OCBC Ltd (SGX: O39) is the last of the three local banks to report its third quarter 2023 (3Q 2023) results.
The blue-chip lender’s announcement caps off the final earnings season for 2023 and comes hot on the heels of its peer DBS Group (SGX: D05), which reported a record-high net profit of S$7.9 billion for the first nine months of this year (9M 2023).
Like DBS, OCBC also reported a record net profit for 9M 2023, bringing in S$5.4 billion.
Here are five highlights from OCBC’s earnings that investors need to know.
1. A jump in net profit to a record-high
For 3Q 2023, OCBC saw its total income rise 13% year on year to S$3.4 billion on the back of a 17% year-on-year jump in net interest income (NII) to S$2.5 billion.
Non-interest income inched up 4% year on year to S$973 million.
Within non-interest income, fee income saw a smaller 2% year-on-year rise to S$461 million while insurance profits from Great Eastern Holdings (SGX: G07) fell by 12% year on year to S$220 million.
Moving down the line, OCBC’s operating profit climbed 17% year on year to S$2.3 billion while net profit increased by 21% year on year to S$1.8 billion.
Group return on equity (ROE) for 3Q 2023 improved to 14% from 11.9% a year ago.
For 9M 2023, total income surged by 24% year on year to S$10.2 billion while operating profit increased by 34% year on year to S$7.1 billion.
Net profit hit a record high of S$5.4 billion, up 32% from the prior year’s S$4.1 billion.
2. Rebound in net interest margin offset by loan book contraction
The bank’s net interest margin (NIM) continued its upward climb, buoyed by rising global interest rates.
3Q 2023’s NIM came in at 2.27%, 0.21 percentage points higher than the prior year’s 2.06%.
Compared to 2Q 2023, OCBC’s NIM also saw a slight rebound from the previous quarter’s 2.26%.
For 9M 2023, NIM stood at 2.28%, a 0.5 percentage point improvement from 9M 2022’s 1.78%.
OCBC’s loan book, however, saw a slight 2% year on year contraction to S$294.3 billion.
Removing currency effects, the lender’s loan book would have increased by 1% year on year to S$298 billion.
3. Higher non-interest income
3Q 2023 saw higher non-interest income of S$973 million with contributions from higher investment gains along with net fees and commissions.
Trading income remained flat year on year at S$216 million while insurance income fell from S$249 million a year ago to S$220 million.
For 9M 2023, non-interest income edged up 3.4% year on year to S$3.1 billion, supported by higher insurance income and gains from investment securities but offset by lower net fees and commissions.
4. Fee income hits highest level in last four quarters
OCBC’s fee income chalked up the best performance in the last four quarters and was up 1.8% year on year for 3Q 2023 to S$461 million.
Digging deeper into the individual components, wealth management fees increased from S$179 million to S$196 million.
The bank’s wealth management assets under management grew 8% year on year to S$270 billion as of 30 September 2023 with total wealth management income jumping 16% year on year to S$1.1 billion.
The better wealth management fee performance was offset by lower year-on-year investment banking fees and loan fees, along with lower brokerage and fund management fees.
Higher credit card spending helped to boost the “others” category from S$78 million to S$84 million for the quarter.
5. Better cost-to-income and lower non-performing loans ratios
Expenses were well-controlled by the bank and only rose 5% year on year to S$1.3 billion for 3Q 2023.
As a result, OCBC’s cost-to-income ratio (CIR) declined to 39.1% from 42.2% a year ago.
For 9M 2023, the CIR also fell to 38.2%, down from 45.3% in the same period last year.
Meanwhile, the lender’s non-performing loans (NPL) ratio also improved further to the pre-pandemic level of 1%.
This level was better than the 1.2% registered in 3Q 2022 and was also a slight improvement from 2Q 2023’s 1.1%.
3Q 2023 saw a write-back in allowances for non-impaired loans compared to the S$200 million provision made in the previous quarter.
Get Smart: A bright 2023 beckons
CEO Helen Wong believes that the bank is headed for a good full-year performance.
ROE is slated to end the year above 14% while NIM has been revised higher to 2.25%.
The bank also expects low single-digit year on year loan growth with CIR hovering around 40%.
Its dividend policy is to pay out 50% of its earnings, similar to what was declared for its interim dividend in the previous quarter.
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Disclosure: Royston Yang owns shares of DBS Group.