OCBC H1 profits up 6% to $2.45b

Higher banking profits offset lower income from Great Eastern Holdings.

Oversea-Chinese Banking Corporation (OCBC) popped the champagne in the first half of 2019 as profits grew 6% to a record-high of $2.45b from $2.32b in the same period last year, its financial statement revealed.

The bank’s net interest income also went up 9% to $3.12b from $2.87b last year, led by loan growth and an 11bps increase in net interest margin (NIM) as higher asset yields outpaced the rise in funding costs.

Non-interest income grew 12% YoY to $2.17b from both banking and insurance operations. Net fee and commission income fell 4% to $1.02b, whilst the net trading income of $478m was significantly above $286m in H1 2018.

Meanwhile, net gains from the sale of investment securities were higher YoY at $82m and insurance income increased 6% to $464m.

Income from wealth management rose 12% to $1.67b from $1.49b previously, and the whole franchise contributed 32% to the bank’s total income. Assets under management (AUM) at Bank of Singapore increased 9% YoY, underpinned by continued net new money inflows, to a new high of $151b as at 30 June 2019.

Cost-to-income ratio (CIR) of 42.4% improved from 43.0% in the previous year. Operating expenses of $2.25b were 9% higher than a year ago, mainly attributed to higher staff costs.

For the second quarter of 2019, profits edged up 1% to $1.22b from $1.21b. The bank attributed profit growth to record earnings from its banking franchise which more than offset lower income contributions from insurance subsidiary Great Eastern Holdings (GEH).

Net interest income went up 10% to $1.59b from $1.45b last year, as customer loans grew 4% and net interest margin (NIM) went up 12bps to 1.79% thanks to higher asset yields in Singapore, Hong Kong, and China.

Non-interest income for the quarter of $1.03b was 1% above $1.02b a year ago, despite a 26% decrease in life insurance profit from GEH attributed to a decline in the discount rate used to value long-term insurance contract liabilities, which was partly offset by better investment performance.

Wealth management fees rose 8% to their highest level in five quarters and drove OCBC’s net fees and commissions to $522m. Net trading income of $193m, comprising primarily of treasury-related income from customer flows, was slightly above $192m a year ago. Net realised gains from the sale of investment securities were $48m, higher than $2m in 2Q18.

Operating expenses for banking rose 7% to $1.08b, mainly from higher staff-related costs associated with annual salary increments and a rise in headcount to support business needs.

Operating expenses for the group were up 11% at $1.15b from $1.04b in 2Q18, which included an expense accrual reversal a year ago. CIR for the quarter was 44.0%, whilst net allowances for loans and other assets were $111m in 2Q19.

Customer deposits increased 2% to $297b, led by a 3% rise in current account and savings deposits which represented 47.9% of total non-bank deposits. OCBC’s loans-to-deposits ratio was higher at 87.6% as compared to 85.9% a year ago.

An interim dividend of 25 cents per share has been declared for the first half of 2019, 25% or 5 cents higher than the 20 cents interim dividend declared a year ago. The interim dividend payout will amount to approximately $1.08b, representing 44% of the bank’s 1H2019 net profit after tax.