She notes that the bank is seeing the outcome of its investment in people, products and capabilities to serve customers

 

THE growth OCBC has seen in the third quarter ended September has been customer driven, said CEO Helen Wong, as growth plans and initiatives have paid off for the bank across geographies.

 

&ldquo I feel the growth is very much customer driven, which is good because this will be a longer-term growth for OCBC,&rdquo said Wong in an earnings briefing on Friday (Nov 8).

 

OCBC&rsquo s net profit for the third quarter ended September rose 9 per cent to S$1.97 billion, from S$1.81 billion in the previous corresponding period, beating the S$1.9 billion Bloomberg consensus.

 

Total income rose 11 per cent year on year to S$3.8 billion from S$3.43 billion, with non-interest income climbing 41 per cent to S$1.37 billion, from S$973 million previously.  

 

Net fee income was up 10 per cent at S$508 million, underpinned by higher wealth management, investment banking and loan-related fees.

 

Net trading income more than doubled to a new quarterly high of S$508 million insurance income from the lender&rsquo s insurance arm, Great Eastern, rose 6 per cent to S$233 million, buoyed by underlying business performance.

 

Net new money inflows have contributed non-interest income growth. About S$5 billion net new money inflow came in during Q3 2024, accounting for the bulk of the about S$12 billion net new money inflow for the nine-month period ended September. This has also resulted in assets under management hitting a record high of S$280.4 billion, with contribution from Bank of Singapore, Premier Private Client and Premier Banking segments.

 

&ldquo We are seeing some of the results that we have invested in people, in products and also in capabilities to serve customers,&rdquo said Wong.

 

Meanwhile, net interest income for the quarter fell 1 per cent on the year to S$2.43 billion. This came as average assets grew 3 per cent, and net interest margin was down 9 basis points (bps) at 2.18 per cent amid higher funding costs.

OCBC has been preparing for the peaking of interest rates and subsequent cuts, and has done a few things right, said Wong. One was in driving volume growth to counter the drop in net interest margin (NIM) and bring in more net interest income (NII). The bank has also been deploying liquidity into high quality assets to protect NII.

 

Second, OCBC has grown its fixed rate mortgages, which has been particularly successful in Singapore, and putting it into cash flow hedges. New account openings in the retail and small and medium enterprise (SME) space has also helped in building up the current accounts saving accounts (Casa) base.

 

Initiatives such as OCBC MyOwn Account, targeted at children aged 7 to 15, have seen interest from parents, with a few thousand accounts opened since its launch on Oct 20.

 

&ldquo If you look at how our Casa has been trending up, it is now closed to 49 per cent of total deposit and we hope to be able to do it with the same momentum going into next year,&rdquo said Wong, adding that the bank has also phased out higher cost fixed deposits.

 

OCBC is looking to capture more new customers in the SME segment, and has to be prepared with digital services as SME owners are digitally savvy. Currently, SMEs make up more than 20 per cent of the deposits in OCBC&rsquo s commercial banking business, and consist of mainly working capital accounts.

 

&ldquo Once they bank with you, they trust you, they don&rsquo t move their money away, and this is the money they use day in and day out to do business,&rdquo said Wong.

 

The bank&rsquo s non-performing loans ratio stood at 0.9 per cent, down 0.1 percentage point from the previous year. OCBC notably downgraded a corporate in Hong Kong relating to real estate, and is largely secured with the average loan to value ratio below 50 per cent.

 

This is not emblematic of the whole industry or OCBC&rsquo s loan book said Wong. The bank is keeping a close eye on the Hong Kong office sector, and has reduced exposure to the sector by over 50 per cent as at September 2024 compared to September 2023.

 

&ldquo This is due to actively engaging clients to deleverage early on,&rdquo said Wong.

 

Annualised earnings per share increased to S$1.73 for the quarter, up from S$1.58 a year earlier. Total allowances fell 8 per cent on the year to S$169 million.

 

Operating expenses were up 9 per cent year on year at S$1.46 billion, driven mainly by higher expenses brought on by increased business volumes, as well as information technology-related costs. Cost-to-income ratio stood at 38.5 per cent, as income growth outpaced higher expenses.

