OCBC Group Full Year 2018 Net Profit Grew 11% to a Record S$4.49 billion
Singapore, 22 February 2019 – Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) reported a net profit after tax of S$4.49 billion for the financial year ended 31 December 2018 (“FY18”), up 11% from S$4.05 billion a year ago (“FY17”). This was driven by record earnings from the Group’s banking operations which rose 22% year-on-year, led by income growth, disciplined cost control and lower allowances. The Group’s FY18 return on equity increased to 11.5% from 11.0% a year ago.
The Group’s total income climbed to a new high of S$9.70 billion from S$9.53 billion in the previous year.
Net interest income increased 9% year-on-year to S$5.89 billion from S$5.42 billion in FY17, underpinned by loan growth and a rise in net interest margin (“NIM”). Customer loans grew 9% to S$258 billion across all key markets. FY18 NIM improved by 5 basis points to 1.70% from higher margins in Singapore, Malaysia and Greater China.
Non-interest income of S$3.81 billion declined 7% from the previous year, mainly attributed to lower investment income from Great Eastern Holdings (“GEH”), even though non-interest income from banking operations rose 4% year-on-year. The Group’s net fees and commissions grew 4% to S$2.03 billion, led by higher wealth management, credit card, loan and trade-related fees. FY18 wealth management fee income was up 5% at S$958 million, despite slower fourth quarter performance as a result of weak investment sentiments during the quarter. Net trading income was 1% lower from a year ago at S$508 million, while income from life and general insurance was little changed at S$911 million. Net gains from sale of investment securities were significantly lower at S$16 million as compared to S$431 million a year ago, as substantially higher gains were realised from the divestment of investment securities by GEH in the prior year.
Operating expenses were S$4.21 billion in FY18 and 4% above a year ago, with the cost-to-income ratio (“CIR”) at 43.4%. Allowances for loans and other assets of S$288 million were below S$671 million a year ago.
The Group’s share of results of associates rose 17% to S$455 million from S$389 million a year ago.
Earnings per share increased to S$1.06 from S$0.95 in FY17.
Fourth Quarter Performance
For the fourth quarter of 2018 (“4Q18”), net profit after tax from banking operations grew 22% from a year ago (“4Q17”) to S$817 million. However, the Group’s overall net profit was 11% lower at S$926 million due to a decline in earnings contribution from GEH.
The Group’s net interest income rose 7% to S$1.52 billion from S$1.42 billion in 4Q17. This was driven by loan growth and a 5 basis points rise in NIM to 1.72%. Non-interest income fell 32% to S$830 million, led by a drop in investment and insurance income from GEH. Net fees and commissions also declined 4% from a year ago to S$474 million. Higher credit card, loan and trade-related fees were more than offset by a fall in wealth management fees attributable to subdued investment sentiments in the current market environment. Nonetheless, Bank of Singapore continued to report strong net new money inflows, which increased private banking assets under management (“AUM”) to US$102 billion (S$139 billion) as at 31 December 2018, up 3% from a year ago. 4Q18 net trading income was lower at S$9 million as compared to S$99 million a year ago, largely attributable to unrealised mark-to-market losses in GEH’s investment portfolio as a result of unfvourable market conditions. Excluding GEH, trading income from banking operations was 5% higher year-on-year.
Operating expenses for 4Q18 of S$1.08 billion were unchanged from the previous year, as costs were tightly-controlled. Allowances of S$205 million for the quarter were 14% higher than S$178 million in 4Q17.
As compared to the previous quarter (“3Q18”), the Group’s net profit after tax was down 26% as higher net interest income was offset by a fall in non-interest income and increased allowances.
Allowances and Asset Quality
Net allowances for loans and other assets for FY18 were S$288 million, significantly lower than the S$671 million in FY17. 4Q18 allowances of S$205 million were up 14% year-on-year, mainly from allowances made for loans in the general commerce sector and for previously identified groups in the oil and gas support vessels and services sector.
