Singapore, 24 February 2021 – Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) reported a net profit after tax of S$1.13 billion for the fourth quarter of 2020 (“4Q20”), 10% higher than a quarter ago (“3Q20”) and 9% below the previous year (“4Q19”).  This was the third consecutive rise in quarterly earnings in 2020.  Our performance reflected the tenacity and resiliency of our diversified franchise, which had well-positioned us to capture the gradual increases in selected business sectors.  The quarter reported positive loans and deposits growth, higher fees and commissions, customer treasury activities and assets under management.    

Against the prior year’s (“FY19”) record net profit, the Group’s full year 2020 (“FY20”) net profit of S$3.59 billion was 26% lower.  The unprecedented economic impact brought about by the COVID-19 pandemic had negatively impacted our FY20 performance, in particular the decline in net interest margin as a result of the sharp drop in market interest rates and higher expected credit loss allowances to buffer against the deterioration in macroeconomic conditions.  With the consumer sentiments and business confidence continuing to be affected by the ongoing COVID-19 health crisis, we have kept a firm grip on costs, strengthened our balance sheet with increased allowances and coverage ratio, and maintained very strong capital, funding and liquidity positions.

Fourth Quarter 2020 Performance

4Q20 Quarter-on-quarter Performance

• Our performance again underscored the strength of our well-balanced and diversified banking, wealth management and insurance franchise that continues to drive resilient and long-term growth.
• Operating profit before allowances declined 6%. This was attributable to lower life insurance profit due to a provision for higher expected future insurance claims made by our subsidiary Great Eastern Holdings (“GEH”).
• Excluding GEH’s provision, operating profit before allowances would have been 1% higher.
  • Net interest income rose 1% to S$1.44 billion, underpinned by a 2 basis points improvement in net interest margin (“NIM”) from funding costs management as the Group continued to optimise its balance sheet.
  • Net fees and commissions increased 3% to S$517 million, led by higher income from investment banking, credit cards and fund management activities.
  • Wealth management fees, which made up close to half of total fee income, were S$250 million. As at 31 December 2020, assets under management at our private banking subsidiary, Bank of Singapore, grew 4% from the previous quarter and 3% against last year to a record US$121 billion (S$160 billion), driven by continued inflow of net new money and improved market valuations.
  • Trading income increased 4% to S$264 million, from higher investment gains and sustained customer flow income.
  • Profit from life insurance of S$145 million declined 33% as a result of the provision by GEH mentioned above. It otherwise continued to report robust underlying insurance business growth.  Total weighted new sales (“TWNS”) grew 22% to S$528 million, supported by increased sales both in Singapore and Malaysia.  New business embedded value (“NBEV”) was up 72% at S$275 million, and NBEV margin grew to 52.1% from 37.0% in the previous quarter.
• Operating expenses rose 2% to S$1.13 billion, led by higher business-driven costs associated with increased volumes and activities.
• Net allowances fell 19% from the previous quarter to S$285 million. These comprised allowances for impaired assets of S$237 million and S$48 million in allowances for non-impaired assets (see further analysis below). 
• 4Q20 tax expense was substantially lower as compared to a quarter ago. This was largely driven by a one-off positive tax impact recognised by GEH following finalisation of prior years’ tax assessment.
• ROE rose to 9.3% from 8.7% a quarter ago.

4Q20 Year-on-year Performance

• Against the pre-pandemic operating environment of the previous year, the Group’s operating profit before allowances fell 15% as a result of a drop in overall income in the midst of COVID-19, which more than offset an 11% reduction in expenses. Allowances for the quarter were 37% higher than the S$207 million a year ago. 

Full Year 2020 Performance

FY20 Year-on-year Performance

• Against record earnings in FY19, FY20 operating profit before allowances in the midst of the pandemic was 5% below the previous year, excluding the provision by GEH.
• Total income for FY20 declined 7% to S$10.1 billion.
  • Net interest income fell 6% to S$5.97 billion from S$6.33 billion a year ago. This was attributed to a 16 basis points drop in NIM in a significantly lower interest rate environment and a lower loans-to-deposits ratio (“LDR”) driven by strong deposits growth (Dec 20 LDR: 83.7% vs Dec 19 LDR: 86.5%).
  • Net fee income declined 6% to S$2.00 billion, led by a fall in loan-related fees and credit card fees on the back of lower transaction volumes. Nevertheless, wealth management fees climbed 5% to a new high, driven by strong customer investment activities in a low interest rate environment.
  • The Group’s overall wealth management income, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, was S$3.37 billion and 1% below the record S$3.40 billion a year ago.
  • Net trading income fell 12% to S$863 million, primarily due to lower mark-to-market gains in GEH’s investment portfolio. However, treasury income from customer flows increased 12% to a new high of S$668 million.
  • Profit from life insurance decreased 10% to S$698 million, largely due to higher insurance contract liabilities resulting from a lower discount rate used to value these liabilities, in line with lower market interest rates. Both TWNS and NBEV hit record levels, rising 23% and 10% respectively.  GEH’s embedded value, a measure of the long-term economic value of the existing business of a life insurance company, rose 12% to S$17.4 billion.
  • The Group’s share of results of associates in FY20 rose 8% to S$612 million from S$566 million a year ago, mainly due to higher contributions from Bank of Ningbo.
  • Operating expenses fell 4% to S$4.44 billion mainly driven by lower staff costs and reduced discretionary spending as expenses were tightly controlled.

