It’s not often you see all three local banks announcing their fiscal 2022’s first quarter (1Q2022) earnings on the same day.
Singapore’s largest bank, DBS Group (SGX: D05), continued to impress with its second-highest net profit on record.
United Overseas Bank Ltd (SGX: U11), or UOB, saw its loan-related fees hit a new record high.
OCBC Ltd (SGX: O39) reported a slightly weaker set of financial numbers but managed to deftly navigate market volatility with its diversified business franchise.
OCBC’s net profit of S$1.36 billion for 1Q2022 was 39% higher than the S$973 million it chalked up in its previous quarter.
Here are five highlights from the bank’s latest business update.
A mixed set of earnings
OCBC saw its net interest income increase by 4% year on year to S$1.5 billion.
However, its total non-interest income fell by 23% year on year to S$1.14 billion.
The fall was due to a 29% year on year decline in trading income and a 34% year on year slide in profits from its life insurance arm, Great Eastern Holding Limited (SGX: G07).
Because of this weaker showing, the bank’s total income dipped by 9% year on year to S$2.64 billion.
As operating expenses increased by 5% year on year, the lender’s operating profit before allowances fell by 14% year on year to S$1.69 billion.
Net profit was 10% lower than the same period last year at S$1.36 billion.
OCBC’s annualised return on equity (ROE) managed to maintain double-digit levels of 10.6%, though it was below the prior year’s annualised ROE of 12.4%.
An across-the-board decline in non-interest income
All five categories within OCBC’s non-interest income saw year on year declines in 1Q2022.
Net gains from investment securities more than halved from S$68 million to S$33 million while net fees and commissions dipped by 10.8% year on year to S$522 million.
A deeper dive into the latter segment showed that the bulk of this decline came from lower wealth management, brokerage and fund management fees.
A year ago, these fees were boosted by higher levels of investment activity due to buoyant stock market conditions.
A larger loan book with stabilised NIM
Like both DBS and UOB, OCBC also managed to grow its loan book.
Customer loans rose 8% year on year from S$271 billion to S$294 billion, with most of the increase coming from Greater China (+S$7 billion) and Singapore (+S$8 billion).
Close to 45% of OCBC’s loans have their credit risks either residing in China or can be traced to the middle kingdom.
CEO Helen Wong says the bank will monitor the pandemic situation there closely.
Its loan book is well-diversified among various industries — building and construction loans make up the majority at 29%, followed by housing loans at 21%.
Significantly lower allowances
The lender reported an improving credit environment and saw total allowances fall sharply from S$161 million in 1Q2021 to S$44 million in the current quarter.
Total credit costs fell from 0.22% to just 0.06%, and refer to the allowances made for loans as a proportion of the bank’s average loans.
Consequently, OCBC’s non-performing loans (NPL) ratio has dipped to 1.4% from 1.5% a year ago.
Growing its wealth management and insurance arms
Despite the weaker showing for its investment fee income, the bank continued to grow its wealth management’s assets under management, which was up 1% year on year to S$251 billion.
For its insurance arm, total new weighted sales enjoyed a healthy 32% year on year boost to S$505 million, offset by a slight 3% year on year decline in new business embedded value.
Get Smart: Weak investor sentiment to continue
The headwind of stock market volatility should carry on for the rest of 2022, says CEO Wong, as customers are expected to be less active compared to a year ago.
The bank’s clients are sitting on the sidelines and overall lower activity levels will continue to impact wealth management fees.
On the bright side, OCBC expects that Asia’s growth should remain resilient as the region experiences an economic recovery.
The lender boasts healthy capital, funding and liquidity positions and will continue to remain vigilant to new risks that may emerge.
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Disclaimer: Royston Yang owns shares of DBS Group.