OCBC 1HFY2025 net profit falls 6% y-o-y to $3.7 bil

Yahoo

2 days ago

OCBC has declared an interim ordinary dividend of 41 cents per share, representing a payout ratio of 50% of 1HFY2025 group net profit.
Oversea-Chinese Banking Corporation (OCBC) has reported net profit of $3.70 billion for 1HFY2025 ended June 30, 6% lower y-o-y.
Total income during the period slipped 1% y-o-y to $7.2 billion, with a 5% drop in net interest income (NII) compensated by fee and trading income growth, as non-interest income rose 8% y-o-y.
Net interest margin (NIM) declined by 25 basis points (bps) to 1.98%, as the drop in asset yields outpaced the decrease in funding costs.
Meanwhile, insurance income from Great Eastern Holdings (GEH) declined by 9% y-o-y, largely attributable to the mark-to-market impact of decline in interest rates on the valuation of insurance contract liabilities, as well as lower valuation of private equity holdings, from its insurance funds.
New business embedded value (NBEV) increased by 16% y-o-y and NBEV margin rose to 44.7% from 28.0% a year ago, driven by improved insurance product mix, according to OCBC.
Operating expenses were $2.80 billion, up 3% from the previous year. Staff costs were 4% higher y-o-y, attributable to annual salary increments and increased variable compensation linked to higher business activities.
Cost-to-income ratio was maintained below 40%, and higher credit allowances were set aside in view of the current uncertain operating environment, says the bank on Aug 1. Total allowances rose 4% y-o-y to S$326 million, mainly due to an increase in allowances for nonimpaired assets.
Asset quality remained benign with non-performing loan (NPL) ratio at 0.9%, while allowance coverage for total non-performing assets (NPA) stood at 156%.
The group's annualised return on equity was 12.6%, lower than 14.5% in 1HFY2024, while annualised earnings per share was $1.64, 6% lower y-o-y.
OCBC has declared an interim ordinary dividend of 41 cents per share, representing a payout ratio of 50% of 1HFY2025 group net profit. This is lower than an interim dividend of 44 cents per share this time last year.
OCBC says it remains committed to the previously announced $2.5 billion capital return, which includes a special dividend amounting to 10% of FY2025 group net profit and share buybacks over two years, to be completed in 2026.
Together with OCBC's target 50% ordinary dividend payout ratio, this represents a total dividend payout ratio of 60% for FY2025.
During 2QFY2025, OCBC posted group net profit of $1.82 billion, 7% lower q-o-q and 4% lower q-o-q. This was slightly below Bloomberg consensus estimates of $1.84 billion.
NII fell 6% y-o-y and 3% q-o-q to $2.28 billion, as a 2% increase in average assets was more than offset by a 12 bps q-o-q contraction in NIM to 1.92%.
According to OCBC, the NIM decline was largely associated with the downward repricing of Singapore dollar- and Hong Kong dollar-denominated loans, as a result of the significant drop in the benchmark rates this year, which outpaced the reduction in deposit costs.
The strategic deployment of liquidity into income-accretive high-quality assets in 1QFY2025 also weighed on NIM, says OCBC.
Non-interest income rose 5% y-o-y but fell 4% q-o-q to $1.26 billion, driven by lower insurance and trading income, which were partly compensated by higher fee income and net realised gains from the sale of investment securities.
Operating expenses increased 1% y-o-y but declined 2% q-o-q to $1.39 billion for the quarter, while total allowances were down 46% q-o-q. Credit costs were an annualised 12 bps, below the 24 bps reported in 1QFY2025.
The cost-to-income ratio for the quarter was 39.1%.
Total NPAs as at June 30 were $3.01 billion, up 4% y-o-y and 3% q-o-q, mainly due to new NPA formation. OCBC says this was partly compensated by net recoveries and upgrades, write-offs and the effect of foreign currency translation.
Meanwhile, the NPL ratio was stable at 0.9%, and total NPA coverage was 156%.
As at June 30, customer loans were $325 billion, up 9% y-o-y and 3% q-o-q on a constant currency basis. OCBC says this was driven by housing loan growth in Singapore and higher non-trade corporate lending, as the bank continued to support customers in the infrastructure, data centres and transportation sectors.
Meanwhile, sustainable financing loans grew 19% y-o-y to $53.1 billion as at June 30, and made up 16% of group loans, while total commitments stood at $74.3 billion.
Customer deposits increased 10% y-o-y to $407 billion, primarily driven by current account and savings account (casa) deposit growth across both corporate and consumer segments.
OCBC's loan-to-deposit ratio was 78.7% as at June 30, broadly unchanged as compared to 78.9% at the end of the prior quarter.
Finally, the group's common equity tier-1 (CET-1) capital adequacy ratio (CAR) is subject to the Monetary Authority of Singapore's final Basel III reforms requirements, which came into effect on July 1, 2024 and are being progressively phased in until Jan 1, 2029.
OCBC's group CET-1 CAR as at June 30 was 17.0%, and on a fully phased-in basis, it was 15.3%. This is down from 17.6% and 15.5% respectively at March 31.
Outgoing group CEO Helen Wong says the 1HFY2025 results reflected 'resilient performance' across a diversified business franchise. 'We expanded our loan book and maintained sound asset quality, and delivered broad-based fee income growth. Underpinned by our strong balance sheet and capital position, we are firmly committed to our comprehensive capital return plan.'
Wong adds: 'Over the past year, we have met our objectives of increasing our economic interests in GEH and have also assisted GEH in managing the trading suspension of its shares. As we move forward, we will continue to derive more synergies within the group, and are confident that this will further our drive to be a leading wealth management player in the region.'
The outlook ahead remains challenging. Evolving trade and monetary policies, and persistent geopolitical tensions are expected to weigh on growth prospects, says Wong, who is set to retire at the end of the year. 'Despite the uncertainties, OCBC has a strong and resilient franchise. As I prepare to hand over the reins of group CEO to Teck Long's capable hands on Jan 1, 2026, I do so with full confidence. OCBC is well-placed for the future with a clear ambition, and we are focused on supporting our customers and capturing growth opportunities across the region to drive long-term value for our stakeholders.'
Shares in OCBC closed 17 cents lower, or 1% down, at $16.87 on July 31.
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