My Review Of OCBC’s 1H FY2022 Financial Results

My Review Of OCBC’s 1H FY2022 Financial Results

Overseas-Chinese Banking Corporation Limited (SGX:O39), or OCBC for short, is Singapore’s longest established bank, formed in 1932 from the merger of 3 local banks. Today, the Singapore-listed bank is the second largest financial services group in Southeast Asia by assets, and one of the world’s most highly-rated banks.

This post was originally posted here. The writer, Lim Jun Yuan is a veteran community member and blogger on InvestingNote, with a username known as @ljunyuan and has close to 2,000 followers.

This morning (03 August 2022), OCBC has made available its financial results for the first half of the financial year ended 30 June 2022 (i.e. 1H FY2022.) It is also the second bank to release its financial results for the same time period following UOB last Friday (you can read my review about the bank’s results here), with DBS to release its results tomorrow morning.

As a shareholder of the bank, I’ve studied the documents posted and in this post, you’ll find my review of its key financial results and statistics, along with its dividend payout declared for the period under review.

Let’s begin:

Key Financial Results (1H FY2021 vs. 1H FY2022, and Q2 FY2021 vs. Q2 FY2022)

In this section, I will be looking at some of the bank’s key financial results both on a year-on-year (y-o-y) basis (i.e. 1H FY2021 vs. 1H FY2022), as well as on a quarter-on-quarter (q-o-q) basis (i.e. Q2 FY2021 vs. Q2 FY2022), as follows:

1H FY2021 vs. 1H FY2022:

1H FY20211H FY2022Variance (%)
– Net Interest
Income (S$’mil)
$2,902m$3,203m+10.4%
– Net Fee & Commission
Income (S$’mil)
$1,148m$999m-13.0%
– Other Non-Interest
Income (S$’mil)
$1,436m$1,320m-8.1%
Total Income
(S$’mil)
$5,486m$5,522m+0.7%
Total Expenses
(S$’mil)
$2,287m$2,458m+7.5%
Net Profit Attributable
to Shareholders
(S$’mil)
$2,661m$2,837m+6.6%

Personally, I felt that the Singapore bank’s latest y-o-y results was within my expectations – I expected its net interest income to improve (as a result of rising interest rates), and net fee and commission income, as well as other non-interest income to slide (due to weaker market conditions due to the economic headwinds faced by the world right now.) Also, I was of the opinion that if the bank’s total income is able to match the amount recorded last year, it would be considered as “ideal.”

Looking at the results above, its net interest income saw a 10.4% improvement (attributed to a 6% increase in average asset balances and a 6 basis point rise in net interest margin to 1.63%), but offset by declines in its net fee and commission income (by 13.0%), along with other non-interest income (by 8.1%, due to a drop in trading income, but offset by improvements in profit from life insurance.)

Total expenses went up by 7.5% due to higher staff costs associated with salary increments and headcount growth to support business expansion, increased technology costs and business promotion expenses.

Finally, the 6.6% improvement in its net profit attributable to shareholders (to S$2,837m, a new high for the bank) was contributed by a 18% growth in results of associates (from S$422m in 1H FY2021 to S$499m in 1H FY2022), along with a 70% drop in allowances (from S$393m in 1H FY2021 to just S$116m in 1H FY2022)

Q2 FY2021 vs. Q2 FY2022:

Q2 FY2021Q2 FY2022Variance (%)
– Net Interest
Income (S$’mil)
$1,461m$1,700m+16.4%
– Net Fee & Commission
Income (S$’mil)
$563m$477m-15.3%
– Other Non-Interest
Income (S$’mil)
$548m$702m+28.1%
Total Income
(S$’mil)
$2,522m$2,879m+11.9%
Total Expenses
(S$’mil)
$1,138m$1,253m+10.1%
Net Profit Attributable
to Shareholders
(S$’mil)
$1,160m$1,481m+27.7%

The Singapore-listed bank’s improvements in terms of its q-o-q results was much better (in my opinion) compared to its y-o-y results – the 16.4% growth in its net interest income was largely driven by asset growth and net interest margin expansion by 13 basis points to 1.71%; net fee and commission income fell 15.3% largely due to lower wealth management, brokerage and investment banking fees, in-line with weaker investment sentiments globally, offset by higher credit card fees in-line with the broader re-opening of economies and resumption of activities; its other non-interest income grew the most, at 28.1%, due to a 26% improvement in its net trading income from higher customer and non-customer flow treasury income, and a 82% jump in profit from life insurance from subsidiary Great Eastern Holdings due to an increase in operating profit and mark-to-market gains in its insurance funds from rising interest rates.

