SINGAPORE (May 8): Oversea-Chinese Banking Corporation (OCBC) posted a 43% y-o-y fall in core earnings to $698 million for the 1Q2020 ended March, from $1.23 billion a year ago.
While OCBC enjoyed an 8% increase y-o-y in its banking operations operating profit, net profit for banking operations fell 28% owing to increased allowances to buffer against potential risks arising from the market uncertainly.
The bank’s allowances for this quarter rose 165% to $658 million, from last year’s $248 million; specific allowances of $275 million were made for a Singapore corporate account in oil trading.
OCBC, along with DBS, and UOB, have a combined exposure of at least US$600 million (S$850.5 million) to beleaguered oil trader, Hin Leong trading.
The weaker bottomline was also attributable to a 94% plunge in insurance profit contributions from its subsidiary, Great Eastern Holdings, due to a weak investment market, or unrealised mark-to-market losses.
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The group’s net interest income grew 6% to $1.63 billion from last year’s $1.53 billion, from loan growth at 5%, customer deposits at 7%, and from current account savings account (CASA) deposits, which rose 16% y-o-y.
Net interest margin (NIM) remained relatively stable at a flat 1.76% y-o-y. Quarter-on-quarter, NIM fell slightly at 0.01 percentage points.
Net fee income rose to $546 million, led by growth in wealth management fees, loan-related fees, and others.
Total non-interest income fell 8% to $864 million. Fee income climbed 10% y-o-y to $546 million, primarily driven by wealth management and brokerage income.
The nonperforming loan rate (NPL) remained stable at 1.5% y-o-y.
Net trading income fell some $267 million y-o-y to $18 million this quarter, largely due to unrealised mark-to-market losses in Great Eastern Holdings’ investment portfolio. This was partially offset by a $14 million increase in treasury-related customer flow income for the same quarter.
Total weighted new sales rose 21% to $299 million for 1Q2020, and new business embedded value (NBEV) grew 15% to $126 million for Great Eastern Holdings.
Bank of Singapore’s assets under management (AUM) dipped 4% y-o-y to US$4 billion, owing to negative market actions, despite positive net new money inflows.
Overall, the bank’s cost-to-income ratio declined slightly at 44.5%; total expenses increased 5% to $1.06 billion owing to little changes to its headcount, and enhanced hygiene and precautionary measures. The bank said it has no plans to retrench its staff amid the outbreak.
OCBC’s Common Equity Tier-1 ratio rose slightly at 0.1 percentage points from 1Q19 to 14.3%, remaining above the group’s target range as well as regulatory requirements.
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OCBC is “well-positioned” to tide it through the “unprecedented” crisis owing to the Covid-19 pandemic owing to its long-term strategy, and well-diversified franchise with a strong capital, liquidity, and funding position, according to an update by Group CEO Samuel Tsien on Friday.
The statement added that recovery for the bank is “unlikely” till 2021 earliest due to the uncertain economic outlook.
“The COVID-19 pandemic and the effects on the global economy are unprecedented in its scale and impact. We expect the next few quarters will be very difficult for individuals and businesses and we are here to support them,” says Tsien.
“As we enter this period of a health crisis that has developed into a global economic crisis, the conservative stance we have always taken to preserve a strong capital, liquidity and funding foundation have served our customers and shareholders well,” he adds.
“The overall fundamentals of our diversified banking, wealth management and insurance businesses remain sound... I am confident that we will continue to maintain a strong balance sheet and achieve sustainable earnings as we execute our long-term corporate strategy of our diversified business model that focuses on the three business pillars,” Tsien concludes.
As at 9.02am, shares in OCBC are trading flat at $8.88.
