Oversea-Chinese Banking Corp. Limited (SGX: O39), or OCBC for short, started the year off with a bang. Total income spiked 24%, while net profit rose 11% on the back of record high operating profits. Here are some other highlights from its earnings update for the first three quarters of 2019. The numbers: Net interest income increased by 8% to S$1.53 billion Non-interest income rose 24% to S$1.14 billion Operating expenses increased by 6% to S$1.10 billion Operating profit before allowance was up 23% to a…
Oversea-Chinese Banking Corp. Limited (SGX: O39), or OCBC for short, started the year off with a bang. Total income spiked 24%, while net profit rose 11% on the back of record high operating profits.
Here are some other highlights from its earnings update for the first three quarters of 2019.
- Net interest income increased by 8% to S$1.53 billion
- Non-interest income rose 24% to S$1.14 billion
- Operating expenses increased by 6% to S$1.10 billion
- Operating profit before allowance was up 23% to a record high of S$1.75 billion
- Allowances stood at S$0.25 billion
- Return on equity improved to 12.0% from 11.8% in 2018Q1
- Annualised earnings per share rose 8.4% to S$1.16
- Customer loans increased by 5%, while customer deposits grew by 2%
- Non-performing loan ratio was 1.5%
- Leverage ratio was 7.4%
- Common equity Tier 1 capital adequacy ratio was 14.2%, above the 6.5% regulatory requirement
What’s behind the numbers
It was a fantastic start to 2019 for Singapore’s second-largest lender, as almost all aspects of the bank’s operating performance improved from the previous year. The chart below shows the group’s operating profit by business.
Source: OCBC 2019 Q1 Earnings Presentation
As you can see, the biggest driver of growth came from the insurance segment. Operating profit from the insurance segment made up 24% of total group operating profit, up from just 13% last year.
The 8% increase in net interest income was driven by both net interest margin expansion and the 5% increase in loan volume. Net interest margin for the quarter increased 9 basis points to 1.76% from 1.67% in the first quarter of 2018.
Source: OCBC 2019 Q1 Earnings Presentation
Non-interest income was largely driven by its insurance segment and trading income. However net fee income declined year-on-year by 7.7%.
The group maintained is strong funding and capital position, with customer deposits growing 2%. The CER tier-1 CAR of 14.2% was well above the regulatory requirement of 6.5% and also showed an improvement from 13.1% a year ago.
OCBC reported growth in most aspects of its business, in line with the other two major local banks, which reported earnings last week. Despite the solid first quarter performance, CEO Samuel Tsien said:
“We will continue to stay watchful of the progress of trade negotiations between the United States and China, developments in financial markets and conclusion of a number of elections in the region. In sustainable financing, we made significant strides to grow the financing of renewable energy projects and pledged to stop new coal-fired power plant financing. With our strong funding and capital position, we are very well-placed to ride on new opportunities as they are presented and will continue to deepen our presence in our core businesses and markets.”
There were few surprises in OCBC’s solid first-quarter results. Investors should continue to expect higher net interest margins over the next few quarters as the bank slowly revises up their loan interest rates this year. This should provide additional interest income growth.
The bank is also well capitalised and looks to be in a solid position to utilise its excess assets for loan growth. All things considered, investors should be pleased with what they have seen so far.
At the time of writing, shares of OCBC trade at S$11.51, giving it a price-to-book ratio 1.15, a price-to-earnings multiple of 10.7 and a dividend yield of 3.8%.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for Overseas-Chinese Banking Corp Limited.