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OCBC's Q3 net profit jumps 5% to $943m
The improvements came from wealth management, insurance, and Indonesia.
OCBC reported a net profit after tax of S$943 million for the third quarter of 2016. This was 5% above $902 million a year ago and 6% above S$885 million the previous quarter. The bank noted that the earnings performance over both periods was underpinned by strong performance in non-interest income, particularly fees from wealth management and profit from life assurance. OCBC CEO Samuel Tsien said the operating environment for the Group remains challenging amidst weak economic conditions.
"We continue to keep a firm grip on cost, maintain strong liquidity and capital, and ensure prudent levels of provisioning. Despite the Group’s conservative positioning, we delivered a yearly and quarterly rise in third quarter earnings. The improvements arose from a combination of higher wealth management and insurance income, as well as increased contributions from Indonesia. This clearly demonstrates the strength of the Group’s diversified franchise across geographies and businesses. Going forward, we will continue to adopt a prudent approach in managing our business, and will be well-placed to support our customers,” he stressed.
However, third quarter net interest income of S$1.23 billion was 6% lower as compared to S$1.32 billion the year before, driven by lower loan volumes and net interest margin. As at 30 September 2016, customer loans were S$209 billion or 2% lower than the year before, led by a decline in trade-related lending to Greater China, which offset an increase in housing loans and other consumer loans. Net interest margin for the quarter of 1.62% was 4 basis points below the previous year, mainly as a result of a lower average loan-to-deposit ratio and reduced customer loan yields.
Non-interest income increased 25% to S$970 million from S$775 million a year ago. As a share of the Group’s total income, wealth management contributions were 28% for the quarter, as compared to 22% in the prior year. Fee and commission income increased 5% to S$428 million, boosted by continued growth in wealth management fee income. Net trading income of S$163 million, primarily treasury-related income from customer flows, was lower than S$196 million the previous year, while net realised gains from the sale of investment securities were S$41 million.
"Profit from life assurance of S$164 million was higher than S$62 million in 3Q15. Strong underlying insurance business growth by Great Eastern Holdings was accompanied by a 29% increase in new business embedded value and robust quarterly total weighted new sales. Unrealised mark-to-market gains in GEH’s equity and bond investment portfolio also contributed to the improvement in insurance earnings during the quarter," the bank explained.
Against the previous quarter, the Group’s net profit after tax was 6% higher. Net interest income declined 2%, as customer loan growth was more than offset by a 6 basis points fall in net interest margin. The contraction in net interest margin was attributable to a decline in loan yields across the board in Singapore, Malaysia and Indonesia. Non-interest income rose 23%, contributed by broadbased growth across all major income components – fee, trading and insurance. Operating expenses of S$953 million increased by 2% quarter-on-quarter, reflecting continued cost discipline across the Group. Net allowances for loans and other assets were 89% above the previous quarter, which included a S$56 million increase in portfolio allowances.
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