OCBC's Q2 net profit down 15% without GEH stake sale a year ago

OVERSEA-Chinese Banking Corporation (OCBC Bank) reported on Thursday a net profit of S$885 million for the second quarter of 2016, which is largely in line with analysts' expectations.

This is down 15 per cent from a year ago which included a substantial gain from the stake sale under its insurance subsidiary, Great Eastern Holdings (GEH). The results were also driven by a decline in investment income and unrealised mark-to-market losses in the insurance portfolio.

Earnings contributions from GEH fell 66 per cent to S$78 million from S$230 million a year ago, partly due to the absence of a S$105 million gain from the sale of an equity investment in Q2 2015. Excluding GEH, net profit from the group's banking operations was slightly down 1 per cent year-on-year.

For the half year to June 30, 2016, net profit stood at S$1.74 billion, also down 15 per cent below the S$2.04 billion earned a year ago. Excluding GEH, net profit from its banking operations fell 2 per cent, as operating profit growth was offset by higher allowances set aside.

"The bank's credit quality is well-maintained, and our small European exposure was not adversely impacted by the recent market dislocations. We continued to be conservative in our loan classification and specific allowances provisioning to ensure that the bank is prudently covered for the risks associated with the current operating environment,'' chief executive officer, Samuel Tsien, said.

Mr Tsien said the group will continue to grow its businesses prudently, and is well-positioned to weather the uncertainties ahead and capture new opportunities as they arise.

For the second quarter, net interest income declined 2 per cent to S$1.26 billion from S$1.28 billion a year ago, as a drop in interest earning assets offset improvements in net interest margin.

Customer loan balances of S$205 billion contracted 2 per cent from a year ago from lower trade loans and reduced offshore borrowings of Chinese entities as a result of more favourable onshore borrowing rates. These offset increases in consumer loans and loans to the building and construction sector. Net interest margin for the quarter rose 1 basis point to 1.68 per cent from a year ago from improved customer loan yields.

Non-interest income was 16 per cent lower at S$788 million as compared with S$939 million a year ago. Fee and commission income fell 5 per cent to S$417 million, largely from lower brokerage and investment banking income. Net trading income, primarily treasury-related income from customer flows, rose to S$123 million from S$70 million in 2Q15.

Total weighted new sales climbed 23 per cent, driven by growth across all distribution channels in Singapore and Malaysia. However, profit from life assurance of S$108 million was 19 per cent lower compared to a year ago due to unrealised mark-to-market losses in GEH's equity and bond investment portfolio.

On June 30, 2016, OCBC's customer loans and deposits were S$205 billion and S$246 billion respectively. The loans-to-deposit ratio was 82.2 per cent compared with 84.3 per cent a year ago. The current and savings deposits to total non-bank deposits ratio of 49.3 per cent was higher than 46 per cent a year ago.

An interim dividend of 18 cents per share has been declared for the first half of 2016, unchanged from a year ago.