The higher interest rate environment may be causing pain for more businesses, but it has been a boon for the three local banks.
Early last week, DBS Group (SGX: D05) reported a record set of earnings and also declared a special dividend of S$0.50.
Just yesterday, United Overseas Bank Ltd (SGX: U11), or UOB, also delivered a stunning set of results along with an increase in its final dividend.
OCBC Ltd (SGX: O39) has now followed suit.
Singapore’s second-largest bank has turned in a sterling report card for 2022 and also hiked its final dividend by 43% compared to a year ago.
Here are five highlights from the lender that investors should be interested in.
Higher operating and net profit
For 2022, OCBC’s net interest income (NII) surged by 31% year on year to S$7.7 billion.
The better performance was attributed to a sharp rise in the bank’s net interest margin (NIM) along with a year-on-year increase in its loan book.
Total income, however, improved by just 10% year on year to S$11.7 billion as non-interest income declined by 16% year on year.
The good news was the rise in operating expenses was kept at a slower rate of 5% year on year to S$5 billion.
The cost discipline, coupled with a rise in the share of profits from associates, caused operating profit (before allowance) for the lender to increase 15% year on year to S$7.6 billion.
With allowances falling by a third compared to a year ago, OCBC saw its net profit climb 18% year on year to a record high of S$5.7 billion for 2022.
Weaker non-interest income
The bank’s non-interest income clocked in at around S$4 billion, down 16% year on year.
The main culprits were lower net fee income and a net loss of S$206 million arising from the sale of investment securities, compared with a net profit of S$92 million in the prior year.
Net fee income stood at S$1.85 billion, a drop of 18% from a year ago, because of lower wealth management fees in line with volatile stock market conditions.
A bright spot was net trading income, which increased by 9% year on year to S$834 million, driven by higher treasury income along with hedging gains.
The profit from OCBC’s insurance unit, Great Eastern Holding (SGX: G07), dipped by 11% year on year to S$1.2 billion mainly from unrealised valuation losses arising from higher discount rates used to value insurance contract liabilities.
A surge in net interest margin coupled with loan growth
Like both UOB and DBS, OCBC also witnessed a sharp rise in its NIM for 2022.
OCBC’s NIM jumped from 1.54% in 2021 to 1.91% in 2022, pushing the lender’s NII above S$7 billion for the very first time.
On a quarterly basis, the rise in NIM is even more impressive, with every quarter in 2022 registering a quarter on quarter NIM increase.
The fourth quarter of 2022 saw NIM come in at 2.31%, although CEO Helen Wong guided for 2023’s NIM to hover around the 2.1% region.
OCBC’s loan book inched up 2% year on year to S$291.5 billion, helping to further boost the bank’s NII.
On the flip side, currency headwinds dented part of its loan growth, which could have been 4.5% year on year if currency effects were excluded.
Digital strength
OCBC’s digital transformation has been nothing short of amazing.
For its consumer and private banking divisions, up to 96% of financial transactions in Singapore were conducted digitally last year.
In the global wholesale banking division, 83% of small and medium enterprises (SMEs) in Singapore and Malaysia opened accounts digitally.
PayNow corporate transactions in Singapore soared by 79% year on year.
A sharp increase in dividends
OCBC’s stronger results justified higher dividends, which was exactly what the bank announced for 2022.
Its final dividend surged by 43% year on year from S$0.28 to S$0.40, bringing 2022’s total dividend to S$0.68.
2022’s total dividend was 28% higher than 2021’s dividend of S$0.53, demonstrating the bank’s willingness to reward shareholders.
This year’s dividend represents a 53% payout ratio, and OCBC has guided for a payout ratio of 50% moving forward.
Get Smart: A favourable outlook
Looking ahead, OCBC expects China’s reopening to boost the region’s economies.
It also expects interest rates to remain high as the US central bank tackles inflation with a vengeance.
The bank expects to chalk up mid-single-digit year on year loan growth but remains cautious about a potential recession that may dampen loan demand and increase bad debts.
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Disclosure: Royston Yang owns shares of DBS Group.
