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

Oversea-Chinese Banking Corp Limited (SGX: D05) reported its fiscal fourth-quarter earnings this morning. The reporting period was for 1 October 2015 to 31 December 2015.

The bank, which is better known as 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 today has operations in 18 countries and territories. It counts Singapore’s oldest life insurance group, Great Eastern Holding Limited (SGX: G07), as a subsidiary.

You can learn more about OCBC in here or catch the results from the bank’s previous quarter here.

Financial highlights

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

  1. For the fourth-quarter, net interest income rose by 5% to $1.34 billion on a year-on-year comparison. OCBC ended the whole of 2015 with $5.2 billion in net interest income, up 10% from 2014.
  2. Next up, non-interest income jumped by 26% in the reporting quarter from $762 million a year ago to $960 million. This sales bucket finished 2015 with $3.53 billion, also up 10% from 2014.

Taken together, OCBC made $2.30 billion in total income for the reporting quarter, representing a 13% growth rate from 2014’s fourth-quarter. For the full year, OCBC made $8.72 billion in total income, an increase of 10% from the $7.95 billion seen in 2014.

On the expense side of things along with share of results of associates and joint ventures:

  1. OCBC’s operating expenses rose 6% year-on-year for the fourth-quarter and 12% for the whole of 2015.
  2. Allowances for loans and impairment of other assets for the reporting quarter leapt by 25% to $193 million. For the whole of 2015, it surged by 37% to $488 million from a year ago. This may be something investors would want to watch going forward.
  3. Share of results of associates and joint ventures had dipped by 1% to $63 million in the reporting quarter, but had spiked by 215% to $353 million for the year.

Taken together, OCBC’s net profit attributable to shareholders for 2015’s fourth-quarter was $960 million, or 21% higher compared to the fourth-quarter of 2014. For 2015, the same net profit was up just 2% to $3.90 billion when compared to 2014.

But, there was a one-off gain of $391 million in 2014; if that were stripped away, OCBC’s core net profit attributable to shareholders in 2015 would be 13% higher than in 2014.

OCBC’s board of directors had proposed a final dividend of $0.18 per share, bringing the total dividend for 2015 to $0.36 per share. This is unchanged from 2014’s dividend.

Additionally, the bank had ended 2015 with a net asset value per share of $8.03, up 7.6% from a year ago.

Operational highlights

Net interest income had rose in the quarter from strong asset growth and a higher net interest margin (NIM). OCBC recorded a NIM of 1.74% for the reporting quarter, up from the 1.67% seen a year ago. For the whole of 2015, NIM was 1.67%, a touch lower than the 1.68% seen in 2014; growth in net interest income for the year had been driven primarily by an 11% increase in average balances of customer loans, which included the consolidation of OCBC Wing Hang.

As a reminder, OCBC had acquired the Hong Kong-based Wing Hang Bank in August 2014.

Meanwhile, the 26% spike in non-interest income for the fourth-quarter was largely due to a 5% rise in fee and commision income and a 24% increase in profit from life assurance activities and dramatically higher net trading income. For the whole of 2015, non-interest income had grown partly due to a 10% climb in fee and commission income to $1.64 billion, which was a record high.

OCBC’s share of results of associates and joint ventures had experienced a massive boost in 2015 largely because the Bank of Ningbo had become an associate; OCBC’s one-off gain of $391 million in 2014 had resulted from it buying a bigger stake in Bank of Ningbo to reach the 20% mark.

OCBC’s customer loans was relatively unchanged from a year ago at $211 billion. The non-performing loan ratio was 0.9% as of 31 December 2015, which is a deterioration from the 0.6% seen a year ago. Elsewhere, OCBC ended the quarter with $246 billion in customer deposits, unchanged from a year ago. OCBC also turned in a loan-to-deposit ratio of 84.5% in 2015, the same as it was a year ago.

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

OCBC may be considered well capitalized as its CARs are comfortably higher than MAS’ requirements at 14.8%, 14.8%, and 16.8%, respectively. The bank also ended 2015 with a leverage ratio of 8% which is more than twice the minimum requirement of 3%.

Samuel Tsien, OCBC’s chief executive, had summarized the year with the following paragraphs in the earnings release:

“The past year has been a challenging one for most industries. The ongoing economic transformation and slowdown in China have created contractionary pressure on regional economies. Global economic growth was slow and was dampened further by a series of geo-political events. Interest rates remained low for most of 2015 and its recent rise has prompted renewed volatilities in the capital and financial markets. Regulatory expectations have increased and banks are facing higher requirements for capital, liquidity and regulatory compliance.

Despite this backdrop, our well-positioned and diversified banking and insurance franchise has enabled us to continue to achieve sustained growth. We delivered record earnings and further strengthened our financial position with strong capital ratios, ample liquidity and comfortable allowance coverage ratios.

Looking ahead, we are positive on OCBC’s continued ability to deliver sustainable growth, and will be conservative, prudent and focused on our long-term strategic priorities in the context of the current operating environment.”

Foolish summary

At its opening price of $7.96 today, OCBC had a trailing dividend yield of 4.5% and is valued at just below 1 times its book value.

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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.