We are coming towards the tail end of the earnings season, with companies needing to report their results for the quarter ended 31 December 2022 by end of the month latest.
Speaking of which, Singapore’s longest established bank, Oversea-Chinese Banking Corporation Limited (SGX:O39), or OCBC for short, have made available its results for the fourth quarter, and also for the full year ended 31 December 2022 (i.e. FY2022) early this morning (24 February 2023.)
Just like DBS (which have released its results on 13 February, and you can read my review about it here), and UOB (which have released its results yesterday, and you can read my review about it here), OCBC also have many physical branches and ATMs scattered across Singapore (on top of banking operations via its namesake and private banking services provided through Bank of Singapore, it is also in the insurance business under its subsidiary company Great Eastern Holdings, as well as asset management business under Lion Global Investors.) Geographically, apart from in Singapore, the bank also have business operations in Malaysia, and Greater China (Mainland China, Hong Kong, and Macau.)
In today’s post, you will find my review of OCBC’s latest financial performance, financial ratios, and dividend payout declared.
Let’s begin:
Financial Performance (Q4 FY2021 vs. Q4 FY2022, and FY2021 vs. FY2022)
In this section, you’ll read about my review of OCBC’s financial performance both on a quarter-on-quarter (q-o-q) basis (i.e. Q4 FY2021 vs. Q4 FY2022), as well as on a year-on-year (y-o-y) basis (i.e. FY2021 vs. FY2022):
Q4 FY2021 vs. Q4 FY2022:
| Q4 FY2021 | Q4 FY2022 | % Variance | |
| – Net Interest Income (S$’mil) | $1,492m | $2,386m | +59.9% |
| – Net Fee & Commission Income (S$’mil) | $528m | $399m | -24.4% |
| – Other Non-Interest Income (S$’mil) | $530m | $216m | -59.2% |
| Total Income (S$’mil) | $2,550m | $3,001m | +17.7% |
| Total Expenses (S$’mil) | $1,289m | $1,299m | +0.8% |
| Net Profit (S$’mil) | $973m | $1,306m | +34.2% |
My Observations: The 34.2% improvement in OCBC’s net profit for the fourth quarter of FY2022 (compared against the fourth quarter of FY2021) was helped by a 59.9% jump in its net income to $2,386m (and this figure is a record for the bank), contributed by a 79 basis point increase in net interest margin on the back of rapid rise in interest rates during the year.
On the other hand, its net fee and commissions income, as well as its other non-interest income both saw double-digit percentage declines as a result of lower wealth management fees due to subdued customer investment activities amid market headwinds, along with valuation losses on Great Eastern Holdings’s (the bank’s subsidiary) insurance contract liabilities.
FY2021 vs. FY2022:
| FY2021 | FY2022 | % Variance | |
| – Net Interest Income (S$’mil) | $5,855m | $7,688m | +31.3% |
| – Net Fee & Commission Income (S$’mil) | $2,245m | $1,851m | -17.6% |
| – Other Non-Interest Income (S$’mil) | $2,496m | $2,023m | -19.0% |
| Total Income (S$’mil) | $10,596m | $11,675m | +10.2% |
| Total Expenses (S$’mil) | $4,764m | $5,026m | +5.5% |
| Net Profit (S$’mil) | $4,858m | $5,748m | +18.3% |
My Observations: On a full year basis, the bank’s record net profit (at $5,748m) was helped by a 31.3% increase in net interest income (driven by a 37-basis point expansion in its net interest margin, along with a 6% growth in average assets.)
However, both its net fee & commission income as well as its other non-interest income saw declines – for the former, it was largely from a softer wealth management fees attributable to prevailing risk-off investment sentiments, but partly offset by an increase in fees from loan and trade-related activities; for the latter, it was due to a decline in profit from insurance (i.e. Great Eastern Holdings), largely from unrealised valuation losses in the fourth quarter due to unfavourable movement in the discount rates used to value its longer-end duration insurance contract liabilities.
Financial Ratios (Q3 FY2022 vs. Q4 FY2022, and FY2021 vs. FY2022)
Moving on to looking at the bank’s financial ratios, what I will be doing here is to compare figures reported for the quarter ended 31 December 2022 (i.e. Q4 FY2022) against that reported in the previous quarter ended 30 September 2022 (i.e. Q3 FY2022), followed by comparing figures reported for the current full year under review (i.e. FY2022) against that reported a year ago (i.e. FY2021), in the respective tables below:
Q3 FY2022 vs. Q4 FY2022:
| Q3 FY2022 | Q4 FY2022 | Difference (in Percentage Points – pp) | |
| Net Interest Margin (%) | 2.06% | 2.31% | +0.25pp |
| Return on Assets (%) | 1.37% | 1.11% | -0.26pp |
| Return on Equity (%) | 12.4% | 10.5% | -1.9pp |
| Non-Performing Loans Ratio (%) | 1.2% | 1.2% | +0.0pp |
My Observations: The only bright spot in its fourth quarter financial ratio (compared to the previous quarter) was the 0.25pp increase in its net interest margin, as increase in loan yields outpaced the rise in funding costs.
