OCBC H1 2023 Earnings Soar: Here’s What It Means for Bank Investors

August 4, 2023

OCBC bank shares

Singapore’s big listed banks have now all reported their earnings. On Friday morning (4 August), it was the turn of Oversea-Chinese Banking Corporation (SGX: O39) – better known as OCBC.

OCBC’s net profit in H1 FY2023 hit a record high as return on equity (ROE) spiked to 14.3%. Should Singapore bank and dividend investors be optimistic?

The bank unveiled a net profit of S$3.59 billion for H1 FY2023, marking a commendable 38% year-on-year uptick from S$2.59 billion for H1 2022.

The group’s net profit in the Q2 FY2023 witnessed a 34% ascent, totalling S$1.71 billion.

Here is a closer look at the record earnings of OCBC and what it all means for investors.

Key drivers of earnings growth

Below is a quick look at what has been driving the impressive earnings in H1 FY2023 for OCBC.

1. Net interest income jumped 48%

An impressive leap of 48% year-on-year (yoy) to S$4.73 billion in its net interest income (NII) during the H1 FY2023.

This was mainly due to net interest margin (NIM) expansion of 65 basis points (bps) to 2.28% for H1 FY2023 as well as the 6% growth in its average assets.

2. Non-interest income edged higher

Non-Interest Income increased by 3% yoy to S$2.08 billion.

This rise was attributed to gains from the sale of investment securities, higher trading, insurance, and investment income, but was slightly offset by a decrease in wealth fees due to decreased customer activities.

3. Wealth management income rose 36%

Another positive driving factor is the wealth management income.

This category includes insurance, private banking, asset management, and stockbroking, which jumped by 36% yoy to S$2.24 billion, contributing 33% to the group’s total income.

What to take note of for investors?

Aside from the key factors that drove earnings, here are some key highlights that OCBC investors should note.

1. Dividend increased by 43%

OCBC declared a 40 Singapore cent per share interim dividend, up 43% from the previous year. This dividend will be handed out to unitholders on 15 August 2023.

2. AUM improved by 10%

Assets Under Management (AUM) of the Group’s wealth management arm surged by 10% yoy, amounting to S$274 billion.

3. Modest rise in operating costs

There was a modest rise of 5% yoy in operating costs to S$2.57 billion, mainly due to increased staff-related expenses.

Despite the increase, the Group’s cost-to-income ratio improved to 37.8% in H1 FY2023.

4. Net allowances surged

Allowances, notably net allowances, skyrocketed by 211% yoy to $362 million in H1 FY2023 as OCBC adopted a “prudent approach” towards non-impaired assets.

Meanwhile, the non-performing loan (NPL) ratio stood at 1.1% as of 30 June 2023, marking a slight decrease of 0.2 percentage points from a year ago.

Despite the improvement, the substantial rise in allowances calls for close observation in subsequent quarters.

5. Comfortable balance sheet

OCBC’s liquidity coverage ratio (LCR) is at a comfortable 158%, while the loans-to-deposits (LDR) ratio was 78.8% as of end-June.

The bank also has a stable funding base with customer deposits above 80%.

The solid funding, liquidity and capital position put OCBC in a strong position to drive growth and weather the uncertainties in the global economic environment.

OCBC shows promising, sustainable growth with diversified revenue

OCBC’s H1 FY2023 earnings indicated strong financial health, diversified revenue streams, and robust management strategies.

With a surge in net profits, an uptick in dividend payouts, and promising wealth management figures, the bank presents an optimistic picture for current and prospective investors.

Investors who are looking for sustainable investing will also find OCBC to be an interesting option, given the emphasis made on the bank’s forward-looking sustainable approach and their ambition of achieving net-zero carbon emissions by 2050.

However, the substantial rise in allowances calls for close observation in subsequent quarters.

As always, investors should perform their due diligence and consider their risk appetite when making decisions.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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