OCBC Group Full Year 2019 Net Profit Rose 8% to a Record S$4.87 billion
Singapore, 21 February 2020 – Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) reported a record net profit after tax of S$4.87 billion for the financial year ended 31 December 2019 (“FY19”), 8% higher than S$4.49 billion a year ago (“FY18”). The resilient performance was driven by sustained earnings growth across the Group’s banking, wealth management and insurance franchise.
Net interest income increased 7% to a new high of S$6.33 billion from S$5.89 billion in the previous year, underpinned by asset growth and a rise in net interest margin (“NIM”). NIM expanded 7 basis points to 1.77%, mainly in Singapore and Greater China, as higher asset yields outpaced the rise in funding costs.
Non-interest income climbed 19% year-on-year from S$3.81 billion to S$4.54 billion in FY19, driven by broad-based income growth. Net fee income rose 5% year-on-year to a record S$2.12 billion, led by higher wealth management and credit card fees, as well as increased fees from loan, trade and investment banking activities. Net trading income grew substantially to S$977 million from S$508 million a year ago, mainly attributable to an 18% increase in customer flow income and mark-to-market gains in Great Eastern Holdings’ (“GEH”) investment portfolio. Net gains from the sale of investment securities were higher at S$171 million as compared to S$16 million in the previous year.
Income from life and general insurance rose 7% to S$976 million. Total weighted new sales of S$1.26 billion and new business embedded value (“NBEV”) of S$616 million at GEH were both higher year-on-year, by 1% and 15% respectively. NBEV margin improved to 48.8% from 43.0% a year ago as a result of GEH’s product and distribution strategy to optimise its product mix.
The Group’s wealth management income, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, rose 20% to a new high of S$3.40 billion in FY19, up from S$2.84 billion a year ago. This represented 31% of the Group’s total income for the year, higher than the 29% in FY18. Bank of Singapore’s assets under management (“AUM”) expanded 15% year-on-year to a record US$117 billion (S$158 billion) from US$102 billion (S$139 billion) in the previous year, driven by sustained net new money inflows and positive market valuations.
Operating expenses of S$4.64 billion for the year were 10% higher than FY18, largely attributable to an increase in staff costs linked to headcount growth, including at GEH which saw a more substantial rise in staff expenses as it positioned for higher volume growth. The Group’s cost-to-income ratio (“CIR”) declined to 42.7%, from 43.4% in the previous year. Net allowances for loans and other assets were higher at S$746 million as compared to S$288 million a year ago.
Share of profits from associates rose 24% to S$566 million, from S$455 million in the previous year.
Core return on equity (“ROE”) of 11.4% for FY19 was marginally below 11.5% in FY18, attributable to the enlarged share capital base as a result of the application of the scrip dividend scheme. Core earnings per share was higher at S$1.14 against S$1.06 in FY18.
Fourth Quarter Performance
The Group reported a core net profit after tax of S$1.24 billion for the fourth quarter of 2019 (“4Q19”), an increase of 34% from S$926 million a year ago (“4Q18”).
Net interest income grew 6% year-on-year to S$1.61 billion from loan growth and improved margins. Average customer loans increased 3% from a year ago, mainly from lending to corporate customers. NIM rose 5 basis points to 1.77% from 1.72% in 4Q18, largely due to the management of funding costs. For 4Q19, non-interest income climbed 58% to S$1.31 billion from S$830 million in the previous year. Net fees and commissions grew 17% to a quarterly high of S$556 million, led by higher fees from wealth management, credit card, loan and transaction banking activities. Net trading income increased to S$316 million from S$9 million a year ago, driven by higher gains from treasury activities, a rise in customer flow income, and mark-to-market gains. Net gains from the sale of investment securities were also higher at S$35 million, as compared to the S$2 million reported in 4Q18. Income from life and general insurance grew 25% to S$308 million from S$247 million in the previous year, as a result of improved investment performance, and higher year-on-year sales, NBEV and margins.
Operating expenses of S$1.27 billion were 17% higher than the S$1.08 billion in 4Q18, mainly from a rise in staff costs. CIR for the quarter was lower at 43.3% as compared to 45.9% a year ago. Net allowances for loans and other assets were S$207 million, little changed from the S$205 million a year ago. The Group’s share of results of associates was 13% higher at S$94 million in 4Q19.
