How is OCBC faring this third quarter? Let’s find out.

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 1433 followers.

Besides DBS (you can check out my summary of its latest Q3 and 9M FY2020 results here), Overseas-Chinese Banking Corporation or OCBC (SGX:O39) also provided its business updates for the third quarter as well as for the first 9 months of the financial year 2020 (ended 30 September 2020) early this morning before trading hours.

As a shareholder of the longest established bank in Singapore, I have studied the related documents and in this post, you will find a summary of the bank’s latest financial statistics, key financial ratios, along with my personal thoughts to share.

Let’s get started…

Key Financial Statistics (Q3 FY2019 vs. Q3 FY2020, and 9M FY2019 vs. 9M FY2020)

In this section, I will be doing a comparison of the bank’s key financial statistics both on a quarter-on-quarter (q-o-q) basis (i.e. Q3 FY2019 vs. Q3 FY2020), as well as on a year-on-year (y-o-y) basis (i.e. 9M FY2019 vs. 9M FY2020):

Q3 FY2019 vs. Q3 FY2020:

	Q3 FY2019	Q3 FY2020	% Variance
– Net Interest Income (S$’mil)	$1,600m	$1,420m	-11.2%
– Non-Interest Income (S$’mil)	$1,055m	$1,118m	+6.0%
Total Income (S$’mil)	$2,655m	$2,539m	-4.4%
Total Expenses (S$’mil)	$1,132m	$1,098m	-3.0%
Net Profit Attributable to Shareholders ($’mil)	$1,172m	$1,028m	-12.3%

As expected, due to the current economic climate and the current low-interest-rate environment, the bank’s results for the current quarter under review was a weaker one (compared to the same period last year) – the 4.4% dip in its total income can be attributed to the 11.2% drop in its net interest income (amid a sustained low-interest-rate environment), offset by a 6.0% increase in its non-interest income (as a result of a higher trading income and insurance profit.)

Total expenses fell 3.0% on a q-o-q basis due to tighter control in staff compensation and other discretionary expenses.

Finally, in terms of allowances for loans and other assets, on a q-o-q basis, it went up by 8.4% to S$350m (Q3 FY2019: S$323m) and as such, its net profit attributable to shareholders fell 12.3% to S$1,028m.

9M FY2019 vs. 9M FY2020:

	9M FY2019	9M FY2020	% Variance
– Net Interest Income (S$’mil)	$4,722m	$4,530m	-4.1%
– Non-Interest Income (S$’mil)	$3,227m	$3,124m	-3.2%
Total Income (S$’mil)	$7,949m	$7,654m	-3.7%
Total Expenses (S$’mil)	$3,378m	$3,314m	-1.9%
Net Profit Attributable to Shareholders ($’mil)	$3,627m	$2,455m	-32.3%

From the table above, the bank’s financial performance on a y-o-y basis was a weaker one (which is largely expected as its results for the first and second quarter were weaker as well – you can check on my summary on the bank’s first and second-quarter results here and here, respectively.)

My Thoughts: The bank’s most recent results, both on a q-o-q as well as on a y-o-y basis, were both within my expectations, due to the current low-interest rate environment.

Looking ahead, I am of the opinion that the bank’s fourth-quarter and full-year results will be a weaker one both on a q-o-q as well as on a y-o-y basis. For the financial year 2021 ahead, its performance (barring another black swan event) should be a better one compared to the current year, even though the improvement is likely to be tepid.

Key Financial Ratios (Q2 FY2020 vs. Q3 FY2020)

Moving on, let us take a look at some of the key financial ratios reported by the bank (for the third quarter of FY2020 ended 30 September 2020), compared against the ratios reported in the previous quarter three months back (i.e. Q2 FY2020 ended 30 June 2020) to find out if it has improved or deteriorated

	Q2 FY2020	Q3 FY2020	Difference (in Percentage Points)
Net Interest Income (%)	1.60%	1.54%	-0.06pp
Return on Assets (%)	0.69%	0.98%	+0.29pp
Return on Equity (%)	6.2%	8.7%	+2.5pp
Loan/Deposit Ratio (%)	85.4%	86.2%	-0.8pp
Non-Performing Loans Ratio (%)	1.6%	1.6%	–

My Thoughts: Compared to 3 months ago, both the bank’s return on assets, as well as its return on equity have improved (the former by 0.29pp to 0.98%, and the latter by an impressive 2.5pp to 8.7%.) At the same time, its non-performing loans ratio has remained stable at 1.6%.

On the other hand, its net interest margin dipped 0.6pp compared to the previous quarter to 1.54%, while its loan/deposit ratio deteriorated slightly to 86.2%, but still healthy in my opinion (anything between 80% and 90% is considered ideal.)

In Conclusion

In the latest round of results release by OCBC, what stood out was the improvements recorded in both its return on assets, as well as its return on equity – personally, I am particularly impressed with the improvements made on the latter (especially when considering the headwinds the bank is faced with currently.)

Finally, in case you’re wondering whether or not there are any dividend payouts declared for the current quarter under review, the answer is no, as the bank declares a dividend payout to shareholders on a semi-annual basis.

That’s all for my review of the latest results reported by OCBC. Please note that everything you have just read in this post is purely meant for educational purposes only and that they do not imply any buying or selling recommendations for the bank’s shares. As always, it is strongly recommended that you do your own due diligence before you make any investment decisions.

Related Documents

• Results Update

• Results Highlights

• CEO’s Presentation Slides

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