OCBC’s net profit up 3% to a whopping S$2.3b in 2011

As the group’s customer-related businesses showed robust growth in the past year.

Oversea-Chinese Banking Corporation Limited reported a net profit of S$2,312 million for the financial year ended 31 December 2011, an increase of 3% from 2010. Core net profit, which excludes gains from the divestment of non-core assets, was S$2,280 million, up 1% from a year ago. Full year performance was underpinned by robust growth in the Group’s customer-related businesses, as reflected by record net interest income and fee income, as well as healthy growth in insurance new business weighted premiums and new business embedded value.

Compared with 2010, net interest income grew 16% to S$3,410 million on broad-based loan growth of 27%. Net interest margin declined 12 basis points, primarily due to the low interest rate environment and strong growth in lower-risk loans. Fees and commissions grew 16% to S$1,137 million, led by wealth management revenue and trade-related fees. Trading income was affected by challenging financial market conditions, resulting in a 46% year-on-year decline to S$217 million.

Great Eastern Holdings’ life assurance profits from the Participating and Investment-linked funds grew 25% to S$249 million. Investment performance of the Non-participating fund was adversely affected by volatility of the financial markets with the fund’s profits declining 44% to S$134 million.

The Group’s operating expenses increased 8% to S$2,430 million, reflecting continued disciplined cost management. Net allowances for loans and other assets increased from S$134 million to S$221 million, largely attributable to increased portfolio allowances in line with robust loan growth, and lower recoveries and write-backs. The non-performing loans ratio was unchanged year-on-year at 0.9%.

Net profit for the fourth quarter of 2011 was S$594 million, an 18% increase from a year ago and a 16% increase from the previous quarter. Net interest income rose 20% yearon-year and 6% quarter-on-quarter, driven by robust loan growth. Fees and commissions grew marginally year-on-year to S$257 million, but were 16% lower than the previous quarter, largely attributable to lower wealth management revenue, and loan and trade-related fees.

Trading income rebounded quarter-on-quarter to S$163 million. GEH’s life assurance profits from the Participating and Investment-linked funds rose 29% year-on-year to S$65 million. However, this was offset by weaker investment performance of the Non-participating fund, resulting in overall life assurance profits declining 23% year-on-year and 33% quarter-on-quarter to S$51 million.

Operating expenses of S$620 million were unchanged year-on-year and marginally higher than the previous quarter. Net allowances for loans and other assets were S$78 million, compared with S$48 million a year ago and S$38 million in the previous quarter.

The Group’s revenue from various wealth management activities (comprising insurance, private banking, asset management, stockbroking and sales of other wealth management products), was S$1,285 million for 2011, 2% lower year-on-year due to lower insurance income. As a share of total revenue, wealth management contributed 23%, compared with 25% a year ago. OCBC’s private banking franchise continued to expand, with assets under management increasing 19% during the year to US$32 billion (S$41 billion) as of 31 December 2011.

Return on equity, based on core earnings, was 11.1% in 2011, compared with 12.1% in 2010. Core earnings per share for the year was 64.8 cents, compared with 66.1 cents a year ago.