OCBC profit down 10% to S$513 million in the third quarter

Compared with the third quarter of 2010, net interest income grew by 16% to S$874 million, underpinned by broad-based loan growth of 27%. This was partly offset by a 13 basis point decline in net interest margins, largely attributable to the low interest rate environment and strong growth in lower-risk loans. Fees and commissions grew by 20% to S$307 million, led by increases in wealth management, loans and trade-related fees. Trading performance was affected by the challenging financial markets, resulting in a significant decline in income from a year ago. GEH’s life assurance profits from Participating and Investment-linked funds grew 32% year-on-year to S$67 million. Performance of the Non-participating fund was however adversely affected by the volatile financial markets, resulting in a decline of profits to S$9 million from S$105 million a year ago.

The Group’s operating expenses increased by 7% year-on-year to S$611 million with most of the increase relating to higher staff costs, largely attributable to a 6% growth in staff strength. Allowances for loans and other assets declined to S$38 million from S$43 million in 3Q10. The Group’s asset quality remained sound, with the non-performing loans ratio further improving to 0.7% from 1.1% a year ago.

Compared with 2Q11’s net profit of S$577 million, net profit for 3Q11 was 11% lower. The quarter-on-quarter movement was largely attributable to the poor trading performance and lower Non-participating fund insurance income in 3Q11, which more than offset the 6% quarter-on-quarter growth in net interest income and the 1% reduction in operating expenses.

For the first nine months of 2011, the Group reported net profit of S$1,718 million, marginally lower than S$1,749 million for the same period a year ago. Core net profit, which excludes the gain from divestment of non-core property in Bassein Road, Singapore, in 1Q11, declined 4% year-on-year to S$1,686 million. Net interest income grew by 14% year-on-year, underpinned by strong loan growth across all key markets. The growth in net interest income was more than offset by an 81% decline in trading income and an 11% reduction in life assurance profits, both resulting from the volatile financial markets, particularly in 3Q11. Operating expenses grew by 11%, largely attributable to higher staff-related costs as a result of the increase in headcount to support the continued growth of the Group’s regional franchise as well as annual salary adjustments, and higher business volume-driven costs. Net allowances were 66% higher in 9M11, with the year-on-year increase largely contributed by increased portfolio allowances made for the strong loan growth.

The Group’s revenue from various wealth management activities, comprising revenue from insurance, private banking, asset management, stockbroking and sales of other wealth management products, grew to S$1,022 million for 9M11, an increase of 2% from a year ago. As a share of total revenue, wealth management contributed 25%, broadly similar to a year ago. OCBC’s private banking franchise continued to expand, with assets under management increasing 11% in the first nine months to US$29 billion as of 30 September 2011.

The Group’s annualised return on equity, based on core earnings, for 9M11 was 11.1%, compared with 12.7% a year ago, while annualised core earnings per share for 9M11 was 64.5 cents, compared with 69.1 cents a year ago.