FY2021 vs. FY2022:
| FY2021 | FY2022 | Difference (in Percentage Points – pp) | |
| Net Interest Margin (%) | 1.54% | 1.91% | +0.37pp |
| Return on Assets (%) | 1.13% | 1.25% | +0.12pp |
| Return on Equity (%) | 9.6% | 11.1% | +1.5pp |
| Non-Performing Loans Ratio (%) | 1.5% | 1.2% | -0.3pp |
My Observations: Unlike its financial ratios for the fourth quarter (compared to the previous quarter), on a full-year basis, all of its financial ratios recorded improvements compared to the previous year, which is encouraging to note.
Dividend Payout to Shareholders
The management of OCBC declares a dividend payout to shareholders on a half-yearly basis – once when the bank releases its results for the second quarter and first half of the year (known as interim dividend), and once when it releases its results for the fourth quarter and for the full year (which is this time round, known as final dividend.)
For the second half of FY2022, the bank’s management have declared a payout of 40.0 cents/unit – which is a 42.9% jump compared to the payout of 25.0 cents/share declared for the same time period last year.
On a full year basis, together with the interim payout of 28.0 cents/share, OCBC’s total dividend payout for FY2022 amounts to 68.0 cents/share – a 28.3% improvement compared to its 53.0 cents/share of dividend payout declared in FY2021.
The bank’s full year dividend payout of 68.0 cents/share represents a payout ratio of 53%, which is the highest since FY2008. Moving forward, while the bank’s management state that its payout ratio will be at 50.0%.
If you are a shareholder of the Singapore-listed bank, do take note of the following dates about its dividend payout:
Ex-Date: 08 May 2023
Record Date: 09 May 2023
Payout Date: 19 May 2023
Message from CEO Helen Wong (from the Bank’s Press Release)
“OCBC has emerged stronger from the pandemic and achieved another consecutive year of robust performance despite challenging conditions. I am delighted that the steady execution of our strategic priorities has yielded positive results and we have delivered record earnings, which crossed the S$5 billion mark for the first time. Supported by our sustained earnings growth and strong capital position, we are pleased to raise the 2022 dividend by 28% or 15 cents from a year ago to 68 cents per share, representing a payout ratio of 53%.
We are constantly redefining our business through accelerating digitalisation. We continue to enhance our digital platforms and introduce market-first initiatives to enrich the customer experience. For example, almost all customer transactions in Singapore are now conducted digitally and we have seen strong growth in digital wealth sales. We have also deepened partnerships and integration in the wider digital ecosystem. The focus to boost artificial intelligence and analytics capabilities has helped to better position us to identify business opportunities, improve operational efficiencies and reinforce our cybersecurity infrastructure.
Equally important, we made significant progress in our sustainability agenda in 2022. We joined the Net Zero Banking Alliance which demonstrated our firm commitment to achieving net zero by 2050. We also attained carbon neutrality in our banking operational emissions, and firmly embedded ESG considerations into our lending and investment practices. Our sustainable financing commitments exceeded S$44 billion and is on track to meet our target of S$50 billion by 2025 or earlier.
Looking ahead, our key markets in Asia are expected to remain resilient, and growth is forecasted to outpace the global average in 2023. We are optimistic that the reopening of China and Hong Kong SAR could further spur regional economic growth. We enter the new year with confidence as we drive for sustainable growth and deliver long-term value to our shareholders.”
Closing Thoughts
On the whole, it is a good year for OCBC as far as its results are concerned – where it managed to record a new high for its net interest income for the fourth quarter (at $2,386m), and also its net profit for the full year (at $5,748m.)
Along with that, its full year dividend payout of 68.0 cents/share represented a dividend payout of 53%, which is the highest since FY2008.
Looking forward, with the Federal Reserve very unlikely to hike interest rates like last year, I am of the opinion that its net interest margin growth will slow down, and eventually stabilise. But with interest rates likely to stay at a higher levels this year, banks will continue to benefit.
On the other hand, bearing in mind the tough economic condition ahead, we may see a slowdown in loan volume from consumers and businesses (as they become more prudent and mindful about not over-leveraging), resulting in the growth of the bank’s net interest income slowing down in tandem. Another risk to cast an eye on will be the rise in the number of defaults from both consumers and businesses which may result in the bank’s non-performing loans ratio going up.
Finally, as far as dividends are concerned, I note that the bank have target a payout ratio of 50.0% in the financial year ahead – which means we could potentially see a decline in dividend payouts (compared to what was declared in the 2nd and 4th quarters of FY2022) ahead if the bank is unable to keep up with its current year performance – so that is something we need to be mindful of.
With that, I have come to the end of my review of OCBC’s latest Q4 and full year 2022 results. As always, do note that the information within (particularly my comments) are purely for educational purposes only. They do not represent any buy or sell calls for the bank’s shares. You’re strongly advised to do your own due diligence before making any investment decisions.
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Disclaimer: At the time of writing, I am a shareholder of Oversea-Chinese Banking Corporation Limited.
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