Yahoo Finance 
OCBC's full-year net profit down 11% to $3.4b
Due to increased allowances and lower insurance contributions.
Oversea-Chinese Banking Corporation Limited reported an 11% lower profit for 2016 to $3.47b, down from $3.9b.This came against a strong prior year performance, which included a substantial investment gain from insurance subsidiary Great Eastern Holdings.
"The decline in earnings was also driven by a rise in net allowances and lower trading and insurance income, which more than offset the impact of strong wealth management fee income growth and increased contributions from our Indonesia and Hong Kong banking subsidiaries," OCBC said.
The group's full-year earnings also included the one-month consolidated results of the former wealth and investment management business of Barclays PLC in Singapore and Hong Kong which was acquired by Bank of Singapore at the end of November 2016. Its assets under management of US$13b were transferred to BOS for a consideration of US$228m. However, the one-month profit contribution was not material relative to the Group’s 2016 earnings.
For the said year, the group's net interest income fell 3% from the previous year to $5.05b, mainly from a decline in average interest-earning assets, led by a drop in interbank placements. Net interest margin of 1.67% was unchanged year-on-year.
The group incurred a $3.79b operating expenses for the year, a modest increase of 3% from a year ago. The Group’s cost-to-income ratio was 44.6% as compared to 42.0% in the previous year. Excluding the consolidation of Barclays WIM and the associated integration expenses, operating expenses were 2% higher than FY15, which reflected overall continued cost discipline and tightly controlled headcount growth. Allowances for loans and other assets of $726m were higher than $488m a year ago, mainly led by an increase in specific allowances for corporate accounts in the oil and gas support services sector which the Group has been closely monitoring.
Regarding its allowances and asset quality, OCBC said:
The operating environment in 2016 continued to be challenging and the Group remained vigilant in closely monitoring the portfolio for early signs of weakness. While the overall credit quality of the portfolio remained sound, the uncertain outlook and depressed oil prices particularly impacted the oil and gas support services sector. The Group undertook steps to pro-actively classify several related accounts for close monitoring, and assisted customers to reschedule and restructure their loans.
Total net allowances for loans and other assets were S$726 million in FY16, as compared to S$488 million a year ago. Net specific allowances for loans rose to S$484 million from S$232 million in FY15, mainly from the abovementioned oil and gas support services sector related accounts. Given the weaker operating outlook, portfolio allowances of S$172 million were set aside. Nonetheless, the Group continued to retain a healthy coverage ratio, with total cumulative allowances covering 303% of unsecured non-performing assets (“NPAs”) and 100% of total NPAs.
As at 31 December 2016, the absolute NPAs were S$2.89 billion, up from $2.59 billion a quarter ago and S$2.04 billion in FY15. New NPA formation was S$2.29 billion, higher than S$1.95 billion of the prior year, while net recoveries and upgrades of S$1.16 billion were also above S$0.96 billion a year ago. The year-on-year net increase in NPAs mainly comprised corporate accounts in the oil and gas support services sector, which drove the rise in the non-performing loans (“NPL”) ratio to 1.3%, from 1.2% the previous quarter, and 0.9% a year ago.
More From Singapore Business Review
