OCBC flags volatile investing climate as headwind; Q1 earnings dip 10%

OCBC chief executive Helen Wong has flagged a volatile investing environment as a headwind, and expects customers to be “not as active as last year”. This comes as the bank reported a 10 per cent dip in quarterly earnings, partly due to lower wealth management fees and trading income.

OCBC generated S$1.36 billion in earnings for Q1 FY2022 to March, according to financial statements released on Friday (Apr 29). While this was lower year on year, it beat analysts' expectation of S$1.2 billion.

OCBC's total income slid 9 per cent to S$2.64 billion in Q1 FY2022. Non-interest income declined 23 per cent to S$1.14 billion, amid a more volatile investing climate.

The drop in non-interest income was a result of lower wealth management fees, trading income and life insurance profit.  Wealth management income comprises mainly income from private banking, and sales of unit trusts, bancassurance products, structured deposits and other treasury products to consumer customers.

Wong attributed the slide in wealth management fees to a volatile investing climate that has soured investor sentiment. She told the media on Friday: “We do see our customers in a way sitting on the sidelines for a while, and so that has dampened wealth management fees and activities. We see that the geopolitical tension may continue, so some customers are coming back into the market, but I wouldn't paint a rosy picture. It is still volatile. So we expect our customers to perhaps definitely not (be) as active as last year.”

Net interest income was up, however, by 4 per cent to S$1.5 billion, lifted by a 5 per cent increase in assets - although partly offset by a 1 basis point drop in non-interest margin to 1.55 per cent.

Allowances for loans and other assets for the quarter were 73 per cent lower than a year ago.

Jefferies equity analyst Krishna Guha has noticed the sharp improvement in the bank’s credit costs. The allowances for loans as a percentage of average loans stood at 6 basis points on an annualised basis, down from 22 basis points a year ago.

Kevin Kwek, managing director for Asian financials at Alliance Bernstein, agreed that OCBC’s very low credit cost was key, especially after the spike to 41 basis points in Q4 FY2021.

Customer loans grew 8 per cent from a year ago, as at end-March, while customer deposits rose to S$348 billion. Current account and savings deposits rose 12 per cent year-on-year to S$218 billion, making up 62.7 per cent of customer deposits.

The loans-to-deposits ratio was 83.3 per cent, relatively unchanged quarter on quarter.

Earnings per share were S$1.21 for Q1 FY2022, lower than the S$1.35 a year ago.

Return on equity decreased 1.8 percentage points to 10.6 per cent, on an annualised basis. Common Equity Tier 1 capital adequacy ratio - a measure of a bank’s capital strength - was 15.2 per cent, marginally lower than 15.5 per cent a year ago.

Net asset value per share was S$11.55, compared to S$11.10 a year ago.

OCBC shares finished up 3.6 per cent to S$12.39 on Friday, after the financial results were released.