10 Quick Things Investors Should Learn About Oversea-Chinese Banking Corp Limited From Its Management

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.

In late July this year, OCBC released its results for the second-quarter and first-half of 2016. I had spent time going through the webcast of OCBC’s earnings presentation and noted down 10 things that may interest investors.

As a quick background, OCBC is one of the three major banks based out of Singapore. It 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:

  1. Darren Tan, OCBC’s chief financial officer, kicked off the briefing with an overview of the bank’s performance. OCBC’s 2016 second-quarter net profit is S$885 million, some 15% lower compared to the second-quarter of 2015, but 4% higher quarter-on-quarter. Tan highlighted that 2015’s second-quarter included a substantial gain from the divestment of New China Life. Excluding the gain last year, OCBC’s net profit in 2016’s second-quarter would have been lower by only 10% year-on-year.
  2. Much of the fall in net profit was due to Great Eastern. Tan noted that OCBC’s banking operation, which excludes Great Eastern, saw its net profit contract by just 1% year-on-year to S$808 million.
  3. For the first-half of 2016, Global Corporate and Investment Banking is the largest contributor to OCBC’s profit before tax (PBT) at 46%. From a geographical standpoint, Singapore remains the key contributor of PBT at 50% of the total.
  4. Net interest income for OCBC was up 1.4% year-on-year for the first-half of the year. OCBC’s net interest margin (NIM) was 1.68% for 2016’s second-quarter. A year ago, OCBC’s NIM was 1.67%. A quarter ago, its NIM was 1.75%.
  5. Non-interest income, which came in at S$788 million, was 16% lower year-on-year. Tan said that the second quarter last year included a gain of S$136 million from the aforementioned sale of New China Life.
  6. Tan said that operating expenses were well-controlled, up only 1% year-on-year and quarter-on-quarter. OCBC’s cost to income ratio was 45.5%, a rise from the 41.3% recorded a year ago.
  7. As of 30 June 2016, OCBC had S$205 billion in customer loans. This is down 2% compared to a year ago. On constant currency terms, customer loans were down 1% year-on-year.
  8. Geographically, Tan said that OCBC’s loans remain well diversified, with Singapore still the largest piece at 43% of the pie. Tan said there was growth in Singapore, Malaysia, and Indonesia, but China loans fell by 14% year-on-year. From an industry perspective, housing loans were the largest contributor at 28% of the total pie. Tan added that the share of loans for manufacturing and general commerce were lower, reflecting the weakness in both industries.
  9. Customer deposits for OCBC was S$246 billion at the end of June 2016, 2% higher than the previous quarter. Tan said that OCBC will continue to rebalance its deposit base, reducing the relatively expensive fixed deposits in favour of current or savings accounts (CASA). To give more insight, Tan said that the CASA balance grew by 7% to S$121 billion while fixed deposits fell by 4% to S$108 billion. As a result, OCBC’s CASA ratio (ratio of CASA to total deposits) increased to 49.3%, up from 46% a year ago.
  10. OCBC reported a loan-to-deposits ratio (LDR) of 82.2%. Slower growth in loans compared to the growth in deposits led to OCBC reporting a LDR  of 82.2%. Tan mentioned that the bank’s RMB LDR and US dollar LDR was 63.1% and 71.3%, respectively. OCBC also had a liquidity coverage ratio (LCR) of 130%. Current Basel III regulations require banks to have a LCR of 100% by 2019.

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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.