OCBC Ltd (SGX: O39) is the final bank of the local trio to report its 2023 second quarter (2Q 2023) and first half (1H 2023) earnings.
Last week, its peer United Overseas Bank (SGX: U11) released a sparkling set of results that saw it up its interim dividend by 42%.
Earlier this week, DBS Group (SGX: D05) also announced a strong set of results and hiked its 1H 2023 dividend by 25%.
OCBC also did not disappoint as the bank delivered a record net profit and boosted its interim dividend by 43% year on year, the highest percentage increase among the three local banks.
Here are five things that investors need to know about the lender’s latest earnings.
1. A commendable set of financial numbers
For 2Q 2023, OCBC saw its net interest income (NII) jump 40% year on year to S$2.4 billion as global interest rates continued to rise.
Non-interest income for the quarter climbed 11% year on year to S$1.1 billion, principally contributed by its insurance arm Great Eastern Holdings Ltd (SGX: G07).
As a result, total income leapt 30% year on year to S$3.5 billion.
Operating expenses inched up just 2% year on year, thus allowing operating profit before allowances to shoot up 48% year on year to S$2.4 billion.
Allowances more than tripled year on year to S$252 million for 2Q 2023 because of increased coverage for non-impaired loans.
Net profit improved by 34% year on year to S$1.7 billion.
For 1H 2023, NII increased by 48% year on year to S$4.7 billion while group net profit rose 38% year on year to S$3.6 billion.
Return on equity (ROE) for the half year also increased by 3.9 percentage points from 10.4% to 14.3%.
2. Lower fee income offset by higher wealth management AUM
Fee income was subdued for 2Q 2023, clocking in at S$430 million, down around 10% year on year.
The decline was attributed to weaker wealth management, brokerage and fund management fees.
Wealth management fees fell by 15.8% year on year to S$181 million as investors remained on the sidelines.
However, OCBC reported net new money inflows into its wealth management franchise, with assets under management rising by 10% year on year to S$274 billion as of 30 June 2023.
For 1H 2023, fee income dipped by 11.6% year on year from S$999 million to S$883 million.
3. A steady NIM coupled with marginal loan growth
OCBC reported a net interest margin (NIM) of 2.26% for 2Q 2023, up sharply from 1.71% back in 2Q 2022.
However, it was also the bank’s second consecutive quarter-on-quarter decline in NIM.
OCBC’s NIM was at its highest in 4Q 2022 with 2.31% but this ratio dipped to 2.3% in 1Q 2023 and then to 2.26% in 2Q 2023.
For 1H 2023, NIM clocked in at 2.28%, up from 1.63% a year ago.
The lender’s loan book enjoyed a 2% year on year rise to S$297 billion in constant currency terms.
Building and construction loans made up 32% of OCBC’s loan book as of 30 June 2023 while mortgage loans made up slightly more than one-fifth.
In line with its sustainability push, sustainable financing loans climbed 29% year on year to S$34 billion and comprised 11% of its loan book.
4. An improved cost-to-income ratio with lower non-performing loans
For 1H 2023, operating expenses rose just 5% year on year, significantly lower than the 30% year on year jump in total income.
Because of this, OCBC’s cost-to-income ratio (CIR) fell to 37.8% for 1H 2023, down from 47.1% in the prior year.
For 2Q 2023, the CIR came in at 38.5%, down sharply from 49% back in 2Q 2022.
OCBC’s non-performing loans (NPL) ratio came down from 1.3% last year to 1.1% as of 30 June 2023.
There were loan recoveries and upgrades in Singapore, Malaysia, and Indonesia but these were offset by higher NPLs in the US mainly from a downgrade of a corporate account in the commercial real estate sector.
5. Interim dividend raised by 43%
In light of the strong results, OCBC has raised its interim dividend from S$0.28 last year to S$0.40 for a 43% year on year increase.
The dividend payout ratio remains at 50%, in line with its guidance.
The bank’s trailing 12-month dividend totals up to S$0.80, giving its shares a trailing 12-month dividend yield of 6.1%.
Get Smart: A refreshed strategy to spur growth
CEO Helen Wong intends to leverage OCBC’s strong network and enhance its capabilities based on the recently-launched unified brand and logo to drive further growth.
The group projects an ROE of 14% for 2023 along with a NIM above 2.2%.
It also expects low to mid-single-digit loan growth and will maintain its dividend payout ratio at 50%.
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Disclosure: Royston Yang owns shares of DBS Group.