Compared to the previous quarter (“3Q19”), net profit was 6% higher quarter-on-quarter. Net interest income rose 1% from asset growth, with NIM stable quarter-on-quarter at 1.77%. Non-interest income increased 24% from growth in fee, trading, and life and general insurance income. Operating expenses were 12% higher than 3Q19, while net allowances for loans and other assets were 15% higher.
Allowances and Asset Quality
Asset quality remained satisfactory as the Group continued to exercise prudence in the current operating environment, and stayed proactive in managing its loan portfolio.
As at 31 December 2019, total non-performing assets (“NPA”) were S$3.88 billion, down from S$4.19 billion in the previous quarter and S$3.94 billion a year ago. The decline in NPAs was led by the upgrades and recoveries from accounts in the oil and gas support vessels and services (“OSV”) industry as well as write-offs in that sector. The non-performing loans ratio of 1.45% was lower as compared to 1.58% a quarter ago and 1.49% in the previous year. Total cumulative allowances represented 250% of unsecured NPAs as at 31 December 2019.
Net allowances for loans and other assets in FY19 of S$746 million were above the S$288 million a year ago. The year-on-year increase was largely attributable to allowances made for the non-performing loans in the OSV sector where vessels coming off charter were not able to secure term renewals. Consistent with past practices, the collateral valuation of vessels pending employment were written down to scrap value. The Group also set aside additional allowances for non-impaired loans resulting from the adjustment to the macro economic variables in the Expected Credit Loss model to reflect the weaker market outlook in the region.
Funding and Capital Position
The Group’s funding and capital position remained strong. Customer loans grew 3% year-on-year to S$265 billion as at 31 December 2019, led by higher loans to the manufacturing, building and construction sectors, as well as financial institutions, investment and holding companies. Customer deposits rose 3% from a year ago to S$303 billion, driven by a 7% increase in current account and savings deposits (“CASA”). CASA represented 48.4% of total non-bank deposits, an increase from 46.4% as at 31 December 2018. The Group’s loans-to-deposits ratio was 86.5%, as compared to 86.4% in the previous year.
For FY19, the average Singapore dollar and all-currency liquidity coverage ratios for the Group were higher year-on-year at 273% and 155% respectively, while the net stable funding ratio was 111%.
As at 31 December 2019, the Group’s Common Equity Tier 1 capital adequacy ratio was higher at 14.9% as compared to 14.0% a year ago, and the leverage ratio improved to 7.7% from 7.2% in the previous year.
These regulatory ratios were all above their respective regulatory requirements.
The Board has proposed a final tax-exempt dividend of 28 cents per share. This represents a 22% increase from the final dividend of 23 cents a year ago and 12% rise from FY19 interim dividend of 25 cents. Together with the interim dividend of 25 cents per share, the total dividend for FY19 amounts to 53 cents per share, 23% or 10 cents higher than the 43 cents in the previous year. The Scrip Dividend Scheme will not be applicable to the final dividend. The estimated total dividend payout will amount to S$2.31 billion, up 27% from FY18. This represents a dividend payout ratio of 47% against core net profit, which is above the 40% a year ago.
Commenting on the Group’s performance and outlook, CEO Samuel Tsien said:
“OCBC achieved a strong performance in 2019 which marked another consecutive year of record earnings. Income growth was broad-based across our banking, wealth management and insurance franchise. We achieved our loan target and saw improved margins for the full year. In the Group’s wealth management business, both income and AUM rose to new highs. Our insurance business reported increased sales, improved new business embedded value and higher margins. We made strong progress in our ESG agenda, particularly in our green and renewables financing portfolio where we are on track to meet our 2022 target ahead of time.
Our strong financial and capital position have allowed us to provide shareholders with a progressive and sustainable dividend that is consistent with our long-term growth. We are pleased to raise both our 2019 interim and final dividend, which brings our full year dividend to 53 cents per share, a rise of 10 cents or 23% from a year ago.
Looking ahead, the global economic outlook is expected to be weaker than originally expected. We are watchful of the impact to our business and customers from the continuing trade tensions, heightened geo-political risks and the COVID-19 outbreak, and will extend support to customers to help them overcome the market challenges. OCBC has a solid record of producing stable earnings through economic cycles, and we are confident of delivering sustainable returns to all our stakeholders.”