Following DBS (which have released its first quarter results on 30 April, and you can read about it here), and UOB (which have released its first quarter results 2 day backs back, on 06 May, and you can read about it here), OCBC (SGX:O39) is the last of the 3 Singapore banks to release its first quarter business updates for the financial year 2020 ended 31 March this morning (08 May) before trading hours.

The bank was the first of the three I have invested in August 2019 (and I have remained as a shareholder since.) As a shareholder of the bank, I have studied its latest business updates, what the CEO have to say, and you’ll find key updates in this post, along with my thoughts about it:

Key Financial Highlights (Q1 FY2019 vs. Q1 FY2020):

Let us take a look at some of the key financial figures for the current quarter under review (i.e. Q1 FY2020), compared against the same quarter last year (i.e. Q1 FY2019):

	Q1 FY2019	Q1 FY2020	% Variance
Total Income (S$’mil)	$2,676m	$2,490m	-7%
– Net Interest Income (S$’mil)	$1,534m	$1,626m	+6%
– Non-Interest Income (S$’mil)	$1,142m	$864m	-24%
Net Profit (S$’mil)	$1,231m	$698m	-43%

OCBC’s total income, which comprises of two main business segments – (i) net interest income, and (ii) non-interest income, fell 7% on a year-on-year (y-o-y) basis:

• Net interest income saw a 6% y-o-y growth, driven by growth in the bank’s customer loans (which saw a 5% y-o-y growth.) Its net interest margin remained at 1.76% on a y-o-y basis as the bank focused on current account and savings account (CASA) deposit gathering (which grew by 16% y-o-y) and a shift to longer tenure loans which mitigated the low interest rate environment.
• Non-interest income, however, saw a 24% y-o-y slump, attributed by a fall in its net trading income (from S$300m a year ago to just S$18m) on the back of unrealised mark-to-market losses in Great Eastern’s investment portfolio, a 43% y-o-y drop in its insurance income (driven by weak investment performance), offset by a 10% increase in its fee income (primarily driven by wealth management and brokerage income.)

Finally, the bank’s net profit plunged by 43% on a y-o-y basis due to non-operating losses in its insurance unit and a surge in provisions (which skyrocketed by 156% on a y-o-y basis) due to its oil and gas exposure and the deteriorating macroeconomic environment from the Covid-19 pandemic.

My Thoughts: The latest drop in OCBC’s net profit was largely within my expectations, after Great Eastern’s net profit for the first quarter (released on 06 May) sank by more than 90%, due to non-operating losses of S$222.8m.

Key Financial Ratios (Q4 FY2019 vs. Q1 FY2020):

Moving on, let us take a look at some of the bank’s key financial ratios for the quarter ended 31 March 2020 (i.e. Q1 FY2020), compared against the previous quarter ended 31 December 2019 (i.e. Q4 FY2019), to find out if they have improved or weakened three months on:

	Q4 FY2019	Q1 FY2020	Difference (in percentage points)
Net Interest Margin (%)	1.77%	1.76%	-0.01pp
Return on Assets (%)	1.23%	0.67%	-0.56pp
Return on Equity (%)	10.9%	6.0%	-4.9pp
Non-Performing Loans Ratio (%)	1.5%	1.5%	–

My Thoughts: I note that, compared to the previous quarter, the bank’s return on assets, as well as return on equity have both weakened pretty significantly – the drop in these two key financial ratios were also greater than DBS and UOB.

The plus points to note is that, compared to the previous quarter, its non-performing loans ratio have remained consistent at 1.5% (however, in the bank’s presentation, it was noted that near-term economic weakness and uncertainty to raise the bank’s non-performing loans ratio to between 2.5% and 3.5% ahead), and its net interest margin only slipped by a marginal 0.01 percentage point (however, I also understand from the bank’s presentation slides that net interest margin compression is expected in subsequent quarters ahead from the full effect of rate cuts.)

Key Summary of OCBC’s Latest Business Updates by CEO of the Group, Mr Samuel Tsien:

• As a result of the ongoing Covid-19 pandemic, Mr Tsien expects the next few quarters will be difficult for individuals and businesses, and that the bank will be providing support to help them tide through this difficult period.
• Mr Tsien also reassured shareholders that the overall fundamentals of the bank’s diversified banking, wealth management, and insurance business remains sound.
• Moving forward, he is also confident the bank will continue to maintain a strong balance sheet and achieve sustainable earnings as they execute their long-term corporate strategy of their diversified business model that focuses on the three business pillars – banking, wealth management, and insurance.

In Conclusion:

A few things to highlight here:

• No dividends were declared for the current quarter under review.
• The bank will be holding its annual general meeting (AGM) for FY2019 via live webcast on Monday, 18 May 2020 (which I will be attending and provide a summary thereafter just like for DBS’ AGM); for shareholders who would like to attend the live webcast, you can register here by next Friday, 15 May: https://meetings.vision/ocbc-agm-registration.
• The bank’s final dividend payout of 28 cents/share declared in Q4 and FY2019 will go ex-dividend on 26 May, with payout on 05 June.

Additionally, there was also no mention by the bank on its dividend payouts for the financial year 2020 ahead. I look forward to the management providing an update about it in its upcoming AGM (hopefully they will be able to at least maintain the same payout made in FY2019, i.e. 53.0 cents/share.)

Finally, as for my thoughts about the bank’s latest business updates, everything was pretty much within my expectations in light of the uncertainties due to the ongoing Covid-19 pandemic. I remain confident of the bank being able to navigate through the difficult period, and continue to register growth thereafter.

Download Related Documents for OCBC’s First Quarter Business Update:

• Results Update
• Results Highlights

Disclaimer: At the time of writing, I am a shareholder of Overseas-Chinese Banking Corporation Limited

Are You Worried about Not Having Enough Money for Retirement?

You're not alone. According to the OCBC Financial Wellness Index, only 62% of people in their 20s and 56% of people in their 30s are confident that they will have enough money to retire.

But there is still time to take action. One way to ensure that you have a comfortable retirement is to invest in real estate investment trusts (REITs).

In 'Building Your REIT-irement Portfolio' which I've authored, you will learn everything you need to know to build a successful REIT investment portfolio, including a list of 9 things to look at to determine whether a REIT is worthy of your investment, 1 simple method to help you maximise your returns from your REIT investment, 4 signs of 'red flags' to look out for and what you can do as a shareholder, and more!

You can find out more about the book, and grab your copy (ebook or physical book) here...