Overall asset quality of the loan portfolio continued to be healthy. As at 31 December 2018, total non-performing assets were S$3.94 billion, higher than S$3.59 billion a quarter ago, with the increase coming mainly from the general commerce sector. The non-performing loans ratio of 1.5% was flat as compared to the prior year and higher than 1.4% reported in the previous quarter.
Funding and Capital Position
The Group maintained its strong funding and capital position. Customer loans grew 9% year-on-year to S$258 billion while customer deposits were up 4% at S$295 billion, with current account and savings
(“CASA”) deposits representing 46.4% of total non-bank deposits. The Group’s loans-to-deposits ratio was 86.4% as compared to 82.5% a year ago.
The average Singapore dollar and all-currency liquidity coverage ratios for the Group in 4Q18 were 265% and 156% respectively, while the net stable funding ratio was 109%.
The Group’s Common Equity Tier 1 capital adequacy ratio (“CAR”), Tier 1 CAR and Total CAR as at 31 December 2018 were 14.0%, 14.8% and 16.4% respectively. The Group’s leverage ratio was 7.2% as at 31 December 2018.
These regulatory ratios were all above their respective regulatory requirements.
Subsidiaries’ Full Year Performance
Great Eastern Holdings’ net profit after tax was S$741 million for the year, 29% lower than S$1.04 billion in FY17. Although operating profit from its underlying insurance business grew year-on-year, this was more than offset by unrealised mark-to-market losses in its investment portfolio and the absence of substantial gains from the sale of investment securities that were realised a year ago. GEH’s contribution to the Group’s net profit, after deducting amortisation of intangible assets and non-controlling interests, was S$604 million, representing 13% of the Group’s earnings, as compared to 21% in the prior year. Total weighted new sales and new business embedded value (“NBEV”) were S$1.24 billion and S$528 million respectively in FY18, while NBEV margin rose to 42.7% from 41.4% a year ago. Embedded value, a measure of the economic value of the existing business of a life insurance company, rose 0.4% year-on-year to S$13.44 billion.
Both OCBC Wing Hang and Bank OCBC NISP reported record net profit after tax in local currency terms in FY18. OCBC Wing Hang’s net profit increased 15% from a year ago to HK$2.76 billion (S$475 million), driven by broad-based income growth. Its customer loans rose 8% to HK$193 billion (S$34 billion) while deposits were relatively stable at HK$222 billion (S$39 billion). Bank OCBC NISP reported a 21% rise in full year net profit of IDR2.64 trillion (S$251 million), backed by strong net interest income
growth and lower allowances. Customer loans and deposits both grew 11% year-on-year to IDR118 trillion (S$11 billion) and IDR126 trillion (S$12 billion) respectively.
OCBC Bank Malaysia’s FY18 net profit after tax fell 14% to RM814 million (S$272 million), as net interest income growth was offset by a decline in other income segments, while allowances were higher than the previous year. Customer loans were up 2% year-on-year at RM69 billion (S$23 billion) and deposits rose 3% to RM76 billion (S$25 billion).
As at 31 December 2018, Bank of Singapore’s AUM grew 3% to US$102 billion (S$139 billion) from US$99 billion (S$132 billion) a year ago, driven by sustained net new money inflows. Including secured
loans, its earnings asset base grew 4% to US$125 billion (S$171 billion) from US$121 billion (S$161 billion) in the previous year.
The Group’s overall wealth management-related income – comprising income from insurance, private banking, asset management, stockbroking and other wealth management products – was S$2.84 billion in FY18 and represented 29% of the Group’s total income.
Supported by record earnings and a strong capital position, the Board has proposed a final tax-exempt dividend of 23 cents per share, representing an increase of 21% from the final dividend of 19 cents a year ago and a 15% rise from the interim dividend of 20 cents. Together with the interim dividend of 20 cents per share, this will bring the FY18 total dividend to 43 cents, up 16% or 6 cents, from 37 cents per share in FY17. To continue to provide our shareholders with the option of reinvesting in OCBC Bank, the Scrip Dividend Scheme will be applicable to the final dividend. The estimated total dividend payout will amount to S$1.82 billion, an increase of 17% from FY17. This represents a dividend payout ratio of 40% of the Group’s core net profit in FY18.