 

Credit costs for the quarter stood at 22 bps, 5 bps higher than in Q3 FY2023, and 7 bps higher than in Q2 FY2024.

 

Annualised return on equity inched up 0.1 percentage point on year to 14.1 per cent for the quarter.

 

OCBC&rsquo s stake in Great Eastern now stands at 93.72 per cent at the end of October, gaining about 0.4 per cent from the 93.32 per cent stake as at end of July.

 

&ldquo We are firmly placed to deliver the 2024 targets which includes NIM around 2.2 per cent, low single digit loan growth, full credit costs in the range of 20 bps and (return on equity) of about 14 per cent,&rdquo said Wong.

The bank aims to keep its excess capital as dry powder to support franchise flows and potential inorganic growth opportunities that may pop up

 

OCBC prefers to give dividends over share buybacks to return excess capital to shareholders, said chief executive Helen Wong.

 

&ldquo It is the same results (as) doing shareholder returns, but I keep the capital base,&rdquo she said at the third-quarter 2024 earnings briefing on Friday (Nov 8).

 

This bucks the trend from other local banks, with DBS embarking on a share buyback programme which will see it cancel shares bought on the open market, while UOB said a share buyback programme is not off the books.

 

While OCBC has done share buybacks, it will meet the needs of the employee share plan, said chief financial officer Goh Chin Yee.

 

The bank has the right to issue new shares to fulfil the needs of the employee share plans, but chooses not to do so to not dilute its existing capital base.

 

OCBC aims to keep its excess capital as dry powder to support franchise flows and potential inorganic growth opportunities that may pop up. Such moves have happened previously, such as the merger of OCBC Indonesia with PT Bank Commonwealth, as well as the Great Eastern offer. &ldquo We are excited about the future and provide enough capacity for Helen to go shopping. We particularly like portfolios (that can) bolt-on sort of acquisition,&rdquo said Goh.

 

OCBC will maintain Common Equity Tier-1 (CET1) at 14 per cent to maintain the &ldquo AA&rdquo ratings with rating agencies.

 

The bank&rsquo s CET1 ratio as at Sep 30 stood at 17.2 per cent based on the transitional uplift from changes to international standards for bank capital requirements under Basel IV. Fully phased-in, the CET ratio would be 15.6 per cent.

 

Post-Trump victory

Even with a Trump victory there are still uncertainties in the market, and Wong is looking to focus on flows in Asia &ndash a trend that has not changed or deteriorated despite trade conflicts. OCBC has been tapping intra-Asia trade from corporate clients or small and medium enterprises in the supply chain, as the China plus one strategy materialises.

 

&ldquo We continue to see flow, and nowadays we talk more about China plus N rather than China plus one, because Chinese companies are no longer just going to one country like Vietnam for low-cost manufacturing,&rdquo she said.

 

Singapore still holds the key as the centre to manage investments into South-east Asian countries such as Indonesia, Malaysia and Vietnam. OCBC has been a benefactor of such flows as part of its corporate strategy.

 

If geopolitical tensions increase, Wong believes that it would be good for the bank. While the benefit might not be linear, OCBC will have to see the impact and how to capture these opportunities.

 

&ldquo With the shift of China manufacturing or investments coming out, it does benefit a bank like us,&rdquo said Wong. OCBC has prepped by having Greater China business offices in Singapore, Malaysia, Thailand, Indonesia and Vietnam, in order to engage such opportunities.

 

Besides China, this shifting of manufacturing is also impacting Korean and Taiwanese companies and multinational corporations (MNCs), which OCBC is looking to bank as well.

 

&ldquo To cover some of the bigger MNCs as they continue to use Asean more for the supply chain, we could be taking more risks as we finance the receivables of the supply chain companies,&rdquo said Wong.

 

Should the Chinese government&rsquo s stimulus measures improve economic activities and sentiment in China, this could provide &ldquo more wind in the sails&rdquo for OCBC, said Wong.