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OCBC expects 2% dip in 2020 revenue growth on virus impact; ups dividend on higher Q4 profit

OCBC Bank’s net profit grew 34 per cent to S$1.24 billion for its fourth quarter, from S$926 million a year ago, driven mainly by wealth management, higher income from trading, sale of investment securities and properties, and its insurance franchise.

OCBC Bank on Friday upped its dividend payout as profits beat estimates for its fourth quarter, although it flagged a weaker-than-expected outlook for the global economy ahead.

In a media briefing on Friday, chief executive officer Samuel Tsien said he expects a 2 per cent dip in revenue this year due to the novel coronavirus outbreak, with the base case scenario being that Covid-19 will settle down by June.

Credit costs are projected to go up by a few basis points, and a slight uptick is also expected for its non-performing loan ratio, even though the magnitude of increases “won’t be significant”, Mr Tsien said.

About 6 per cent of OCBC’s portfolio is exposed to vulnerable sectors such as hospitality, retail, food and beverage and aviation.

The bank’s exposure to manufacturing – which will be hit by the second-order impact from the virus as supply chains get disrupted – is another 4 per cent.

In 2020, Mr Tsien expects loan growth to be low, with net interest margin (NIM) to come in below 2019’s 1.77 per cent as interest rates go down.

NIMs are a key gauge of profitability for banks, measuring the difference between income earned from loans and the interest paid to depositors.

“We are watchful of the impact to our business and customers from the continuing trade tensions, heightened geo-political risks and the Covid-19 outbreak, and will extend support to customers to help them overcome the market challenges,” he said in a media statement.

In Q4, Singapore’s second largest lender proposed a dividend of S$0.28 per share, up from S$0.23 a year ago. Together with the interim dividend of S$0.25 per share, the total dividend for FY2019 amounts to S$0.53 per share, up 23 per cent from S$0.43 in the previous year.

The dividend payout ratio now stands at 47 per cent, up from 40 per cent in FY2018.

The bank's net profit grew 34 per cent to S$1.24 billion for its fourth quarter, from S$926 million a year ago, driven mainly by wealth management, higher income from trading, sale of investment securities and properties, and its insurance franchise.

This beat market expectations of S$1.13 billion, which is an average estimate of five analysts, according to data from Refinitiv.

Annualised earnings per share stood at S$1.11 for the quarter, up from S$0.85 a year ago.

In Q4, net interest income grew 6 per cent on the year to S$1.61 billion, on the back of loan growth and improved margins. Average customer loans increased 3 per cent from a year ago, mainly from lending to corporate customers.

NIM rose 5 basis points to 1.77 per cent largely due to the management of funding costs, up from 1.72 per cent a year ago.

Non-interest income climbed 58 per cent to S$1.31 billion for the quarter, from S$830 million in the previous year.

Net fees and commissions grew 17 per cent to a quarterly high of S$556 million, led by higher fees from wealth management, credit card, loan and transaction banking activities.

Net trading income increased to S$316 million from S$9 million a year ago, driven by higher gains from treasury activities, a rise in customer flow income, and mark-to-market gains. Net gains from the sale of investment securities were also higher at S$35 million, up from S$2 million a year ago.

Income from life and general insurance grew 25 per cent to S$308 million from S$247 million in the previous year, as a result of improved investment performance, and higher year-on-year sales, new business embedded value (NBEV) and margins.

The bank’s non-performing loans (NPL) ratio remained at 1.5 per cent as at Dec 31, 2019, from a year ago.

For the full year, OCBC’s net profit was 8 per cent higher at S$4.87 billion, led by sustained earnings growth across the group’s banking, wealth management and insurance franchise.

Earnings per share for FY2019 was S$1.14, up from S$1.06 a year ago.

Net interest income increased 7 per cent to a new high of S$6.33 billion from S$5.89 billion in the previous year, underpinned by asset growth and a rise in NIM.

Full-year NIM expanded 7 basis points to 1.77 per cent, mainly in Singapore and Greater China, as higher asset yields outpaced the rise in funding costs.

Non-interest income rose by 19 per cent to S$4.54 billion in FY2019, from S$3.81 billion a year ago, driven by broad-based income growth.

However, net allowances for loans and other assets in FY19 of S$746 million were above the S$288 million a year ago. The increase was largely attributable to allowances made for the non-performing loans in the offshore vessel support sector, where vessels coming off charter were not able to secure term renewals.