OCBC's full-year profit soars 73% to record S$3.99b

Fantastic performance from three income segments.

In a release, Oversea-Chinese Banking Corporation Limited (OCBC Bank) reported a net profit after tax of S$3.99 billion for the financial year ended 31 December 2012 (FY12), an increase of 73% from S$2.31 billion in 2011 (FY11).

Core net profit after tax, which excludes gains from the divestment of non-core assets, grew 24% to a record S$2.83 billion, as compared to S$2.28 billion a year ago. The results were driven by a combination of record net interest income, fee income and net trading income as well as significantly higher contributions from Great Eastern Holdings (GEH).

OCBC reported that net interest income grew to a record S$3.75 billion, a 10% increase from S$3.41 billion in 2011, driven by strong asset growth which more than offset a reduction in net interest margin. Average balances of non-bank customer loans grew 15% year-on-year, across various industry sectors in Singapore and key overseas markets. Net interest margin, however, narrowed 9 basis points to 1.77%, due to the continued low interest rate environment, limited gapping opportunities and the re-pricing of mortgage loans in response to market competition. The ratio of current and savings deposits to total non-bank deposits increased further to 50.6%, up from 46.4% a year ago, while our loans-to-deposits ratio was maintained at 86.2%, a level comparable to a year ago.

Non-interest income, excluding divestment gains, was 31% higher at S$2.90 billion as compared to S$2.21 billion a year ago. Fee and commission income reached a new high of S$1.20 billion, driven by the sustained growth of the Group's wealth management franchise, including Bank of Singapore, and supported by higher loanrelated and trade-related fees. Net trading income increased to S$515 million from S$217 million in the previous year, largely from securities and derivatives trading. Life assurance profit from Great Eastern Holdings increased 81% to S$692 million, from S$383 million in 2011, led by continued underwriting income growth and improved investment performance. The Group‟s divestment gains of S$1.32 billion (S$1.17 billion post-tax) during the year were largely attributable to the sale of its stakes in Fraser and Neave, Limited (“F&N”) and Asia Pacific Breweries Limited (“APB”) in August 2012.

Compared with total core income, which grew 18% to S$6.65 billion, operating expenses rose 11% to S$2.70 billion, from S$2.43 billion a year ago. This generated a 24% increase in operating profit, to S$3.95 billion for the year. Staff costs grew 14% to S$1.65 billion, from S$1.45 billion in 2011, largely from headcount growth of 8% to support the Group's expansion in Singapore and overseas markets. The increase in staff costs was also attributable to salary increments, higher incentive compensation and sales commissions associated with stronger business volumes. The cost-to-income ratio of 40.6% improved from 43.2% in the previous year. Net allowances of S$271 million were 23% higher as compared to S$221 million in 2011, while the non-performing loans (“NPL”) ratio improved to 0.8%, from 0.9% a year ago.  

Return on equity, based on core earnings, of 12.5% was higher as compared to 11.1% in 2011. Core earnings per share rose 22% to 79.1 cents, from 64.8 cents a year ago.

The Group‟s revenue from various wealth management activities (comprising insurance, private banking, asset management, stockbroking and sales of other wealth management products), grew to S$1.84 billion for 2012, a 43% increase from S$1.29 billion a year ago. As a share of total revenue, wealth management contributed 28%, compared with 23% in 2011. OCBC‟s private banking business maintained its strong growth momentum, with assets under management increasing 35% to US$43 billion (S$52 billion) as at 31 December 2012, up from US$32 billion (S$41 billion) the previous year.

Commenting on the Group‟s performance and outlook, CEO Samuel Tsien said: “Despite 2012 being a challenging year which saw lower GDP growth in Singapore and continued structural weaknesses in major economies, the consistent execution of our focused strategy has served us well. We achieved record earnings, grew our businesses across all customer sectors and further strengthened our financial position with strong capital ratios, a high level of liquidity and sound asset quality. Although the market outlook remains uncertain, we expect the global economy to post low-to-moderate growth in the year ahead. We are well-positioned to continue to drive sustainable growth in our key geographies and businesses, and are well-placed to pursue new opportunities.