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

Oversea-Chinese Bank Corp. Limited (SGX: O39) – better known as OCBC – reported its third-quarter earnings on Wednesday. The reporting period was for 1 july 2015 to 30 September 2015.

OCBC is one of the three major banks in Singapore, along with DBS Group Holdings Ltd (SGX: D05) and United Overseas Bank Ltd (SGX: U11). OCBC is the oldest bank in Singapore, and has operations in 15 countries. It counts Great Eastern Holding Limited (SGX: G07) as one of its subsidiaries.

You can learn more about OCBC here , here and here .  

Financial highlights

Here’s a quick rundown on OCBC’s income (essentially the “revenue” for a bank):

  1. For the third quarter, net interest income for OCBC rose by 6% to $1.32 billion on a year on year comparison.
  2. Next up, non-interest income decreased by 3% compared to the same period last year. The topline segment ended the third quarter with $775 million.

Taken together, OCBC made $2.09 billion in total income for the quarter, or 2% above the last year’s third quarter.

On the expense side of things:

  1. OCBC’s operating expenses rose 3% year on year for the third quarter.
  2. Allowances for loan and impairment of other assets for the reporting quarter leapt by 56% year on year to $150 million.

Taken together, 2015’s third-quarter core net profit was $902 million or 7% higher than the third quarter of 2014. Core net profit was boosted by higher contribution from its associates and joint ventures. Net profit, which includes one off gains, fell 27% year on year, when compared to the 2014’s third quarter. The corresponding quarter last year included a $391 million fair-value gain.

Operational Highlights

Net interest income rose from strong asset growth. Loans growth came from the building and construction sector as well as housing loans. OCBC recorded a net interest margin of 1.66%, a touch lower than the 1.68% the bank recorded in the third quarter of 2014.

Meanwhile, the 3% decrease in non-interest income was largely due to a decline in insurance income.

The group’s customer loans rose 4% year on year ago to reach $213 billion. The non-performing loan ratio was 0.9%, a slight decline from 0.7% a year ago. Elsewhere, OCBC ended the quarter with $252 billion in customer deposits, around 6% higher from a year ago.

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

OCBC may be considered well capitalised as its CARs are comfortably higher than the MAS’ requirements at 14.5%, 14.5% and 16.6% respectively.

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

This quarter marks the first year since we acquired OCBC Wing Hang Bank. It is evident that the OCBC Wing Hang Bank addition to our Greater China franchise has further strengthened and diversified the Group’s earnings.

Our banking operations reported another quarter of strong growth, with core net profit increasing 25% year-on-year and 4% quarter-on-quarter. Our insurance operations, while recording strong underlying business growth as reflected by increased total weighted new sales and higher new business embedded value, was impacted by unrealised mark-to-market losses in its debt and equity investment portfolio as a result of the volatile financial markets.

Against a more uncertain and challenging operating environment, we will continue to be focused and prudent as we grow our franchise across our key markets. We will maintain our strong capital position, remain disciplined in our cost management and set aside an adequate level of allowances.

Foolish summary

At its opening price of $9.18 on Wednesday, OCBC traded at around 1.18 times trailing price to book value with a dividend yield of 3.9%.

If you'd like to keep updated on the latest company and financial news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

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.