OCBC's net profit up 14% to $973m

Thanks to the sustained growth in wealth management income.

Banking giant Oversea-Chinese Banking Corporation (OCBC) reported a lift in net profit for the quarter ending in March, up 14% to $973m compared to $856m last year.

The robust yearly performance was largely driven by sustained growth in wealth management income, higher profit from insurance operations as well as increased earnings in local currency terms from all of the Group’s overseas banking subsidiaries, particularly from Indonesia.

Net interest income of $1.27b for the first quarter was 3% lower as compared to $1.31b a year ago, as higher asset growth was offset by net interest margin compression. Average customer
loans grew 5% year-on-year led by broad-based growth across most industry segments and key markets. Net interest margin contracted 13 basis points from 1.75% a year ago to 1.62%, largely attributable to reduced customer loan yields and excess liquidity placed in high quality but lower yielding interbank placements.

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The Group’s non-interest income rose 30% to S$977 million from S$753 million a year ago. Fee and commission income climbed 29% to S$481 million, led by a 70% rise in wealth management fee income, partly contributed by the acquisition of the former wealth and investment management business of Barclays PLC in Singapore and Hong Kong (“Barclays WIM”) in November 2016. Net trading income of S$158 million, predominantly treasury-related income from customer flows, grew 30% from S$122 million last year, while net realised gains from the sale of investment securities rose 10% to S$65 million.

Profit from life assurance more than doubled from S$83 million in the preceding year to S$176 million, largely from positive performance in Great Eastern Holdings’ (“GEH”) investment portfolio as a result of favourable market conditions. GEH continued to deliver strong underlying insurance business growth, with total weighted new sales and new business embedded value increasing 29% and 24% year-on-year respectively.

Overall wealth management income, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, grew 50% to S$724 million, from S$482 million a year ago. As a proportion of the Group’s total income, wealth management contributed 32%, as compared with 23% in 1Q16.

OCBC’s private banking business continued to grow, as reflected by a significant increase in assets under management to US$85 billion (S$119 billion) as at 31 March 2017, up 49% from US$57 billion (S$77 billion) the previous year, partly contributed by the acquisition of Barclays WIM.

Operating expenses for the quarter rose 5% to S$973 million from S$923 million a year ago, driven by an increase in staff costs partly associated with the consolidation of Barclays WIM. (Excluding the consolidation of Barclays WIM, operating expenses were 3% higher against the previous year). The cost-to-income ratio was 43.3% for the quarter, as compared to 44.8% in 1Q16. Allowances for loans and other assets were unchanged from the prior year at S$168 million.

The Group’s annualised return on equity improved to 10.8% from 10.1% in 1Q16, while annualised earnings per share rose to 92.9 cents from 82.2 cents the previous year.

Against the previous quarter (“4Q16”), the Group’s net profit after tax rose 23%. Net interest income grew 2% quarter-on-quarter driven by asset growth. As compared with 4Q16, net interest margin declined 1 basis point to 1.62% mainly due to a larger amount of interest income not being recognised on non-performing loans (“NPLs”).

Excluding this, net interest margin for the quarter would have been higher by 2 basis points, mainly attributable to better returns from money market placements of our excess funding. Non-interest income rose 5% against the preceding quarter mainly from higher fee income, insurance and trading income. Operating expenses fell 1% against 4Q16 while net allowances for loans and other assets declined 45% against the previous quarter.