Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) reported its financial results for the first half of 2021 (“1H21”).  Group net profit for 1H21 was 86% higher from a year ago at S$2.66 billion, driven by income growth and a reduction in allowances. 

First Half 2021 Performance

1H21 Year-on-Year Performance

• Group net profit for 1H21 was up 86% from a year ago to S$2.66 billion, largely driven by a 29% increase in non-interest income and substantially lower allowances.
• Net interest income was 7% lower at S$2.90 billion, as compared to S$3.11 billion a year ago. This was primarily due to an 11 basis points contraction in net interest margin (“NIM”) to 1.57%, as asset yields declined faster than the drop in funding costs in the low interest rate environment.  The average loans-to-deposits ratio was also lower at 84.6% as compared to 85.4% a year ago.
• Non-interest income grew 29% year-on-year to S$2.58 billion, from S$2.01 billion in 1H20.
• Net fee income increased 17% to S$1.15 billion, driven by broad-based growth. The fee growth was underpinned by a rise in customer activities in a stronger operating environment.
• The Group’s wealth management income, which comprises the consolidated income from insurance, premier and private banking, asset management and stockbroking, rose 25% to S$2.14 billion, from S$1.71 billion a year ago. In 1H21, wealth management income accounted for 39% of the Group’s total income.  Assets under management at our private banking subsidiary, Bank of Singapore, grew 11% from a year ago to US$125 billion (S$169 billion) as at 30 June 2021, driven by continued inflow of net new money and positive market valuations.
• Net trading income rose 54% to S$528 million. This was mainly due to an increase in customer flow treasury income, led by robust customer activity levels, as well as mark-to-market (“MTM”) gains in Great Eastern Holdings (“GEH”).
• Profit from life insurance grew 85% to S$627 million. This was driven by higher MTM gains as a result of more favourable market conditions.   GEH’s total weighted new sales (“TWNS”) and new business embedded value (“NBEV”) saw strong growth from a year ago, rising 57% to S$920 million and up 43% to S$369 million respectively, with the NBEV margin at 40.1%.
• The Group’s share of results of associates rose 29% to S$422 million from S$328 million in the previous year, mainly from Bank of Ningbo.
• Operating expenses increased 3% to S$2.29 billion, while the cost-to-income ratio improved to 41.7%, from 43.3% a year ago, on positive operating jaws.
• Total allowances were S$393 million, substantially lower as compared to S$1.41 billion last year.
• Allowances for impaired assets of S$283 million were below S$793 million in 1H20. Allowances for the prior period were largely for exposures to a number of corporate customers in the oil trading and offshore support vessels sectors. 
• Allowances for non-impaired assets were S$110 million, as compared to S$614 million a year ago. Substantial allowances were made in 1H20 to reflect the uncertain economic conditions then, via both macro-economic variable (“MEV”) adjustments and management overlays.
• 1H21 ROE rose to 10.8% from 6.1% a year ago, while earnings per share increased to S$1.19 from 64 cents in the previous year.
• An interim dividend of 25 cents has been declared.

1H21 Half-on-Half Performance

• Group net profit was 23% higher as compared to 2H20. The resilient performance was underpinned by broad-based income growth and a decline in allowances as the macroeconomic environment further improved. 
• Net interest income rose 2%, from assets growth and higher NIM.
• Non-interest income grew 19%, driven by fee, trading and insurance income growth.
• The Group’s wealth management income rose 17% from 2H20.
• The Group’s share of results of associates was 48% higher.
• Operating expenses increased 3%, while total allowances were 38% lower.

Second Quarter 2021 Performance

2Q21 Year-on-Year Performance

• Group net profit rose 59% to S$1.16 billion.
• Net interest income fell 2% to S$1.46 billion, mainly from a 2 basis points decline in NIM to 1.58%.
• Non-interest income decreased 3% to S$1.11 billion, mainly attributable to lower trading, investment and insurance income, partly offset by a 28% increase in fee income.
• Operating expenses grew 3% to S$1.14 billion, in line with increased business activities. The cost-to-income ratio was 44.3% for the quarter.
• The Group’s share of results of associates in 2Q21 rose 32% to S$213 million from S$163 million in the previous year, mainly from higher contribution by Bank of Ningbo.
• Total allowances were lower at S$232 million (see further analysis below).

2Q21 Quarter-on-Quarter Performance

• Group net profit was 23% lower following the exceptionally strong performance in the first quarter.
• Net interest income rose 1% from the last quarter, underpinned by a 2 basis points improvement in NIM as the Group continued to optimise its balance sheet.
• Against the strong first quarter, non-interest income declined 25%, mainly due to lower fee and trading income, and insurance profit.
• The Group’s share of results of associates was 2% above 1Q21.
• Operating expenses fell 1%, while allowances for 2Q21 were higher than the previous quarter.

Asset Quality and Allowances

• As at 30 June 2021, total NPAs of S$4.08 billion were 6% lower than a year ago as a result of higher recoveries and upgrades. By geography, the decline was led by a fall in NPAs in Singapore and partly offset by a rise in Malaysia and Indonesia. 
• The NPL ratio of 1.5% was unchanged from the previous quarter and below the 1.6% a year ago.
• The allowance coverage against total NPAs of 104% was lower than the 118% in the previous quarter. This was mainly due to a transfer of the Regulatory Loss Allowance Reserve to retained earnings within regulatory requirements.
• Total allowances in 2Q21 of S$232 million were above the S$161 million a quarter ago. Allowances for non-impaired loans were higher, largely attributable to management overlays set aside above the ECL model requirements in view of the prevailing operating environment in our regional markets.  Allowances for impaired loans were lower quarter-on-quarter.

Strong Funding, Liquidity and Capital Position

• Customer loans rose 3% from a year ago and 1% from the last quarter to S$275 billion. By industry, the increase was led by loans to the building and construction sector, financial institutions, investment and holding companies, as well as non-housing consumer loans.  By geography, Singapore, Greater China and the United Kingdom drove loans growth.
• As at 30 June 2021, customer deposits were S$317 billion, up 2% from a year ago. The increase was driven by a 13% growth in current account and savings deposits (“CASA”) to S$198 billion.  CASA ratio rose to 62.5%.
• Loans-to-deposits ratio was higher at 85.6%, as compared to the 84.7% in the previous quarter.
• Group’s CET1 CAR was 16.1% as at 30 June 2021.

Dividend

• An interim dividend of 25 cents has been declared, representing a payout ratio of 42% against the Group’s 1H21 net profit. This is comparable to the 25 cents interim dividend paid in 2019.
• The interim dividend is above 1H20’s 15.9 cents, which was capped at 60% of the prior year’s dividend in line with MAS’ guidance.

OCBC will continue to apply a prudent approach in delivering long-term sustainable and progressive returns to shareholders. 

Message from Group CEO, Helen Wong

“OCBC continued to deliver a resilient set of results for the first half of 2021, underpinned by the strength of our diversified business franchise.  Net profit growth was driven by robust banking and insurance performance, while wealth management income grew strongly and private banking assets under management continued to expand.  While net interest margin remained relatively stable amid a low rate environment, fee and investment related income grew in tandem with renewed consumer and business confidence.  We maintained our strong capital, funding and liquidity position and have raised our 2021 interim dividend to 25 cents per share.

While the long-term trajectory of global economic recovery is positive, we remain watchful on the current operating environment in view of the recent virus resurgence and heightened safety measures in our key markets.  We stay firmly committed to supporting our customers during this difficult period.”