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Strong 4Q showing drives OCBC's FY19 earnings to record high of $4.87 bil; proposes 22% higher final dividend of 28 cents per share

Stanislaus Jude Chan
Stanislaus Jude Chan • 5 min read
Strong 4Q showing drives OCBC's FY19 earnings to record high of $4.87 bil; proposes 22% higher final dividend of 28 cents per share
Of the three local banks, OCBC is the only one to report a quarter-on-quarter increase in earnings for 4QFY2019.
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SINGAPORE (Feb 21): Oversea-Chinese Banking Corporation (OCBC) posted a 34% y-o-y jump in core earnings to $1.24 billion in 4QFY2019 ended December, from $926 million a year ago.

Quarter-on-quarter, this was 6% higher than core earnings of $1.17 billion in 3QFY2019.

Net interest income for 4QFY2019 grew 6% y-o-y to $1.61 billion from loan growth and improved margins.

Average customer loans increased 3% from a year ago, mainly from lending to corporate customers, while net interest margin (NIM) rose 5 basis points to 1.77%, largely due to the management of funding costs.

Non-interest income climbed 58% to $1.31 billion, from $830 million a year ago.

Net fees and commissions grew 17% to a quarterly high of $556 million, led by higher fees from wealth management, credit card, loan and transaction banking activities.

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Net trading income surged to $316 million in 4QFY2019, from just $9 million a year ago, driven by higher gains from treasury activities, a rise in customer flow income, and mark-to-market gains.

This brings OCBC’s full-year earnings up 8% y-o-y to a record high of $4.87 billion for FY2019.

The group attributes this to sustained earnings growth across its banking, wealth management and insurance franchise.

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Net interest income for FY2019 increased 7% to a new high of $6.33 billion, underpinned by asset growth and a 7 basis point rise in NIM to 1.77%.

The higher NIM was driven by Singapore and Greater China, as higher asset yields outpaced the rise in funding costs.

Non-interest income climbed 19% y-o-y to $4.54 billion in FY2019, driven by broad-based income growth.

Net fee income rose 5% to a record $2.12 billion, led by higher wealth management and credit card fees, as well as increased fees from loan, trade and investment banking activities.

Net trading income nearly to $977 million, from $508 million a year ago, on the back of an 18% increase in customer flow income and mark-to-market gains in Great Eastern Holdings’ (GEH) investment portfolio.

Net gains from the sale of investment securities surged to $171 million, a ten-fold increase from $16 million in the previous year.

Income from life and general insurance rose 7% to $976 million, as total weighted new sales edged up by 1% to $1.26 billion and new business embedded value (NBEV) grew 15% to $616 million at GEH.

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As a result of GEH’s product and distribution strategy to optimise its product mix, NBEV margin improved to 48.8% in FY2019, from 43.0% a year ago.

The group’s wealth management income, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, rose 20% to a new high of $3.40 billion in FY2019.

Bank of Singapore’s assets under management (AUM) expanded 15% y-o-y to a record US$117 billion ($158 billion), driven by sustained net new money inflows and positive market valuations.

Operating expenses rose 10% y-o-y to $4.64 billion for the year, largely attributable to an increase in staff costs linked to headcount growth, including at GEH which saw a more substantial rise in staff expenses as it positioned for higher volume growth.

The group’s cost-to-income ratio (CIR) slipped to 42.7%, from 43.4% in the previous year.

Net allowances for loans and other assets jumped to $746 million, from $288 million a year ago.

As at end December, the group’s Common Equity Tier 1 capital adequacy ratio was higher at 14.9% as compared to 14.0% a year ago, and the leverage ratio improved to 7.7% from 7.2% in the previous year.

Share of profits from associates rose 24% to $566 million, from $455 million in the previous year.

Core return on equity (ROE) of 11.4% for FY2019 was marginally lower than the 11.5% in FY2018, attributable to the enlarged share capital base as a result of the application of the scrip dividend scheme.

Core earnings per share climbed to $1.14 for FY2019, from $1.06 in FY2018.

The board has proposed a final dividend of 28 cents per share, representing a 22% increase from the final dividend of 23 cents a year ago.

Together with the interim dividend of 25 cents per share paid earlier, the total dividend for FY2019 amounts to 53 cents per share – 23% higher than the total dividend of 43 cents paid a year ago.

The estimated total dividend payout will amount to $2.31 billion, up 27% from FY2018. This represents a dividend payout ratio of 47% against core net profit, which is above the 40% a year ago.

“OCBC achieved a strong performance in 2019 which marked another consecutive year of record earnings,” says Samuel Tsien, CEO of OCBC. “Our strong financial and capital position have allowed us to provide shareholders with a progressive and sustainable dividend that is consistent with our long-term growth.”

Looking ahead, the global economic outlook is expected to be weaker than originally expected. We are watchful of the impact to our business and customers from the continuing trade tensions, heightened geo-political risks and the COVID-19 outbreak, and will extend support to customers to help them overcome the market challenges,” he adds. “OCBC has a solid record of producing stable earnings through economic cycles, and we are confident of delivering sustainable returns to all our stakeholders.”

As at 10.28am, shares in OCBC are trading flat at $11.04 following the results announcement.

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