The 10.1% rise in total expenses was due to a 10% increase in staff cost mainly from annual salary increments and a rise in headcount as the Group grew its talent pool to support growth, along with investments in technology capabilities.

Finally, its net profit attributable to shareholders went up by 27.7% largely due to a 69% drop in allowances (from S$232m in Q2 FY2021 to just S$72m in Q2 FY2022 due to a decline in both impaired and non-impaired assets.)

Key Financial Ratios (Q1 FY2022 vs. Q2 FY2022)

Next, let us take a look at some of the Singapore bank’s key financial ratios reported for the current quarter under review (i.e. Q2 FY2022 ended 30 June 2022), where I will be comparing them against the ratios reported in the previous quarter 3 months ago (i.e. Q1 FY2022 ended 31 March 2022) to find out whether they have strengthened or weakened:

Q1 FY2022Q2 FY2022Difference (in
Percentage Points – pp)
Net Interest
Margin (%)
1.55%1.71%+0.16pp
Return on
Assets (%)
1.23%1.31%+0.08pp
Return on
Equity (%)
10.6%11.5%+0.09pp
Non-Performing
Loans Ratio (%)
1.4%1.3%+0.1pp

My Observations: Compared to the previous quarter, I felt the bank’s improvements in terms of its key financial ratios was a strong one, where all of the statistics recorded improvements (particularly its net interest margin, which benefitted from Fed’s interest rate hike announcements recent months.)

Dividend Payout to Shareholders (1H FY2021 vs. 1H FY2022)

The management of OCBC declares a distribution payout on a half-yearly basis – once when they declare their results for the first half of the financial year (which is this time round), and once when they declare their results for the second half of the financial year (the bank normally releases its results either in end-January or early-to-mid February the latest.)

For the period under review, the management have declared a payout of 28.0 cents/share – a 12.0% increase compared to the same time period last year (which was 25.0 cents/share), and a dividend payout ratio of 44%.

If you are a shareholder of the bank, do take note of the following dates regarding its dividend payout:

Ex-Date: 12 Aug 2022
Record Date: 15 Aug 2022
Payout Date: 25 Aug 2022

Closing Thoughts

On a y-o-y basis, its financial results (as mentioned above) was well-within my expectations – where I expected an improvement in its net interest income (due to interest rate hike announcements by the Fed in recent months), and weakness in its net fee and commission income and other non-interest income due to weaker market sentiments. However, the 6.6% increase in its net profit attributable to shareholders was a strong one (and above my expectation) largely attributed by contributions of results from associates, and also a huge drop in allowances.

On a q-o-q basis, the results was a much stronger one – contributed by growths in its net interest income, net trading income, and also profit from its life insurance from subsidiary Great Eastern Holdings.

Looking at the 4 key financial ratios, I’m definitely encouraged by the improvements compared to the previous quarter – the statistic that stood out (apart from the strong growth in its net interest margin) was its non-performing loans ratio, which saw a further 0.1pp improvement to 1.3% (from 1.4% in Q1 FY2022.)

Finally, the 12.0% increase in its dividend payout to 28.0 cents/share for the period under review was a pleasant surprise to me – I had expected its dividend payout to be the same as last year, which was at 25.0 cents.

To conclude, OCBC’s latest set of results is one where, as a shareholder, I am satisfied with. Despite having said that, do take note that all the opinions you’ve read about above are purely mine, and they do not imply any buy or sell calls for the bank’s shares. You should always do your own due diligence before you make any investment decisions.

Related Documents

Disclaimer: At the time of writing, I am a shareholder of Overseas-Chinese Banking Corporation Limited.

Once again, this article is a guest post and was originally posted on Ljunyuan‘s profile on InvestingNote. 


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