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

Oversea-Chinese Banking Corp Limited (SGX: O39) reported its fiscal first-quarter earnings this morning. The reporting period was for 1 January 2016 to 31 March 2016.

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 18 countries and regions. It counts insurance outfit Great Eastern Holding Limited (SGX: G07) as its subsidiary.

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

Financial highlights

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

  1. For the first-quarter, net interest income rose 5% year-on-year to $1.31 billion.
  2. Non-interest income for the reporting quarter fell 12% compared to the same period last year. This revenue bucket ended the first-quarter with $753 million.

Taken together, OCBC made $2.1 billion in total income for the first-quarter of 2016, a slight 2% decline from the first-quarter of 2015.

On the expense side of things:

  1. OCBC’s operating expenses rose 6% year-on-year for the first-quarter.
  2. Allowances for loan and impairment of other assets for the reporting quarter leapt by 162% year-on-year to $167 million.

While there was an uptick in expenses, the bright side is that the bank’s share of results from associates increased from $89 million in the first-quarter of 2015 to $106 million in the reporting quarter. Taken together, OCBC’s net profit for the reporting quarter was $856 million, 15% lower compared to the first-quarter of 2015.

OCBC grew its net asset value per share to $8.20 in the first-quarter of 2016, up by 5.1% from $7.80 exactly a year ago.  

Operational highlights

OCBC recorded a net interest margin of 1.75% for the reporting quarter, up from the 1.62% the bank recorded in the first-quarter of 2015.

Meanwhile, non-interest income declined due to lower contribution from Great Eastern. The segment was also hampered by lower wealth management, trade-related, and investment banking fees.

As of 31 March 2016, OCBC’s customer loans stood at $208 billion. The non-performing loan (NPL) ratio for the quarter was 1.0%, a deterioration from the NPL of 0.6% recorded a year ago.

Elsewhere, OCBC ended the quarter with $242 billion in customer deposits. This gave rise to a loans to deposits ratio of 84.7%. This is both a sequential and year-on-year increase. OCBC had a loans to deposits ratio of 83.0% and 84.5% in the first-quarter of 2015 and the fourth-quarter of 2015, respectively.

The loans to deposits ratio gives an indication of a bank’s liquidity and so, changes in the number are worth noting.

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 onward: A Common Equity Tier 1 (CET1) CAR of 6.5%, a Tier 1 CAR of 8%, and a Total CAR of 10%.

OCBC may be considered well capitalized as its CARs at the end of the reporting quarter are comfortably higher than MAS’ requirements at 14.6%, 15.1%, and 17.3% respectively. The bank’s CARs are also higher than the previous sequential quarter and the same quarter a year ago:

OCBC CAR ratios
Source: OCBC’s earnings presentations

OCBC’s chief executive Samuel Tsien commented on the quarter and the bank’s outlook:

“The Group’s banking operations in the first quarter of 2016 achieved total income growth of 4% year-on-year, and saw operating profit growth of 3%.

Given the weak economic environment and further stresses noted especially in the oil & gas support services sector, we continued to adopt a conservative approach and this was reflected in the increased level of provisions set aside for the quarter.

Meanwhile, financial market volatility in the first quarter resulted in unrealised mark-to-market losses in Great Eastern’s investment portfolios which impacted its reported earnings, despite the strong underlying business growth evidenced by an increase in total weighted new sales.

Importantly too, the Group continued to maintain its strong capital position, as reflected by a further improvement in our fully-loaded CET 1 ratio.

Looking forward, near term economic visibility continues to be low. We will remain focused on conservative growth in our core businesses and markets, while supporting our customers and staying vigilant in the midst of the current uncertain macroeconomic outlook.”

At its opening price of $8.79 today, OCBC had a price-to-book ratio of around 1.1 times and a trailing dividend yield of 4%.

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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.