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Oversea-Chinese Banking Corporation Ltd Starts The Year With a Bang

With banks in Singapore doing tremendously well financially in 2017, plus bank stocks up more than 50% on average over the last one-year period, the spotlight was firmly on them as they released their first quarter results for 2018.

DBS Group Holdings Ltd (SGX:D05) and United Overseas Bank Limited (SGX:U11) had exceptional first quarters as net income and profit for both companies grew at a double-digit pace. Oversea-Chinese Banking Corporation Ltd (SGX:O39) was the last bank to release its results. Did OCBC match its competitors?

In this article, I take a look at 10 important highlights from OCBC’s latest earnings.

1. Total income for the quarter rose 10% to S$2.33 billion from S$2.12 billion. Operating expenses increased 6% to S$1.03 billion. As a result, operating profit grew 13% to S$1.3 billion from S$1.15 billion. Net profit rose at an even quicker pace of 29% year-on-year to S$1.11 billion from S$861 million.

2. Annualised return on equity increased 2.2 percentage points to 11.8% from 9.6% over the same period last year. Annualised earnings per share jumped 30.6% year-on-year to 107.3 cents from 82.1 cents.

3. Net interest income for the quarter grew 11% to S$1.42 billion from S$1.27 billion the same period last year. This was driven by a 10% increase in average customer loans and a five basis point increase in net interest margin to 1.67%. Net interest margin is the difference between the cost of capital and the interest earned from loans.

4. Non-interest income increased 8% year-on-year to S$918 million, compared to S$850 million a year ago. The was largely driven by an 11% increase in fee and commission income to S$536 million, which was led by a 19% increase in wealth management income. Profit from life assurance also increased to S$166 million from S$49 million the previous year, a 238% increase.

5. Despite the 6% increase in expenses, the group’s cost-to-income ratio fell 1.7 percentage points to 44.2%. This was due to strong income growth and effective cost management.

6. The allowance for loans and other assets declined to S$12 million, from S$168 million the first quarter of 2017. Non-performing assets was S$3.45 billion, slightly below S$3.47 billion last quarter. Non-performing loans ratio fell to 1.4% from 1.5% on 31 December 2017.

7. Liquidity wise, the bank was also well covered. It had a comfortable loans-to-deposit ratio (LDR) of 84.4%, as at 31 March 2018. A LDR below 90% is considered safe. For the quarter, the group also had an all-currency liquidity coverage ratio of 149%, well above the regulatory requirement of 80%. Common Equity Tier 1 Capital Adequacy Ratio (CER1 CAR), a common measure of the bank’s ability to withstand economic shocks, stood at 13.1%. This is well above the regulatory minimum of 6.5%.

8. The group’s subsidiaries also did exceptionally well over the quarter as they contributed 32% to the group’s profit. Notably, Great Eastern Holding Limited‘s (SGX: G07) net profit contribution to the group increased 80% year-on-year. Meanwhile, OCBC Wing Hang, OCBC Malaysia and OCBC NISP had a 29%, 7% and 18% increase in net profits respectively.

9. On the outlook for the rest of the year, Samuel Tsien, the chief executive of OCBC, said:

“Business sentiments have been positive, but we remain vigilant to geo-political events including increased global trade tensions and the effects of higher interest rates on investment activities and the overall economy. We will remain focused on our strategy of depending and growing the Group’s key markets and network to support our customers.”

10. Based on its last traded price of S$13.08, shares of OCBC had a price-to-book value of 1.5, an annualised price-to-earnings ratio of 13.5 and a dividend yield of 2.8%.

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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 a recommendation on DBS Group Holdings and United Overseas Bank. Motley Fool Singapore contributor Jeremy Chia owns shares in DBS Group Holdings.