Oversea-Chinese Banking Corp Limited (SGX: O39), or OCBC for short, is one of the cool companies in Singapore that shares webcasts and/or transcripts of their earnings presentations.
In mid-February, the company released its 2016 fourth quarter and full year earnings. I had recently spent time watching the webcast of OCBC’s earnings presentation and noted down 12 things that may interest investors.
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As a quick background, 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.
With that, here are my notes:
1. Darren Tan, OCBC’s chief financial officer, kicked off the meeting with an overview of the bank’s performance. OCBC’s 2016 net profit is $3.47 billion, down 11% compared to 2015. Tan said that the result was achieved despite a tough operating environment, which he said reflected the strength of OCBC’s diversified portfolio of businesses around the globe.
2. Among the highlights, Tan singled out the strong growth in Great Eastern Holding’s policy sales and the 45% increase in Bank of Singapore’s assets under management (AUM) to $79 billion. Bank of Singapore, which is OCBC’s private banking arm, benefited from the April 2016 acquisition of Barclay’s wealth and investment management business in Singapore and Hong Kong. Tan said that the aforementioned strong performances helped offset the stress that OCBC encountered in the oil and gas sector.
3. Moving on, Tan provided a deeper look at the different segments that make up OCBC. For 2016, OCBC Wing Hang, OCBC NISP, OCBC Malaysia, and Great Eastern Holdings accounted for 35% of OCBC’s overall net profit.
4. From a profit before tax level, Tan added that Global Corporate Banking is the largest contributor at 39%. The next biggest was Global Consumer and Private Banking at 21%. From a geographical standpoint, Singapore remains the key contributor of PBT at 50% of the total.
5. OCBC’s net interest income was down 3% in 2016 due to lower average asset volumes. OCBC’s net interest margin (NIM) was 1.67%, unchanged from 2015, although Tan pointed out that the NIM has been steadily declining throughout the year.
6. Non-interest income, which came in at S$3.44 billion for 2016, was also down 3%. Tan said that 2016 had lower income from life assurance and 2015 included a one-off gain of S$136 million from Great Eastern’s sale of its stake in New China Life.
7. Tan said that operating expenses were well-controlled, up 3% for the year. He added that expenses included integration costs from the aforementioned acquisition of Barclays Wealth.
8. Net allowances were 49% higher at $726 million. Tan said that higher specific allowances for the oil and gas support services portfolio, totalling $484 million, was behind the spike in net allowances.
9. As of 31 December 2016, OCBC had $220 billion in customer loans. This is up 5% compared to a year ago. OCBC benefited from the addition of Barclays Wealth. Excluding the latter, OCBC’s customer loans grew 3% in 2016.
10. Geographically, Tan said that OCBC’s loans remained well diversified, with Singapore as the largest piece of the pie at 43%. From an industry perspective, housing loans were the largest contributor at 27% of the total pie.
11. Customer deposits was $261 billion at the end of 2016, 6% higher than 2015. Tan said that current accounts or savings accounts (CASA) deposits grew 11% during the year. As a result, OCBC’s CASA ratio (ratio of CASA to total deposits) increased to 51.1%, up from 50.2% a year ago.
12. OCBC reported a LDR (loan-to-deposit ratio) of 82.9%. Tan also pointed out that OCBC had a loan coverage ratio (LCR) of 145%, above the regulatory requirement 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. The Motley Fool Singapore has recommended shares of United Overseas Bank. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.