The rise in net allowances offset the strong wealth management fee income.
Oversea-Chinese Banking Corporation Limited reported a net profit after tax of S$3.47 billion (US$2.4b) for the financial year ended 31 December 2016 (“FY16”). Against a strong prior year (“FY15”) performance, which included a substantial investment gain from insurance subsidiary Great Eastern Holdings (“GEH”), net profit after tax was 11% lower.
The decline in earnings was also driven by a rise in net allowances and lower trading and insurance income, which more than offset the impact of strong wealth management fee income growth and increased contributions from our Indonesia and Hong Kong banking subsidiaries.
The full year earnings also included the one month consolidated results of the former wealth and investment management business of Barclays PLC in Singapore and Hong Kong (“Barclays WIM”) which was acquired by Bank of Singapore (“BOS”) at the end of November 2016. Assets under management (“AUM”) of US$13 billion were transferred to BOS for a consideration of US$228 million. The one month profit contribution was not material relative to the Group’s 2016 earnings.
The Group’s full year net interest income fell 3% from the previous year to S$5.05 billion, mainly from a decline in average interest earning assets, led by a drop in interbank placements. Net interest margin of 1.67% was unchanged year-on-year.
Non-interest income of S$3.44 billion was 3% lower as compared to a year ago. Fee and commission income was stable year-on-year at S$1.64 billion, as higher wealth management fees were offset by lower income from brokerage and investment banking activities. Net trading income was 4% lower at S$529 million from a year ago, largely due to a decline in non-customer flow income.
Net realised gains from the sale of investment securities of S$198 million were 3% below S$204 million in the previous year, which included a S$136 million realised pre-tax gain from the sale of an investment in GEH’s equity portfolio. GEH continued to report robust underlying insurance business growth; however, profit from life assurance of S$499 million declined 21% as a result of higher costs associated with strong sales growth, a rise in medical claims and mark-to-market losses as result of interest rate movements in its Non-participating Fund.
Full year operating expenses for the Group were S$3.79 billion, a modest increase of 3% from a year ago. The Group’s cost-to-income ratio was 44.6% as compared to 42.0% in the previous year. Excluding the consolidation of Barclays WIM and the associated integration expenses, operating expenses were 2% higher than FY15, which reflected overall continued cost discipline and tightly controlled headcount growth. Allowances for loans and other assets of S$726 million were higher than S$488 million a year ago, mainly led by an increase in specific allowances for corporate accounts in the oil and gas support services sector which the Group has been closely monitoring.
The Group’s share of results of associates in 2016 rose 13% to S$396 million from S$353 million a year ago, mainly due to higher contributions from associated companies Bank of Ningbo and AVIC Trust Co Limited.
The Group’s return on equity was 10.0%, down from 12.3% in 2015 while earnings per share for the full year was 82.2 cents, as compared to 95.2 cents a year ago.
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