013’s net interest income of $3.88 billion.
  2. Next up, non-interest income increased by 12% compared to last year. This income bucket ended the fourth quarter with $762 million. For the full year, non-interest income came in at $3.21 billion or some 17% above income levels achieved last year.

Taken together, OCBC made $2.04 billion in total income for the fourth quarter, or 19% above the same period last year. For the whole of 2014, OCBC made $7.95 billion, up 20% from 2013’s total income levels.

On the costs and expenses side of things:

  1. OCBC’s operating expenses recorded a 29% increase year-on-year for the fourth quarter. For the year, expenses rose by 17% to $3.3 billion compared to 2013.
  2. Allowances for loan losses and impairment of other assets for the quarter leapt by a hefty 127% year-on-year to $154 million. For 2014, this allowance was $357 million, or 34% higher than 2013.

In summation, 2014’s fourth quarter net profit was $791 million or 11% higher than the fourth quarter of 2013. For the entire 2014, net profit (including a one-off gain) was $3.84 billion, or up 39% compared to 2013. The one-off gain came from an increased stake in the Bank of Ningbo and amounted to $391 million.

OCBC declared a final dividend of 18 cents per ordinary share during the quarter. Including the interim dividend of 18 cents per share, OCBC will distribute a total dividend of 36 cents per share for 2014, up 6% from 2013.

Operational highlights

Net interest income rose from strong asset growth and improved net interest margin. Meanwhile, the increase in non-interest income was driven by a 10% increase in fee and commissions and wealth management activity as well as positive contributions from Great Eastern. You can find out more about Great Eastern’s own earnings for 2014 in here.

OCBC’s customer loans rose 24% from a year ago to reach $210 billion. Excluding OCBC Wing Hang (which was acquired in the second half of 2014), customer loans rose 8% year-on-year.

The non-performing loan ratio was 0.6% for both the whole and fourth quarter of 2014, an improvement from 0.7% seen for both 2013 and the fourth quarter of the year. Elsewhere, OCBC ended 2014 with customer deposits of $246 billion, 25% higher compared with a year ago. Excluding OCBC Wing Hang, customer deposits rose 8% year-on-year.

Based on regulatory requirements from the Monetary Authority of Singapore, banks in Singapore must at least match the following Capital Adequacy Ratios (CARs) from 1 January 2015 onward: Common Equity Tier 1 (CET1) at 6.5%, Tier 1 at 8% and Total at 10%.

OCBC may be considered well capitalized as its CARs are comfortably higher than MAS’ requirements at 13.8%, 13.8%, and 15.9% respectively.

Chief Executive Officer Samuel Tsien summarized the year with a few words:

“We are very pleased with our full year performance. Our results demonstrated the diversity and resilience of our core businesses in commercial banking, wealth management and insurance which lifted earnings to a new high. We will continue with our strategy of prudent growth, focusing on our key markets of Singapore, Malaysia, Indonesia and Greater China.

The scale and depth of these markets give us a diversified customer franchise and sustainable earnings base, which will allow us to further grow and deepen our presence. Together with our strong balance sheet and robust risk management practices, we are well-positioned for continued long-term growth, while also being alert to potential headwinds to the global economy in the year ahead.”

Foolish summary

At its closing price of $10.90 yesterday, OCBC traded at around 1.46 times its latest book value and offers a trailing 12 months dividend yield of 3.3%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.