Oversea-Chinese Banking Corporation Limited (OCBC) has reported record net profit of $3.93 billion for 1HFY2024 ended June 30, 9% higher y-o-y from last year’s record figure.
OCBC posted broad-based income growth that surpassed $7 billion for the first time, up 7% y-o-y, lifted by 3% higher net interest income of $4.87 billion and 15% higher non-interest income of $2.39 billion.
Average assets grew 5%, which the bank says was largely driven by an increase in high quality assets that were income-accretive, but this was lower yielding as compared to customer loans. This largely contributed to the moderation in net interest margin (NIM) by 5 basis points (bps) to 2.23%.
Cost-to-income ratio (CIR) improved to 37.5% from 37.8% a year ago, as income growth outpaced the increase in operating expenses.
Operating expenses increased 6% y-o-y to $2.72 billion, mainly from higher staff costs, IT-related expenses as well as other operational expenses
Total allowances declined 14% from a year ago to S$313 million. Customer loans grew 3% in constant currency terms, while the non-performing loan (NPL) ratio was below 1.0% in the previous quarter and 1.1% in the prior year.
See also: OCBC 1QFY2024 net profit up 22% q-o-q, 5% y-o-y to $1.98 bil
On an annualised basis, return on equity improved to 14.5% and earnings per share was higher at $1.74.
The board has declared an interim dividend of 44 cents, up 10% or 4 cents from a year ago. This represents a payout ratio of 50% of the group’s 1HFY2024 net profit.
2QFY2024 results
See also: OCBC reports earnings of $1.71 bil for 2QFY2023 and record 1HFY2023 net profit of $3.59 bil
In the second quarter, OCBC group net profit grew 14% y-o-y but fell 2% q-o-q to $1.94 billion, driven by income growth and a decline in allowances. 2QFY2024 net profit surpassed the $1.8 billion average estimate of four analysts surveyed by Bloomberg.
Net interest income grew 2% y-o-y to $2.43 billion. This was led by a 5% increase in average assets, and partially offset by a 6 bps drop in NIM to 2.20%. Q-o-q, NIM fell 7 bps due to an increase in lower-yielding high quality assets and the tightening of loan yields alongside market rate movements.
Non-interest income rose 13% y-o-y to $1.20 billion from robust fee, trading and insurance income growth.
Operating expenses were $1.37 billion, up 3% y-o-y, driven mainly by higher staff and IT-related costs.
For 2QFY2024, CIR improved to 37.8% from 38.5% a year ago.
Total allowances were $144 million during the quarter, down 43% y-o-y, largely from a decline in allowances for non-impaired assets.
Share of results of associates was 3% lower y-o-y at $243 million.
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Total non-performing assets (NPAs) were $2.90 billion as at June 30, down 5% q-o-q and down 11% y-o-y. The q-o-q decline in NPAs was attributable to higher net recoveries, upgrades and write-offs. This more than offset new corporate NPA formation, which was less than half of that of the previous quarter.
Allowance coverage for total NPAs increased to 155%. Total allowances were $313 million in 1HFY2024, lower as compared to $362 million a year ago. Allowances in 1HFY2024 comprised allowances for impaired assets of $334 million and write-back in allowances for non-impaired assets of $21 million.
2QFY2024 total allowances were $144 million, a decline of 14% from 1QFY2024. This was mainly due to lower allowances for impaired assets.
Total credit costs for 1HFY2024 were an annualised 15 basis points.
As at June 30, customer loans were $304 billion, up 3% from the previous year in constant currency terms. Y-o-y, the $7 billion loan growth was driven by both non-trade corporate and housing loans. The expansion in loans was contributed by growth in Singapore, Malaysia, the UK and Australia.
Sustainable financing loans grew 33% y-o-y to $44.6 billion, against a total loan commitment of $63.3 billion.
Customer deposits were 1% lower y-o-y at $370 billion, largely driven by a 5% decline in higher-cost fixed deposits.
Current account and savings account (Casa) deposits increased 5%, or $8 billion, from a year ago, and the Casa ratio rose to 47.9% from 45.3%.
Loans-to-deposits ratio was 81.1%, higher than 78.8% a year ago.
Group common equity tier-1 (CET-1) capital adequacy ratio (CAR) was 15.5% compared to 15.4% this time last year and 16.2% at the end of the previous quarter, and the leverage ratio was 7.2%, up from 7.1% in the year prior and 7.3% in 1QFY2024.
OCBC group CEO Helen Wong says: “Our performance underscores the progress we have made in executing our corporate strategy. We have strengthened our franchise, broadened our customer base and invested in our talent pool. We continued to capture trade, investment and wealth flows across Asean and Greater China, while supporting our customers to venture globally.”
She adds: “In May this year, we made a voluntary unconditional general offer for Great Eastern Holdings G07 . At the close of the offer on July 12, we increased our stake by 4.88% to 93.32%. In addition, we completed the acquisition of PT Bank Commonwealth Indonesia in May.”
Wong continues to project NIM “in the range of 2.20% to 2.25%” for FY2024, with low single-digit loan growth and credit costs of between 20 bps and 25 bps. These targets are unchanged from 1QFY2024.
Wong says management is “alert” to the “heightened level of geopolitical uncertainties”. “With our strong capital position, diversified earnings base and prudent approach towards risk management, we are well positioned to navigate the challenging macroeconomic landscape. We remain confident in the continued strength of our franchise to deliver enduring value to our stakeholders.”
Shares in OCBC closed 3 cents lower, or 0.20% down, at $14.82 on Aug 1, up 14.71% year-to-date.
