Oversea-Chinese Banking Corporation Limited (OCBC) has reported net profit of $1.98 billion for 1QFY2024 ended March 31, 22% higher q-o-q and 5% higher y-o-y, beating Street expectations.
Q-o-q growth was driven by total income rising to a new quarterly high, strict cost discipline and lower allowances, says the bank on May 10.
Income growth outpaced the increase in operating expenses, which drove an improvement in cost-to-income ratio (CIR) to 37.1%, while credit costs decreased to 16 basis points (bps).
Loans grew 1% and asset quality was sound with non-performing loan (NPL) ratio steady at 1.0%.
Return on equity climbed to 14.7% and earnings per share was higher at $1.76, on an annualised basis.
Net interest margin (NIM) fell 2 bps q-o-q and 3 bps y-o-y to 2.27% during the quarter, as a rise in asset yields was outpaced by higher funding costs. Average assets grew by 1% q-o-q.
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Net interest income was $2.44 billion, down 1% q-o-q from last quarter’s record, largely due to the effect of a comparatively shorter quarter, says OCBC. On a day-adjusted basis, net interest income was steady against the preceding quarter.
Group common equity tier-1 (CET-1) capital adequacy ratio (CAR) was 16.2%, up from 15.9% at end-2023 and 15.9% on March 31, 2023.
Leverage ratio was 7.3%, unchanged y-o-ybut up 0.1 percentage points q-o-q.
Along with the release of its 1QFY2024 results, OCBC also announced a $1.4 billion privatisation bid for Great Eastern Holdings G07 with a $25.60 offer price.
Non-interest income spike
Non-interest income rebounded by 47% q-o-q to $1.19 billion. Of this figure, net fee income was $479 million, 4% higher q-o-q. This was largely driven by an increase in wealth management, brokerage and fund management fees on the back of a rise in customer activities, as well as higher investment banking fees.
Net trading income surged 67% q-o-q, underpinned by record customer flow treasury income as well as improved non-customer flow treasury income.
Insurance income was $289 million, significantly higher as compared to $88 million in 4QFY2023, supported by better investment performance and improvement in claims experience. Total weighted new sales grew 2% q-o-q to $524 million, driven by higher single premium sales in Singapore, while new business embedded value (NBEV) was $163 million.
The group’s wealth management income, comprising income from insurance, private banking, premier private client, premier banking, asset management and stockbroking, was a record $1.29 billion, 33% higher q-o-q.
Group wealth management assets under management (AUM) was $273 billion, up 4% q-o-q.
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Costs steady
Operating expenses were $1.35 billion, up 3% q-o-q, driven by higher staff costs from increase in variable compensation associated with income growth.
The rise in expenses was outpaced by an 11% growth in total income, which drove CIR lower to 37.1%.
Share of results of associates rose 35% q-o-q to $255 million.
Allowances fall
Total allowances declined 9% q-o-q to $169 million. These comprised allowances for impaired assets of $180 million, and write-back in allowances for non-impaired assets of $11 million.
Total NPAs were $3.04 billion as at March 31, 9% lower y-o-y.
Compared to the previous quarter, NPAs were 5% higher as net recoveries/upgrades and write-offs were offset by new corporate NPA formation.
NPL ratio was 1.0%, stable against the previous quarter and lower than 1.1% in the prior year. The allowance coverage for total NPAs was 146%.
Customer loans were $301 billion as at March 31, up 2% y-o-y in constant currency terms. Compared to the prior quarter, customer loans were 1% higher.
Loan growth of $4 billion for the quarter was supported by an increase in both corporate and consumer loans. By geography, the expansion in loans was led by growth in Singapore.
As at March 31, sustainable financing loans grew 34% y-o-y to $43.1 billion, against a total loan commitment of $60.5 billion.
Customer deposits increased 1% q-o-q in constant currency terms to $370 billion, in tandem with loan growth.
“We are pleased to start the year on a strong footing with robust first quarter results,” says Helen Wong, group CEO of OCBC. “We achieved record net profit which lifted return on equity higher, underpinned by income growth and strict cost discipline. Asset quality remained sound and we prudently maintained our credit allowances.”
OCBC’s performance was driven by the deep synergies across banking, wealth management and insurance, adds Wong. “While some recent economic indicators are looking more favourable, near-term risks remain, such as heightening geopolitical volatility arising from ongoing wars and the outcome of a number of key elections this year.”
That said, OCBC’s key markets in Asia are expected to be resilient, says Wong, benefitting from increasing capital flows and supply chain diversification. “Our healthy balance sheet position provides us the flexibility to manage uncertainties, and capacity for growth as we continue to support our customers across our network.”
Shares in OCBC closed 16 cents higher, or 1.16% up, at $13.91 on May 9. Great Eastern Holdings has requested for a trading halt as of 7.19am on May 10.
