OCBC net profits down 26% to $3.59b in FY2020

CEO Samuel Tsien maintained a cautious outlook for the economy’s recovery.

OCBC’s full-year net profits dropped 26% YoY to $3.59b in FY2020, according to a bourse filing. Total income also fell 7% YoY to $10.14b during the whole year, down from to the $10.87b earned in FY2019.

The decline in net interest margin resulting from the sharp drop in market interest rates and higher-than-expected credit allowances impacted the bank’s profits. Banks in Singapore and across the region raised their buffers amidst deteriorating market conditions brought about by the COVID-19 pandemic.

For the full year of 2020, OCBC proposed a final dividend of 15.9 cents per share. Together with the earlier interim dividend of 15.9 cents, the total dividend for FY20 would be 31.8 cents.

Under MAS’ guidelines, this is the maximum dividend per share that the bank can declare for FY2020, which is capped at 60% of FY2019’s 53 cents.

Group CEO Samuel Tsien has lauded the bank’s "resilient" performance, and said that the bank’s capitalization, funding, and liquidity will provide them with ample capacity to invest and grow once markets turn for the better.

Tsien has maintained a cautious outlook for the economy’s future.

“Whilst economic conditions have started to show signs of stabilisation and we are seeing increased activities in some pockets of the economy, the recovery is not yet broad-based. The uncertainty of COVID-19 containment globally continued to weigh on business confidence and consumer sentiments,” Tsien noted.

He added that OCBC will remain watchful of the headwinds, but we are also looking for opportunities to capitalise on signs of sectorial recovery.

During the final quarter of FY2020, the bank’s net profit rose by 10% QoQ to $1.13b from Q3 2020’s $1.03b, signalling continued recovery. However, this is 9% QoQ lower than what OCBC earned in Q4 FY2019 at $1.24b.

Net interest income during the quarter inched up by 1% QoQ to $1.43b, but is 11% YoY lower from Q4 FY2019.

Not taking into account the allowances made, OCBC’s operating profit for the fourth quarter declined 6%. This was attributable to lower life insurance profit due to a provision for higher expected future insurance claims made by the bank’s subsidiary Great Eastern Holdings (GEH).

Profit from life insurance totalled $145m, a 33% decline, a result of the provision by GEH. It otherwise continued to report robust underlying insurance business growth, OCBC said, with total weighted new sales expanding by 22% to $528m, supported by increased sales both in Singapore and Malaysia.

New business embedded value was also up 72% at $275m, and NBEV margin grew to 52.1% from 37% in the previous quarter.

Meanwhile, net fees and commissions rose by 3% to $517m in Q4 2020, led by higher income from investment banking, credit cards, and fund management activities.

Wealth management fees made up close to half of total fee income for a total of $250m during the quarter. As of 31 December 2020, assets under management at OCBC’s private banking subsidiary Bank of Singapore grew 4% from the previous quarter and 3% against last year to a record $160b (US$121b) driven by continued inflow of net new money and improved market valuations.

Trading income increased 4% to $264m from higher investment gains and sustained customer flow income.

Operating expenses rose 2% to $1.13b, led by higher business-driven costs associated with increased volumes and activities.

Note: Unless otherwise specified, all figures are in Singapore dollar.