OCBC beats expectations with 14% rise in Q1 profit to S$973m
Strong earnings helped by wealth management income's sustained growth and insurance operations
Singapore
OCBC Bank posted a 14 per cent year-on-year jump in first-quarter net profit due to more fee income and higher profits from its Indonesian businesses.
The last of the three local banks to report Q1 results, OCBC said net profit rose 14 per cent to S$973 million from sustained growth in wealth management income, higher profit from insurance operations as well as increased earnings in local currency terms from all the group's overseas banking subsidiaries, particularly from Indonesia.
The unexpectedly strong earnings handily beat the S$845 million average forecast in a Bloomberg survey of seven analysts.
Net interest income of S$1.27 billion for the first quarter was 3 per cent lower as compared to S$1.31 billion a year ago, as higher loans was offset by net interest margin (NIM) compression. Loans grew 5 per cent year-on-year led by broad-based growth across most industry segments and key markets. NIM contracted 13 basis points to 1.62 per cent from 1.75 per cent a year ago.
Loans growth came mainly from housing and other consumer loans, as well as from investment and holding companies.
Elaborating on the loans growth, OCBC chief executive Samuel Tsien said that it was due to more trade finance and Singapore conglomerates and individuals investing overseas in properties and hotels in London, Australia, the United States and, more recently, Japan.
Private banking customers also have been leveraging up their investments, he said. But the local economy has not been so strong, he said, so loans to food and beverage and retailing has been "stable".
OCBC's star performer was its non-interest income which rose 30 per cent to S$977 million from S$753 million a year ago. Fee and commission income climbed 29 per cent to S$481 million, led by a 70 per cent rise in wealth management fee income, which got a boost from the acquisition of the former wealth and investment management business of Barclays PLC in Singapore and Hong Kong last November.
Profit from life assurance more than doubled from S$83 million in the preceding year to S$176 million, thanks largely to a positive performance by Great Eastern Holdings, its Singapore-listed insurance arm.
Wealth management income, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, grew 50 per cent to S$724 million, from S$482 million a year ago. As a result, it contributed 32 per cent to the group's total income, compared to 23 per cent in a year ago.
OCBC's private banking business saw a significant increase in assets under management to US$85 billion (S$119 billion) on March 31, 2017, up 49 per cent from US$57 billion (S$77 billion) the previous year, partly contributed by the Barclays acquisition.
Its private banking unit, Bank of Singapore, now has 400 relationship managers, up from 300 plus a year ago, said Mr Tsien.
On whether the strong fee income can be sustained, he said it depends "very much on the risk-on, risk-off" sentiment of investors.
In Q1, "Bank of Singapore did quite a lot of fund sales," he said. The risk-on sentiment has continued into the current quarter but is less strong compared with Q1, he said.
Operating expenses rose 5 per cent from a year ago, driven by an increase in staff costs partly associated with the consolidation of Barclays.
Cost-to-income ratio declined to 43.3 per cent, from 44.8 per cent a year ago.
Mr Tsien said the bank will maintain its cost-to-income ratio between 40 and 45 per cent.
Overall non-performing loans ratio was stable at 1.3 per cent from the previous quarter and up from one per cent a year ago. New non-performing assets (NPA) formation was S$391 million, mainly from the oil and gas sector. Mr Tsien said he expects new NPA to "stabilise around this level".
"Oil prices continue to be in a depressed state - not in the bag yet," he said. OCBC's view is that oil prices will end the year at US$65 a barrel, from the under US$50 now.
OCBC shares closed trading on Tuesday at S$10.46, up 16 cents.
READ MORE: Greener pastures abroad, wealth fees drive profits for Singapore banks
