OCBC posts record S$7.02 billion earnings for FY2023; expects lower NIMs, slow loan growth in 2024

SINGAPORE’S second-largest lender OCBC will likely post lower net interest margins (NIMs) and slow loan growth in 2024 amid a global growth slowdown, said OCBC group chief executive Helen Wong.

Speaking at the bank’s fourth quarter results briefing on Wednesday (Feb 28), Wong expects 2024 to be more challenging than 2023, although Asia will likely perform better than the world average.

“We think there will be continued potential as we optimise in capturing growth opportunities in the Asean-Greater China link and our corridor,” she said.

The bank is targeting 2024 NIMs to be in the range of 2.2 to 2.25 per cent – assuming interest rate cuts in the second half of 2024 – which is down from its 2023 full-year NIM of 2.28 per cent.

Loan growth for 2024 will likely be in the low single digits, similar to targets set for 2023, as Wong expects a “rather muted demand” given the external environment.

She noted pockets of opportunities in various sectors, however, such as in energy, power and utilities, renewable energy, technology and digital infrastructures, as well as for purpose built student accommodation.

This comes after the bank reported record full-year results for the second year in a row.

Net profit rose 27 per cent year on year to S$7.02 billion for FY2023, crossing the S$7 billion mark for the first time.

This translated to earnings per share of S$1.55 for the full year, up 27 per cent from S$1.22 in the same period a year earlier.

Total income rose to a new high of S$13.5 billion, amid record high net interest income and higher trading and investment income.

“We benefited obviously from high interest rates, but also from the positive repositioning of our balance sheet and managing of our cost of funding,” Wong said.

For the fourth quarter of 2023, the lender’s net profit gained 12 per cent to S$1.62 billion from S$1.44 billion a year prior, driven by a 2 per cent increase in operating profit as well as lower allowances.

Net interest income grew 3 per cent year on year to S$2.46 billion, as average assets grew 4 per cent.

NIMs moderated two basis points (bps) to 2.29 per cent, as higher funding costs more than offset the increase in asset yields.

Meanwhile, non-interest income rose 25 per cent year on year to S$811 million in Q4.

Net fee income grew due to higher fees from wealth management, credit card and loan-related activities, while net trading income improved on the back of higher customer flow treasury income, offset in part by a decline in insurance income.

The bank declared a final dividend of S$0.42 per share, bringing its total dividend for the full year to S$0.82 per share, up 21 per cent from S$0.68 per share the prior year.

This represented a dividend payout ratio of 53 per cent of the group’s FY2023 net profit, which is ahead of the bank’s dividend payout target of 50 per cent.

Wong said the bank will continue to commit to its payout target of 50 per cent going forward.

The bank’s non-performing loan ratio as at Dec 31, 2023, was 1 per cent, down 0.2 percentage point from the prior year.

Operating expenses grew 19 per cent on the year to S$1.31 billion due to higher staff costs and other operating expenses.

Total allowances for the quarter stood at S$187 million, down 41 per cent from S$314 million in the prior year, due to a decline in allowances for both impaired and non-impaired assets.

Common Equity Tier-1 (CET-1) ratio stood at 15.9 per cent as at December 2023, up from 15.2 per cent a year earlier. Pro forma CET-1 ratio after adjusting for the final dividend declared will be 15.1 per cent.

In response to questions on the bank’s CET-1 levels, which are higher than its local bank peers, Wong said this was to “buffer for uncertainties and to allow room to grow organically and inorganically”.

Wong noted that the lender had already announced two acquisition proposals in 2023.

In November, OCBC proposed to acquire Bank Commonwealth in Indonesia, which is expected to add more than one million customers to the bank’s network.

In October, OCBC’s insurance arm Great Eastern also proposed to acquire AmMetLife Insurance and AmMetLife Takaful, and enter into exclusive 20-year bancassurance and bancatakaful distribution partnerships with AmBank and AmBank Islamic.

“We are interested (in more inorganic growth opportunities), but it has to be the right opportunity coming along,” Wong said.

Noting that OCBC has already announced plans to achieve an additional S$3 billion in revenue until 2025, Wong said the bank will announce another three-year plan in the later half of the year.

On the organic growth front, Wong also noted that the bank has a growth strategy, as it continues to invest in people and technology. It also continues to actively manage risks.

Wong is targeting credit costs to be between 20 and 25 bps for 2024, noting no structural weaknesses in the lender’s portfolio, and a return on equity target of between 13 and 14 per cent.

Shares of OCBC fell 2.6 per cent to S$12.97, as at 1.28 pm on Wednesday. Shares retreated in the morning amid heavy trading, after net profit missed estimates.