OCBC’s Q1 profit up 5% to S$1.98 billion; CEO confident about 2024
The move to wholly acquire Great Eastern should also add to the bank’s return on equity, she says
OCBC group chief executive Helen Wong is confident that the lender can deliver on its 2024 targets, amid the bank’s strong performance and an all-time-high income in the first quarter of the year.
Speaking at a briefing on its first-quarter results on Friday (May 10), she said she expects the lender’s return on equity (ROE) for 2024 to be at the higher end of its 13 to 14 per cent target, based on its current business trajectory.
In addition, OCBC’s move to wholly acquire Great Eastern Holdings (GEH) should also add to ROE, she said. On Friday, OCBC made an offer – at S$25.60 per share – to acquire the 11.56 per cent stake in the insurer that the bank does not currently own, with the aim of delisting GEH.
If there are fewer interest rate cuts than originally anticipated, Wong also expects 2024’s net interest margins (NIMs) will reach the higher end of its 2.2 to 2.5 per cent target range.
She suggested that there may be two rate cuts in 2024, dialling back from the lender’s original expectations of three cuts.
The bank’s Q1 net profit rose 5 per cent on year to a record S$1.98 billion, amid strong growth in operating profit, beating the S$1.85 billion consensus forecast in a Bloomberg survey of three analysts.
Wong noted that the group’s key businesses all did well, as reflected in the operating performance across its banking, wealth management and insurance segments.
Total income rose 8 per cent to a new quarterly high of S$3.63 billion.
Net interest income rose 4 per cent to S$2.44 billion, as a 5 per cent growth in average assets more than compensated for the decline in NIM. First-quarter NIM fell three basis point (bps) on the year to 2.27 per cent, as rising funding costs offset higher asset yields.
Customer loans rose 2 per cent on the year to S$301 billion on constant currency terms, driven by higher consumer and corporate loans.
Despite this, OCBC kept its target for low-single-digit loan growth for 2024. Wong said uncertainty remains in the market, and that there are no clear signs of a rise in loan demand for the rest of the year.
Nevertheless, she added that the lender is closely watching growing interest in trade within Asia, and expects more clarity on loan growth in the second quarter.
“We try to be prudent – it doesn’t mean that we don’t work hard. But at this point, we don’t see that there is a very high opportunity to (upgrade our loan growth target) to mid-single-digit,” she said.
Non-interest income was up 17 per cent on the year to S$1.2 billion, due to an improvement in fee, trading and insurance income.
Fee income rose 6 per cent to S$479 million amid growth in wealth management fees, driven by increased customer activities.
Assets under management rose 1 per cent to S$273 billion, while net new money for the quarter was around S$6 billion.
Wong said the lender is not seeing a “big jump” in leveraging as people are still cautious about the market, but wealth fees have increased as customers take more action in a more favourable market.
Meanwhile, trading income rose 45 per cent to S$370 million driven by record customer flow income and improved non-customer flow income.
As for insurance, profit contribution from GEH rose 28 per cent to S$260 million amid better investment performance and improved claims experience.
The bank’s non-performing loans (NPL) ratio at the end of the quarter was 1 per cent, down 0.1 percentage point from the previous year.
Total allowances were S$169 million, higher than the S$110 million the previous year, mainly due to increased allowances for impaired assets.
Wong said OCBC’s books remain sound. While there were some clients in Asean this quarter that contributed to the formation of new non-performing assets, there are no systemic risks.
She said there will be, once again, more clarity on its 2024 allowances in the second quarter, adding that the bank will continue to ensure that the NPL ratio does not rise fast.
OCBC is maintaining its target for credit costs at between 20 and 25 bps for 2024.
ROE on an annualised basis stood at 14.7 per cent, unchanged year on year and up 2.3 percentage points on the quarter.
Annualised earnings per share stood at S$1.76 for the quarter, up 5 per cent from S$1.68 the year before.
The Great Eastern offer
Speaking on the offer to fully acquire and privatise GEH, Wong noted that the increased investment will fortify its “one group” spirit and increase synergies between the lender and the insurer.
She was unable to comment further on the deal, but noted the absence of integration risks with acquiring GEH.
“This is a very natural increase in a business that we already know very well and have synergised value.
“But we’re looking at driving further synergy, because there is still a difference between working with an independently listed company and a non-listed company,” she said.
Shares of OCBC were up 2 per cent or S$0.28 at S$14.19 as at 1.55 pm on Friday.
