SINGAPORE (May 9): Oversea-Chinese Banking Corporation (OCBC) has posted a net profit after tax of $973 million for 1Q17, 14% above $856 million in 1Q16.
This was largely due to sustained growth in wealth management income, higher profit from insurance operations as well as increased earnings in local currency terms from all of the group’s overseas banking subsidiaries, particularly from Indonesia, says the bank in a Tuesday releas.
Net interest income (NII) of $1.27 billion for the quarter was 3% lower as compared to $1.31 billion a year ago, as higher asset growth was offset by net interest margin compression.
In 1Q, average customer loans grew 5% year-on-year led by broad-based growth across most industry segments and key markets.
Net interest margin (NIM) contracted 13 basis points from 1.75% a year ago to 1.62%, largely attributable to reduced customer loan yields and excess liquidity placed in high quality but lower yielding interbank placements.
OCBC’s non-interest income rose 30% to $977 million from $753 million a year ago.
Fee and commission income climbed 29% to $481 million.
This was led by a 70% rise in wealth management fee income, partly contributed by the acquisition of the former wealth and investment management business of Barclays PLC in Singapore and Hong Kong in November 2016.
Net trading income of $158 million, predominantly treasury-related income from customer flows, grew 30% from $122 million last year – while net realised gains from the sale of investment securities rose 10% to $65 million.
Profit from life assurance more than doubled from $83 million in the preceding year to $176 million, largely from positive performance in Great Eastern Holdings’ (GEH) investment portfolio as a result of favourable market conditions.
Operating expenses for the quarter rose 5% to $973 million from $923 million a year ago, driven by an increase in staff costs partly associated with the consolidation of Barclays WIM.
Total net allowances for loans and other assets for 1Q17 were $168 million, $1 million higher from a year ago.
As at 31 March, the bank’s total non-performing assets (NPAs) of $2.87 billion were slightly lower than $2.89 billion in the previous quarter.
However, they were higher than $2.22 billion a year ago, mainly from the downgrade of corporate accounts in the oil and gas support services sector, which continued to be under stress as oil prices remained depressed.
The overall NPL ratio was 1.3%, unchanged from the previous quarter.
Noting a stable overall quality of OCBC’s loan portfolio, CEO Samuel Tsien says: “Although the stress in the oil & gas support services sector is continuing, sufficient provisions have been made. We have a strong capital and liquidity position, and launched our maiden Covered Bond Programme which further diversified our funding base.”
“While we see some sectorial strength in the domestic economy, this is not yet broad-based, and we remain watchful to the persistent headwinds in the operating environment. Our core businesses are resilient, we remain prudent and focused on our strategic priorities, and are well-placed to capture opportunities as they arise,” he adds.
Bernstein analyst Kevin Kwek, who has an “outperform” rating and $10.95 a share target price, remains positive on the the bank’s outlook for 2017 due to rate rises, growth rebound, and stable asset quality trends.
OCBC closed 8 cents higher at $10.30 on Monday.
