OCBC cautiously optimistic on outlook as Q4 profit falls 9% to $1.13 billion

 The bank's October-December net profit came in at $1.13 billion versus $1.24 billion a year earlier.
The bank's October-December net profit came in at $1.13 billion versus $1.24 billion a year earlier.ST PHOTO: CHONG JUN LIANG

SINGAPORE - Singapore’s second-largest bank OCBC was cautiously optimistic on its outlook as it reported on Wednesday (Feb 24) a 9 per cent decline in fourth-quarter earnings owing to a drop in overall income, which more than offset the company’s reduction in expenses. 

Outgoing group CEO Samuel Tsien said: “Looking forward, we believe most countries are exiting from the trough of this crisis although the recovery continues to be sectorial. We will continue to be cautious and we believe that a strong recovery will probably not be seen until towards the end of this year and stronger into next year.” 

He expects that recovery will be even stronger if ongoing sociopolitical events around the world die down. 

“It is also very important for the United States market to pick up, not only from a China-US trading perspective. The US is a very strong consumer market and if that market can recover, as is now expected with the proper policies put in place, we have high hopes that the recovery will be stronger than what we even expect right now,” said Mr Tsien at his last earnings briefing. 

He will hand over the reins to Helen Wong, the bank’s deputy president and head of global wholesale banking, in mid-April. 

Earlier this month, OCBC’s larger peer DBS reported a 33 per cent fall in fourth-quarter earnings as the bank’s net interest margin fell and it set aside higher allowances for potential bad loans amid the pandemic.

But DBS chief executive Piyush Gupta was upbeat on the year ahead, saying the latest economic data supports a solid rebound this year and that the bank’s strong performance in January provided a head start to the year.

OCBC posted a fourth-quarter net profit of $1.13 billion, down from $1.24 billion a year ago. Its earnings beat the $968 million average estimate of seven analysts polled by Bloomberg. 

The board declared a final dividend of 15.9 cents a share, down from 28 cents a year ago, to which the scrip dividend scheme will apply. 

OCBC’s net interest income for the quarter tumbled 11 per cent year on year to $1.44 billion. Its net interest margin, a key gauge of profitability for banks, fell 21 basis points to 1.56 per cent. 

Allowances for the quarter were up 37 per cent to $285 million, while total allowances for the full year more than doubled to $2.04 billion amid the uncertain economic and market outlook. 

OCBC’s non-performing loans ratio was 1.5 per cent as at Dec 31, unchanged from a year ago. 

Earnings per share stood at 99 cents for the quarter, down from $1.11 a year ago. 

The bank’s full-year net profit dropped 26 per cent to $3.59 billion, from a record of $4.87 billion in 2019.

Its net interest margin was dented by a sharp drop in market interest rates and higher expected credit loss allowances to buffer against the pandemic-induced deterioration in macroeconomic conditions. 

OCBC counts Singapore, Greater China and Malaysia, among its key markets. 

Wealth management income, a bright spot, dipped just 1 per cent to $3.37 billion from a record a year ago. Although net fee income fell, wealth management fees climbed 5 per cent to a new high, driven by strong customer investment activities in a low interest rate environment. 

As for debt holidays, Mr Tsien noted that just 2 per cent of the group’s total loans making up $5.7 billion were under moratorium as at Jan 31.

In Singapore, loans under moratorium also make up 2 per cent of the bank’s total loans made here, amounting to $2.7 billion. Most of these were made to consumers and small and medium-sized enterprises. 

Mr Tsien said the exit of loan relief programmes has been smooth in the group’s various markets due to good coordination with regulators, client selection and customer engagement. 

“Majority of these exposures are secured, even for those under the second relief programme, the performance ratio is over 90 per cent, meaning they are able to meet the requirements of repayment under the second relief programme,” he said. 

OCBC shares were up 2.3 per cent at $10.85 as of 4.17pm on Wednesday, while DBS shares gained 2.8 per cent to $26.38.

UOB will report its results on Thursday.