OCBC share price: ‘record’ 2019, more dividends, and COVID-19 support

Singapore bank Oversea-Chinese Banking Corporation's (OCBC) CEO Samuel Tsien has warned that the operating environment will ‘remain challenging’ for the rest of its 2020 fiscal year, with the global economic outlook ‘expected to be weaker than originally expected’.

Tsien stated during the company's 2019 fourth quarter earnings call that the group's annual revenue for this year might be reduced by 2% thanks to the coronavirus crisis. He also hinted that loan growth could be lower this year, with China and Hong Kong accounting for 6% of its total loan client base.

‘We are watchful of the impact to our business and customers from the continuing trade tensions, heightened geo-political risks and the COVID-19 outbreak, and will extend support to customers to help them overcome the market challenges,’ he further noted in the Q4 earnings report, adding that he expects the virus situation to be contained by June 2020.

Support measures for customers in response to COVID-19

With businesses heavily impacted by the coronavirus spread and investors concerned about performance, the company has announced a slew of assistance and support measures for external stakeholders across Singapore, China, Hong Kong, and Malaysia.

For customers, the lender will offer customised financial assistance to affected customers with no programme cap. Other relief solutions in the form of loan rescheduling, moratorium on principal repayments, additional working capital financing, and co-financing with the government as part of industry relief programme, will also be provided.

There will also be a support package for OCBC’s insurance subsidiary Great Eastern’s policyholders and their families during this health epidemic.

FY2019: ‘record’ net profit, 8% higher than FY2018

These measures were revealed as part of the banking group’s year-end financial report that was released on Friday 21 February morning.

For the full financial year of 2019, OCBC posted a net profit after tax of S$4.87 billion, 8% higher than the S$4.49 billion achieved a year prior.

The group attributed this ‘resilient’ and ‘record’ performance to sustained earnings growth across its banking, wealth management, and insurance franchise.

For the fourth quarter itself, the company hit a core net profit after tax of S$1.24 billion, an increase of 34% from S$926 million a year ago (“4Q18”). This is above the average estimate of S$1.132 billion indicated by Refinitiv analysts.

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Breaking down the results by income statement items

Net interest income increased 7% to a new high of S$6.33 billion from S$5.89 billion in the previous year, underpinned by asset growth and a seven-basis point rise in net interest margin to 1.77% mainly in Singapore and Greater China.

Non-interest income climbed 19% year-on-year from S$3.81 billion to S$4.54 billion in FY19, driven by broad-based income growth. Net fee income rose 5% year-on-year to a record S$2.12 billion, led by higher wealth management and credit card fees, as well as increased fees from loan, trade and investment banking activities.

Net trading income grew substantially to S$977 million from S$508 million a year ago, mainly attributable to an 18% increase in customer flow income and mark-to-market gains in Great Eastern Holdings’ investment portfolio.

The group’s wealth management income, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, rose 20% to a new high of S$3.4 billion in FY19, up from S$2.84 billion a year ago. This represented 31% of the OCBC’s total income for the year, higher than the 29% in FY18.

Higher dividend payout amounting to S$2.31 billion for FY19

Core return on equity of 11.4% for FY19 was marginally below 11.5% in FY18, attributable to the enlarged share capital base as a result of the application of the scrip dividend scheme.

Core earnings per share, however, worked out to be higher at S$1.14 against S$1.06 in FY18.

Considering the earnings, the company’s Board has proposed a final tax-exempt dividend of S$0.28 per share. This represents a 22% increase from the final dividend of S$0.23 per share a year ago and a 12% rise from FY19’s interim dividend of S$0.25.

Together with the interim dividend of S$0.25 per share, the total dividend for FY19 amounts to S$0.53 per share, 23% higher than the $0.43 paid out in the previous year. The Scrip Dividend Scheme will not be applicable to the final dividend.

The estimated total dividend payout will amount to S$2.31 billion, up 27% from FY18. This represents a dividend payout ratio of 47% against core net profit, which is above the 40% a year ago.

Following the release of its Q4 and year-end earnings, OCBC shares rose as much as 0.82% to S$11.09 per share. The group's stocks have been trading flat since the start of the year.

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