Oversea-Chinese Banking Corp Limited (SGX: O39) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their earnings presentations. There is a lot of useful information that can be taken from the webcasts and transcripts. Roughly a month ago, Oversea-Chinese Banking Corp, or OCBC for short, had released its earnings for the quarter and year ended 31 December 2015. I had spent time watching a webcast of the earnings release and came away with 10 important things that may be worth noting for investors. But before I share them, here’s a quick background on OCBC for…
Oversea-Chinese Banking Corp Limited (SGX: O39) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their earnings presentations.
There is a lot of useful information that can be taken from the webcasts and transcripts. Roughly a month ago, Oversea-Chinese Banking Corp, or OCBC for short, had released its earnings for the quarter and year ended 31 December 2015. I had spent time watching a webcast of the earnings release and came away with 10 important things that may be worth noting for investors.
But before I share them, here’s a quick background on OCBC for context. The company 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.
With that, here are my notes:
- Darren Tan, OCBC’s chief financial officer, kicked off the presentation with an overview of the bank’s performance. As mentioned in my earlier article, OCBC recorded a core net profit of $3.9 billion for 2015, a 13% increase from 2014. Great Eastern Holding contributed $639 million to OCBC’s 2015 core net profit. The core net profit from banking activities alone, which excludes Great Eastern Holding, was $3.3 billion, or a 20% increase from the prior year.
- Global Corporate and Investment Banking is the largest contributor to OCBC’s profit before tax (PBT) at 40%. Global Consumer and Private Banking pitched in with 21% of the total PBT. Elsewhere, insurance made up 18% of OCBC’s total PBT while OCBC Wing Hang’s contribution stood at 8% for 2015. OCBC had acquired the Hong Kong-based Wing Hang bank in 2014.
- From a geographical standpoint, Singapore remains the key contributor in terms of PBT with 55% of the total. Greater China was next with 20% of OCBC’s total PBT while Malaysia and Indonesia made up 17% and 4%, respectively.
- Meanwhile, OCBC’s net interest margin (NIM) was 1.74% at the end of the fourth–quarter of 2015. This is the highest NIM the bank achieved over the past eight quarters. For the full year, OCBC’s NIM was 1.67%.For some perspective, DBS Group had a slightly higher NIM of 1.77% in 2015.
- Non-interest income for the year was 10% higher at $3.53 billion. OCBC benefited from higher fees and commissions, trading income, and net gains from investment securities. Fee income contributed $1.64 billion for the year, making up 46% of the total non-interest income. Tan also dived in further on the fee income breakdown. Fee income rose 10% primarily due to higher brokerage and fund management fees and increases at the wealth management segment.
- OCBC’s cost to income ratio was 42%, a bump up from the 41% recorded a year ago. This is still lower than the 45% cost to income ratio recorded by DBS Group though.
- At end-2015, OCBC recorded $211 billion in customer loans. From the total amount, Singapore accounted for $88 billion of the loans. Greater China had $56 billion while Malaysia and Indonesia were at $29 billion and $11 billion respectively. From an industry perspective, 27% or $56 billion of the loans came from housing loans. Building and construction pitched in with $35 billion, or 15% of the total.
- Customer deposits was $246 billion at the end of 2015, flat compared to the year before. However, OCBC saw an improvement in its CASA ratio (the ratio of deposits in current and saving accounts to total deposits). In general, a higher CASA ratio points to lower cost of funds because banks often do not provide high interest rates for current and savings accounts. OCBC’s CASA ratio for 2015 was 48.9%, an increase from the 44.6% seen at the end of 2014.
- In an earlier article, I mentioned that OCBC had reported a loan-to-deposit ratio of 84.5%. This is lower than DBS Group’s 88% selfsame figure. OCBC also had a liquidity coverage ratio (LCR) of 124%, above the Monetary Authority of Singapore’s minimum requirement of 100% by 2019.
- OCBC had a non-performing loan (NPL) ratio of 0.9% at the end of 2015. This was higher than the 0.6% recorded at the end of 2014. New non-performing assets (NPA) amounted to $1.95 billion in 2015, a sharp rise from the $936 million in new NPAs recorded the previous year. Tan said that it was due to large corporate accounts related to the oil and gas services sector.
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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.