2 reasons behind OCBC's weaker underlying banking trends

Margin decline is one culprit.

According to Barclays, headline profit beat expectations due to life insurance - OCBC reported FY12/4Q12 net profit of S$3.99bn/S$663m, 1%/5% above our estimates.

The beat in 4Q came entirely from: 1) better underwriting profits and investment return from Great Eastern Holdings Non-Par Fund; and 2) slightly lower than expected credit costs.

Here's more from Barclays:

Weaker underlying banking trends: Excluding life insurance, core PPOP would’ve been 4% below our expectations.

Weakness came mainly from: 1) 5bp q/q margin decline to 1.70% (same as 5bp decline at DBS) and 2% q/q fall in net interest income; and 2) no fee income growth q/q, as weaker brokerage and investment banking fees offset growth in wealth management and other loan-related fees.

Lower core dividend payout ratio: A final dividend of 17c was declared, total full year dividend of 33c/share, much lower than our forecast for 52c, as OCBC excluded paying out on gains from one-off disposal of the breweries. Even excluding the one-offs, OCBC lowered its core dividend payout ratio from 45% to 40%.

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