SINGAPORE – OCBC Bank posted on Wednesday (Feb 23) a decline in fourth-quarter earnings due to higher expenses and lower trading income.
Singapore’s second-largest lender saw net profit fall 14 per cent year on year to $973 million, below the $1.2 billion estimate by financial market data provider Refinitiv.
The bank has proposed a final dividend of 28 cents a share, up from 15.9 cents a year ago, when dividend payouts from local banks and finance companies were capped due to the Covid-19 pandemic. The scrip dividend scheme will not be applicable to the final dividend.
Together with the interim dividend of 25 cents a share, the total dividend for last year will be 53 cents.
OCBC’s net interest income rose 4 per cent to $1.49 billion amid asset growth, while net interest margin (NIM) – a key gauge of lenders’ profitability – slipped 4 basis points to 1.52 per cent from lower asset yields.
Non-interest income edged up 1 per cent to $1.06 billion, driven by a growth in fee income growth and higher profit from life insurance.
It was offset by a 42 per cent fall in trading income to $152 million.
Operating expenses were 15 per cent higher at $1.29 billion, led by an increase in staff costs linked to “strategic expansion and business activity growth” and the absence of government job support grants in the quarter, said OCBC.
The bank said higher staff costs last year were due to headcount growth as the group continued to invest in digitalisation and wealth management.
Meanwhile, it set aside fourth-quarter allowances of $317 million, compared with $285 million a year ago, amid project financing delays due to pandemic-induced supply chain disruptions in Greater China and other overseas markets.
OCBC group chief executive Helen Wong said construction projects have faced manpower shortages and logistics issues, and the bank has taken a conservative view on several deals it had previously entered into.
“With the world moving on with living with endemic Covid-19, and as the economy continues to open up, issues during the last two years should gradually recover, so we expect the sponsors to continue to provide support to the projects,” she said.
Total non-performing assets stood at $4.34 billion as at Dec 31, up from $4.01 billion a year ago and slightly above $4.24 billion in the third quarter.
OCBC was the only local bank whose allowances increased in the fourth quarter. Its results wrap up local lenders’ earnings season, with DBS Group Holdings and UOB posting earnings that topped expectations last week.
OCBC shares closed 4.56 per cent lower on Wednesday at $12.56, while DBS rose 0.69 per cent to $36.50, and UOB increased 0.56 per cent to $32.38.
Ms Wong said the bank is back to pre-pandemic profitability levels, supported by a solid balance sheet, diversified funding base and continued investment in people and technology.
Potential interest rate hikes will lift the bank’s interest income, and NIM is expected to come in at 1.5 per cent to 1.55 per cent this year with “potential upside” on a faster increase in rates, added Ms Wong.
“In general, a 1 per cent raise across the year will increase our NIM by about 18 basis points and that would translate to close to $700 million of income,” she said, adding that the bank expects mid to high single-digit loan growth this year.
Customer loans grew 8 per cent in the fourth quarter, compared with a year ago.
“We want to remain watchful for potential headwinds. Omicron is hopefully the final disruptive phase of this pandemic... other issues to navigate include inflation, geopolitical tensions, supply chain disruptions and rising energy prices,” she added.
The lender’s fourth-quarter earnings were 20 per cent lower than the previous quarter’s $1.22 billion.
Its full-year net profit, however, rose 35 per cent to $4.86 billion on the back of growth in non-interest income and lower allowances, which offset a decline in net interest income amid the low interest rate environment.
Net fee income rose 12 per cent to a new high of $2.25 billion due to higher transaction volumes and a growth in customer activities.