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OCBC posts 6% drop in 3Q earnings to $1.17 bil as swelling provisions offset higher lending, wealth management income

Stanislaus Jude Chan
Stanislaus Jude Chan • 3 min read
OCBC posts 6% drop in 3Q earnings to $1.17 bil as swelling provisions offset higher lending, wealth management income
SINGAPORE (Nov 5): Oversea-Chinese Banking Corporation (OCBC Bank) has reported earnings of $1.17 billion for the 3Q19 ended September, some 6% lower than the $$1.25 billion recorded a year ago.
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SINGAPORE (Nov 5): Oversea-Chinese Banking Corporation (OCBC Bank) has reported earnings of $1.17 billion for the 3Q19 ended September, some 6% lower than the $$1.25 billion recorded a year ago.

The 3Q19 results were broadly in line with the $1.2 billion average of analysts’ estimates compiled by Bloomberg.

The decline was largely attributable to a one-time charge of $91 million due to a refinement in the group’s Expected Credit Loss (ECL) modelling approach for its Indonesian banking subsidiary, Bank OCBC NISP.

The charge relates to allowances for non-impaired assets as it prepares for the introduction of a new accounting standard.

Excluding this, the group’s core net profit was $1.26 billion, slightly higher than a year ago.

The 3Q19 earnings were also 4% q-o-q lower compared to earnings of $1.22 billion in the preceding quarter of 2Q19.

Net interest income climbed 6% y-o-y to $1.60 billion, driven by a 5 basis points rise in net interest margin (NIM) to 1.77% from improved asset yields and a 2% increase in customer loans.

Non-interest income for 3Q19 increased 2% to $1.06 billion, from $1.04 billion in the previous year.

Net fees and commissions grew 10% to a new record of $550 million, led by higher fees from wealth management, investment banking and remittance services.

Operating expenses rose 6% y-o-y to $1.13 billion, mainly from a rise in staff costs associated with headcount growth as the group continued to invest in digitalisation, technology infrastructure and compliance capabilities.

The cost-to-income ratio (CIR) for the quarter was lower at 42.6%, compared to 44.0% a quarter ago.

Share of results of associates increased 16% to $156 million in 3Q19, from $134 million in 3Q18.

The group’s non-performing loans ratio rose to 1.58% as at Sept 30, 2019, from 1.47% a quarter ago, as total non-performing assets (NPAs) rose to $4.19 billion in 3Q19, from $3.91 billion in the previous quarter, mainly attributable to the downgrade of two corporate accounts.

Net allowances for loans and other assets charged for 3Q19 were $179 million, above the $111 million set aside in 2Q19.

In applying the ECL methodology, the group says it had taken into account the weaker market outlook and heightened geo-political event risks during the quarter.

Total cumulative allowances set aside in the balance sheet rose to $3.26 billion, including the regulatory loss allowance reserve and the charge for the refinement in the group’s ECL modelling approach for Bank OCBC NISP.

This was higher as compared to $3.05 billion a quarter ago, and represented 242% of unsecured NPAs as at end-September.

As at end-September, the group’s Common Equity Tier 1 capital adequacy ratio (CAR), Tier 1 CAR and Total CAR were 14.4%, 15.1% and 17.0%, respectively. These were higher than the corresponding ratios of 13.6%, 14.4% and 16.1% from a year ago.

The group’s leverage ratio was 7.6%.

As at end-September, cash and cash equivalents stood at $11.08 billion.

“Our performance for this quarter underscored the competitive strength of our diversified business franchise. Balanced growth across our banking, wealth management and insurance businesses allowed us to deliver a quarter-on-quarter and year-on-year increase in core earnings amid a challenging operating environment,” says CEO Samuel Tsien.

“We shall remain vigilant and will maintain prudent risk management practices while exercising disciplined cost management,” he adds. “OCBC’s underlying business is resilient and our strong capital, funding and liquidity position will allow us to deliver robust and sustainable results to our shareholders and all stakeholders.”

As at 9.55am, shares in OCBC are trading 8 cents lower at $10.99.

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