OCBC Group core earnings up 41% to S$724m

Thanks to higher net interest income.

Oversea-Chinese Banking Corporation Limited (OCBC Bank) also managed to improve its trading performance and raise its profit from life assurance.

In a release for its 3Q12 results, OCBC Bank reported 41% year-on-year growth in core earnings from S$513 million a year ago to S$724 million, excluding its billion-dollar divestment gains. The bank registered divestment gains of S$1.13 billion during the quarter.

Third quarter net interest income rose 8% to S$944 million from a year ago. Loans to customers were 8% higher, driven by 8% increase in Singapore, while Malaysia and Indonesia grew 12% and 40% respectively in local currency terms, and partly offset by a 6% decline in Greater China.

Net interest margin declined year-on-year from 1.85% to 1.75%.

"This was largely attributable to competition and limited gapping opportunities in a persistently low interest rate environment, and higher interest cost arising from issuance of longer dated debt securities," said OCBC Bank.

In August 2012, the Group realised gains of S$1.26 billion (S$1.13 billion post-tax) from the divestment of its stakes in Fraser and Neave, Limited (“F&N”) and Asia Pacific Breweries Limited (“APB”). Excluding the divestment gains, core non-interest income rose 73% year-on-year to S$754 million. Fees and commissions, led by growth in wealth management income, represented 40% of total core non-interest income.

Net trading income increased from a year ago to S$144 million. Profit from life assurance more than doubled to S$190 million, lifted by the strong underwriting and investment performance of Great Eastern Holdings’ (“GEH”) Non-Participating Fund. As a result, total core income increased 30% from a year ago to S$1.70 billion.

Against total core income growth of 30% year-on-year, operating expenses rose 12% to S$685 million, mainly from higher staff costs associated with headcount growth, salary increments and incentive compensation linked to higher business volumes. The cost-to-income ratio improved from 46.6% to 40.3%. Specific allowances for loans for the third quarter were S$24 million, representing a low 7 basis points of loans on an annualised basis.

Compared to the previous quarter (“2Q12”), core net profit for 3Q12 grew 12%. Net interest income was 1% higher, as asset growth more than offset lower net interest margins. The margin compression of 2 basis points during the quarter was slower than the previous quarter. Non-interest income rose 27%, arising from higher profit from life assurance and net trading income. Operating expenses increased 4% quarter-on-quarter.  

Commenting on the Group’s performance, CEO Samuel Tsien said: “Our quarterly and year-to-date core earnings underscore the fundamental strength of our banking and insurance businesses. Our strong liquidity and capital positions were further enhanced by the gains from divestments of non-core assets and additional capital raised during the quarter. While we remain vigilant over the global economy given the lack of visibility in many major markets, we are in a strong position to capitalise on market opportunities and support our customers in all our key countries.”