OCBC Group net profit dips 8% to S$597m

2Q13 marred by mark-to-market losses.

Oversea-Chinese Banking Corporation Limited (OCBC Bank) reported a net profit after tax of S$597 million for the second quarter of 2013 (2Q13). The Group’s core customer businesses continued to deliver strong performance during the quarter. Strong loan growth and a stable net interest margin drove net interest income to a new quarterly high. Fees and commissions also achieved a new quarterly record. Profits of our Malaysian and Indonesian banking subsidiaries increased 8% and 40% year-on-year, respectively, in local currency terms.

New insurance business sales were up 34% and new business embedded value was up 20%. The strong core customer business results were however offset by significantly reduced profit contribution from subsidiary Great Eastern Holdings (GEH) arising from unrealised mark-to-market losses in its NonParticipating Fund. As a result, the Group’s net profit declined 8%, from S$648 million a year ago (2Q12). Before contribution from GEH, the Group’s second quarter operating profit rose 5% year-onyear and 18% quarter-on-quarter, and its net profit rose 1% and 12% respectively against the corresponding periods. 

Second quarter net interest income rose 3% to S$961 million, as compared to S$931 million in 2Q12. This was driven by robust customer loan growth across all key customer segments and markets, which increased 15% from a year ago to S$159 billion. Net interest margin of 1.64% was stable quarter-on-quarter, but was 13 basis points lower than 2Q12. The year-on-year decline in net interest margin was largely attributable to the sustained low interest rate environment and the continued impact of the re-pricing of existing mortgage loans in Singapore in response to market competition.

Non-interest income was 2% higher at S$606 million, up from S$596 million a year ago. Fees and commissions increased 9% to a new quarterly record of S$347 million, underpinned by continued growth in wealth management, loan-related, fund management and brokerage income. Trading income, supported by customer flows, rose 21% to S$90 million from S$75 million in 2Q12, while net gains from the sale of investment securities increased year-on-year to S$46 million. GEH’s new business sales grew 34% year-on-year, while new business embedded value rose 20%, reflecting the underlying strength of its business. However, rising long-term interest rates and widening credit spreads led to unrealised mark-to-market losses in GEH’s Non-Participating Fund, resulting in a 78% decline in life assurance profit to S$16 million.

Operating expenses rose 9% to S$718 million, from S$661 million in 2Q12, largely attributed to higher staff-related costs. The increase in staff costs was primarily from headcount growth of 5% to support the expansion of the Group’s business franchise, with the balance attributable to annual salary increments and incentive compensation in line with stronger business volume. Net allowances were S$83 million, of which S$72 million were portfolio allowances in line with increases in loan outstanding, as compared to net allowances of S$38 million a year ago.

Compared to the previous quarter (1Q13), the Group’s net profit after tax was 14% lower. Net interest income was up 5% quarter-on-quarter, lifted by 7% growth in customer loans, while net interest margin remained stable quarter-on-quarter. Non-interest income declined 11%, as increases in fees and commissions, trading and dividend income were offset by lower life insurance profit. Operating expenses rose 7%, largely from higher staff costs due to the Group’s annual salary adjustments which took effect in April.