OCBC Q2 profit up 14% to $1.94 billion, bank to weigh its options for Great Eastern

SINGAPORE – OCBC Bank’s second-quarter earnings grew more than expected on strong growth in fee, trading and insurance income, as well as a decline in allowances.

Net profit for the second quarter rose 14 per cent to $1.94 billion, from $1.71 billion a year ago. The results blew past the $1.82 billion forecast from analysts polled by LSEG.

The board has declared an interim dividend of 44 cents per share, up 10 per cent from a year ago. This represents a payout ratio of 50 per cent of the earnings for the first half of 2024.

On OCBC’s bid to acquire the rest of Great Eastern Holdings (GEH) and delist the insurer, group chief executive officer Helen Wong said the bank will continue to evaluate its options. It will do so over the three months from July 23, when the bank announced that minority shareholders who had not sold their shares to the bank could still do so under the terms of the offer.

OCBC’s offer closed on July 12 with the bank holding 93.32 per cent of GEH’s shares, not enough to trigger a compulsory acquisition. GEH has been suspended from trading since July 15, when the number of its shares in public hands fell below the 10 per cent free float threshold.

Ms Wong said on Aug 2 that any future offer for GEH will be in the interest of OCBC and its shareholders. GEH shareholders have until Oct 23 to accept OCBC’s offer on the same terms under the bank’s bid in May.

Separately, GEH said on Aug 2 that it was granted an extension of time to restore its public free float, until the final shareholding of OCBC is known after Oct 23.

The profit contribution from GEH to OCBC’s earnings rose 40 per cent year on year to $504 million in the first half of 2024, boosted by sales momentum in both regular- and single-premium plans.

OCBC’s second-quarter net interest income grew 2 per cent year on year to $2.43 billion, led by a 5 per cent increase in average assets. The asset growth was partially offset by a six basis-point drop in net interest margin (NIM), a key measure of profitability, to 2.2 per cent.

The bank maintains its forecast for low single-digit loan growth in 2024. Loans grew by 2 per cent or $7 billion year on year in the second quarter, driven by corporate loans and mortgages. The industry has seen weak demand for loans amid high interest rates.

Ms Wong said: “We feel our loan growth is still robust… Some of our regional currencies remain weak and there’s some translation that does not reflect the growth. We continue to be very well placed to support our clients as they seek to expand, in particular, across borders.”

The macroeconomic outlook and opportunities in Asean remain strong, despite uncertainties from geopolitics, ongoing wars and various elections, she added.

Asked about the bank’s exposure to the ailing commercial real estate sector in the US and Hong Kong, global wholesale banking head Tan Teck Long said: “We have stopped financing office space in the US for quite a while.”

The bank has also been more selective about lending to the sector in Hong Kong. Its exposure to office real estate there is less than 2 per cent of the group’s total book.

“At this point, our secured exposure in Hong Kong has an average LTV (loan-to-value ratio) of below 50 per cent. On a slightly more positive note, if interest rates were to drop, it could give some relief to the cycle in Hong Kong,” added Mr Tan. He noted that there are bright spots in other types of real estate, such as student accommodation in Europe.

OCBC expects its NIM to be at the lower end of a 2.2 per cent to 2.25 per cent range by the end of the year. It previously forecast this to be on the higher side of the range.

Ms Wong said the bank is investing in high-quality bonds and other commercial assets, in preparation for what it expects will be two US rate cuts later this year.

“The active management of funding continues to be very important, in terms of having a digital offering where we can easily add new customers. (This will allow us to) own more operating accounts so as to improve the Casa ratio,” she added. Casa, or current and savings account deposits, are a cheap source of funds for banks.

In 2023, OCBC said it plans to deliver $3 billion in incremental revenue by 2025. It has already achieved more than $1 billion of this target, said Ms Wong.

The bank’s non-interest income in the second quarter rose 13 per cent to $1.2 billion from growth in fee, trading and insurance income. 

It also set aside lower allowances for potential bad loans. Total allowances were $144 million, down 43 per cent year on year, largely from a decline in allowances for non-impaired assets.

Asset quality remains sound, with the bank’s non-performing loan ratio improving to 0.9 per cent, from 1.1 per cent a year ago.

OCBC’s net profit fell 2 per cent when compared with its $1.98 billion record earnings in the first quarter. Its earnings for the first half-year rose 9 per cent to $3.93 billion, underpinned by broad-based income growth which surpassed $7 billion for the first time.

Wealth management income accounted for 35 per cent of total income, from 33 per cent a year ago. Assets under management reached a new high of $279 billion, from $274 billion a year ago.

OCBC saw $2 billion in net new money inflows in the second quarter. Its private banking unit, Bank of Singapore, has been growing its relationship manager (RM) workforce – it had nearly 450 RMs as at June, up 6 per cent from end 2022.

Ms Wong said the growth in net new money was broad-based. OCBC saw wealth inflows into its consumer business, which caters to both Singapore and offshore customers, as well as the private bank’s key hubs of Singapore, Hong Kong and Dubai that also saw money coming from elsewhere in the world.

UOB on Aug 1 reported a 1 per cent year-on-year rise in second-quarter earnings to $1.43 billion, in line with estimates. DBS is due to announce its results on Aug 7.

OCBC shares closed 0.13 per cent lower at $14.80 on Aug 2. DBS dropped 1.86 per cent to $35.31, while UOB dipped 0.66 per cent to $31.83.