UPDATE: OCBC reports 4Q18 net profit fell 11 percent, missing some analysts’ forecasts

OCBC branch in SingaporeOCBC branch in Singapore

This article was originally published on Friday, 22 February 2019 at 7:40 A.M. SGT; it has since been updated.

OCBC reported on Friday that its fourth quarter net profit declined 11 percent on-year to S$926 million, missing some analysts’ forecasts as the contributions from insurer Great Eastern Holdings and wealth management fees fell.

“Higher credit card, loan and trade-related fees were more than offset by a fall in wealth management fees attributable to subdued investment sentiments in the current market environment,” the bank said.

Net interest income for the quarter ended 31 December rose 7 percent on-year to S$1.52 billion, it said in a filing to SGX before the market open on Monday.

Non-interest income dropped 32 percent on-year to S$830 million in the fourth quarter, it said. Net fees and commissions income fell 4 percent on-year to S$474 million, it said.

Net trading income tumbled to S$9 million in the quarter from S$99 million in the year-ago period, mainly on unrealized mark-to-market losses in Great Eastern’s investment portfolio due to “unfavorable market conditions.”

Allowances in the fourth quarter also increased 14 percent on-year to S$205 million, mainly on allowances for loans in the general commerce sector and, as previously reported, certain groups in the oil and gas support vessels and services sector, OCBC said.

Full-year net profit up, but misses forecasts

For the full year, OCBC reported net profit increased 11 percent on-year to a record S$4.59 billion, with net interest income up 9 percent on-year at S$5.89 billion. The net interest margin (NIM), or the difference between the interest rate banks charge to lend and their cost of funds, improved 5 basis points on-year to 1.70 percent amid higher margins in Singapore, Malaysia and Greater China.

Non-interest income for the full year fell 7 percent on-year to S$3.81 billion, amid lower investment income from Great Eastern, offset by higher non-interest income from banking operations, it said.

That missed some analysts’ forecasts.

Net profit was forecast at S$4.77 billion, with net interest income at S$5.86 billion, based on the average of four analysts’ estimates; NIM was expected in a range of 1.70 percent to 1.72 percent. Non-interest income was forecast in a range of S$3.94 billion to S$4.17 billion, based on three estimates.

Cloudy outlook

CEO Samuel Tsien was upbeat on the results, saying the 2018 results were strong despite the market uncertainty and “challenging investment environment.”

“Our record earnings demonstrate the strength and resilience of our diversified business and the depth of our customer relationships,” Tsien said in the statement.

But he also pointed to some clouds on the horizon.

“Looking ahead, global economic growth is expected to slow on concerns of continued trade and geopolitical tensions, subdued market and investment sentiments and rising policy risks in the advanced economies,” he said. “In spite of the uncertain outlook, we are confident that our focused strategy, strong capital and funding base, and disciplined cost control will allow us to continue to prudently expand our  franchise in our key markets and support our customers.”

OCBC proposed a final dividend of 23 Singapore cents a share, up 21 percent on-year, bringing its total dividend for the year to 43 Singapore cents, up 16 percent on-year.

 

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