• Total allowances rose to S$2.04 billion from S$890 million a year ago, with the increase mainly attributable to higher allowances set aside for non-impaired assets (see further analysis below).

Asset Quality and Allowances

Asset Quality

• As at 31 December 2020, total NPAs were S$4.01 billion, down 6% from the previous quarter as a result of higher write-offs, recoveries and upgrades.
  • New NPA formation in 4Q20 was S$296 million, compared with S$494 million a year ago. It mainly comprised downgrades of corporate accounts with no particular geographical or sectoral concentration.  In the same quarter, there were also recoveries and upgrades of S$198 million and write-offs of S$270 million.
  • The NPL ratio of 1.5% was unchanged from a year ago and down from 1.6% in the previous quarter.
• The allowance coverage against total NPAs was further increased to 115% from the 86% a year ago.

Allowances

• 4Q20 total allowances were down 19% from the previous quarter at S$285 million, and comprised:
  • S$237 million in allowances for impaired assets (ECL stage 3), driven by corporate accounts across various industries and markets.

• S$48 million in allowances for non-impaired assets (ECL stage 1 and 2), which was below the S$202 million in 3Q20. Compared to 2020, the economic and operating conditions in 2021 are expected to be better.  After having increased allowances substantially in the first three quarters of 2020, including macroeconomic variable (“MEV”) adjustments and additional allowances set aside as management overlay, lower allowances were created for 4Q20. 

• On a full year basis, FY20 total allowances of S$2.04 billion were substantially higher than the S$890 million in FY19:
  • S$1.18 billion in allowances for impaired assets, including the allowances set aside for loans to a Singapore oil trader and the write-down of the remaining oil and gas support vessels and services (“OSV”)
  • S$864 million in allowances for non-impaired assets as the Group took a prudent approach to allowances given the uncertain economic and market outlook. This largely comprised S$405 million in management overlay above the model requirements on a forward-looking basis and S$244 million in MEV adjustments. 
  • Total loan allowances for the year represented 67 basis points of loans.

Strong Funding, Liquidity and Capital Position

• In constant currency terms, customer loans rose 0.3% from the previous quarter and 1% from a year ago to S$267 billion as of 31 December 2020.
• Customer deposits rose from S$303 billion a year ago to S$315 billion. This was driven by strong CASA deposits growth of S$43 billion, which reached a new peak of S$190 billion, and the CASA ratio surpassed the 60% mark.
• The Group’s CET1 CAR was 15.2%, higher than the 14.4% as at 30 September 2020. This included a positive impact of approximately 0.5ppt arising from the migration to an internal ratings-based (“IRB”) approach at our subsidiary OCBC Wing Hang Bank.  The quarter’s average all-currency liquidity coverage ratio for the Group was 150%, while the leverage ratio was 7.7% and net stable funding ratio was 125% as at 31 December 2020.  These regulatory ratios were all well above their respective regulatory requirements.

 Dividend 

For the full year of 2020, a final dividend of 15.9 cents per share has been proposed.  Together with the earlier interim dividend of 15.9 cents, the total dividend for FY20 would be 31.8 cents.  Under MAS’ guidelines, this is the maximum dividend per share that OCBC can declare for FY20, which is capped at 60% of FY19’s 53 cents.  Our FY20 dividend represents a 39% payout of FY20 net profit.

The Scrip Dividend Scheme will be applicable to the final dividend, giving shareholders the option to receive the dividend in the form of shares.

 Message from Group CEO, Samuel Tsien

“Despite experiencing one of the most difficult economic crises in recent times, we concluded 2020 with a resilient performance.  This is a testament to our solid fundamentals, dedicated employees and the balanced strength of our diversified franchise in banking, wealth management and insurance.  I am immensely proud of how our people relentlessly focused on supporting our customers and communities throughout this crisis, as they worked under extraordinary conditions.

While economic conditions have started to show signs of stabilisation and we are seeing increased activities in some pockets of the economy, the recovery is not yet broad-based.  The uncertainty of COVID-19 containment globally continued to weigh on business confidence and consumer sentiments. We will remain watchful of the headwinds, but we are also looking for opportunities to capitalise on signs of sectorial recovery.

When the markets turn, our strong capitalisation, funding and liquidity will provide us with ample capacity to invest and to grow, and we look forward to putting them to work.”