SINGAPORE (May 10): Oversea-Chinese Banking Corporation (OCBC Bank) reported 1Q19 earnings of $1.23 billion, 11% higher than the $1.11 billion reported in 1Q18.
The average estimate of five analysts was $1.16 bill, according to data from Refinitiv.
OCBC says the stronger bottomline was underpinned by strong income growth across the group’s banking, wealth management and insurance franchise.
Total income for 1Q19 rose 15% year-on-year to a record $2.68 billion from $2.33 billion in the previous year.
Net interest income grew to a new high of $1.53 billion, an 8% increase from $1.42 billion last year, lifted by healthy asset growth and a rise in net interest margin (NIM).
Non-interest income grew 24% to $1.14 billion, from $918 million in 1Q18.
Net trading income rose to $285 million in the first quarter, from $94 million in the previous year, largely from an increase in customer flow income as well as improved financial market conditions.
Profit from life insurance of $233 million was 40% above $166 million a year ago, mainly attributable to favourable financial markets.
Net fees and commissions of $495 million were higher quarter-on-quarter but below $536 million in 1Q18, as increases in credit card, investment banking, loan and trade-related fees were offset by lower wealth management fees, as new fund launches in the previous year contributed to record wealth fees in 1Q18.
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The group’s overall wealth management-related income – comprising income from insurance, private banking, asset management, stockbroking and other wealth management products – rose 27% from a year ago to $921 million and represented 34% of the group’s total income.
Against total income growth of 15%, operating expenses for 1Q19 rose 6% year-on-year to $1.10 billion, largely due to higher staff costs and other expenses linked to a rise in business activities.
The cost-to-income ratio was lower at 40.9% as compared to 44.2% a year ago.
New non-performing loan (NPL) formation for 1Q19 was $298 million, significantly lower than $881 million in 4Q18, and largely offset by net recoveries and upgrades of $223 million during the quarter.
As at March 31, total non-performing assets (NPA) fell slightly to $3.92 billion from $3.94 billion a quarter ago, while the NPL ratio of 1.5% was unchanged from the previous quarter.
Allowances for impaired loans of $231 million were lower than $250 million in 4Q18, but were significantly higher year-on-year from 1Q18, which reported only $13 million in allowances.
The majority of the allowances this quarter were provided for loans to the existing oil and gas support vessels and services (OSV) sector which were already classified as NPLs.
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Despite the recovery in fuel oil prices, the OSV sector did not see a corresponding increase in vessel employment or rise in charter rates.
Given the structural changes taking place in the offshore oil industry and continued absence of visible recovery in this sector, OCBC says a decision was made to substantially reduce collateral valuations further, to the extent of writing down vessels pending employment to scrap value.
The group’s Common Equity Tier 1 capital adequacy ratio (CAR), Tier 1 CAR and Total CAR as at March 31 were 14.2%, 14.9% and 16.7% respectively and higher than the corresponding ratios of 13.1%, 14.2% and 15.8% from a year ago.
Commenting on the group’s outlook, CEO Samuel Tsien says: We will continue to stay watchful of the progress of trade negotiations between the United States and China, developments in financial markets and conclusion of a number of elections in the region. In sustainable financing, we made significant strides to grow the financing of renewable energy projects and pledged to stop new coal-fired power plant financing. With our strong funding and capital position, we are very well-placed to ride on new opportunities as they are presented and will continue to deepen our presence in our core businesses and markets.”
Shares in OCBC closed 13 cents lower at $11.31 on Thursday.
