Local banks post strong Q4 results despite headwinds

SINGAPORE – The three local banks ended last year on a strong note, enjoying broad-based loan growth in the fourth quarter despite concerns over housing curbs as well as volatile capital markets.

For the three months ended Dec 31, net profit at DBS, the largest of the trio, rose 6 per cent from the corresponding period a year earlier to S$802 million. It was the highest fourth-quarter earnings so far, but fell short of the S$843 million forecast in a Reuters poll.

At the other two banks, results beat expectations, with Oversea-Chinese Banking Corp (OCBC) reporting net profit, including the contribution from insurance subsidiary Great Eastern Holdings, of S$715 million, up 8 per cent on-year. Meanwhile, United Overseas Bank (UOB), the smallest of the three, reported an 11 per cent on-year rise in fourth quarter net profit to S$773 million.

The banks achieved strong gains in net interest income — the amount received from interest on assets minus the amount paid for interest on liabilities. UOB led the pack with a 13.3 per cent gain to S$1.1 billion, while DBS and OCBC each reported a 12 per cent gain to S$1.45 billion and S$1.03 billion, respectively.

This largely offset the lower non-interest income in the fourth quarter, when the financial sector continued to struggle with volatility in the global markets.

“Looking at these results, what the banks missed was only on the non-interest income side, which is a function of capital markets, and even then I don’t consider the numbers to be particularly bad,” Macquarie Capital Securities’ research analyst Matthew Smith said.

DBS Chief Executive Officer Piyush Gupta said: “Globally, the fourth quarter was a very rough quarter. The fact that we can hold a S$2.15 billion (quarterly) top line in the face of some pretty strong trading headwinds … shows that the underlying breadth of our franchise is kicking in quite nicely.”

Part of that came from a 33 per cent on-year rise in its quarterly net profit from Hong Kong to S$216 million, he added, while group fee income improved 18 per cent on-year to S$439 million. Likewise, OCBC reported a new high for quarterly fee income, which improved 12 per cent on-year to S$341 million.

With the fourth quarter results in, DBS achieved full-year net profit of S$3.5 billion, excluding exceptional items, or a gain of 4 per cent. UOB’s net profit rose 7.3 per cent to S$3 billion while at OCBC, net profit was down 2 per cent at S$2.8 billion. Including exceptional items, OCBC would have a 31 per cent drop in net profit because the bank had enjoyed a S$1.2 billion divestment gain from selling F&N’s shares in 2012.

OCBC Chief Executive Samuel Tsien said the bank’s core business remained solid. “Full year, our loans were up 18 per cent on-year, deposits were up 19 per cent on-year … Our Malaysian and Indonesian operations both reported record profits”, up by 17 and 25 per cent on-year, respectively, he said.

Net interest margins for the full year were stable for all three banks, ranging between DBS’ 1.61 per cent and UOB’s 1.71 per cent on average. Consumers can expect short-term interest rates to remain low until 2015, when the effects of the US Federal Reserve’s stimulus tapering will become more salient, Mr Tsien said.

The three banks painted a positive outlook in the year ahead, as they continue to make inroads in regional growth markets while economic conditions further improve.

“Looking ahead, our overall outlook remains optimistic, given the macroeconomic environment and the underlying growth prospects in our key markets,” Mr Tsien said. He added that the lender would seek further growth in overseas markets, including Malaysia, Indonesia and Greater China, where it is looking to boost presence by acquiring Wing Hang bank in Hong Kong.

DBS, on the other hand, will be sharpening its focus on digital banking as part of its platform for growth: The lender will invest S$200 million on developing digital banking solutions in the next three years, Mr Gupta said. For the full year, DBS will pay a dividend per share of 58 cents, while OCBC and UOB will pay out 34 cents and 75 cents per share, respectively.