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Oversea-Chinese Profit Jumps 24% on Trading, Fees

May 5 (Bloomberg) -- Oversea-Chinese Banking Corp., the lender that owns Singapore’s biggest life insurer, posted a surprise increase in first-quarter profit as fee and trading income climbed and bad-loan costs fell.

Net income climbed 24 percent to S$676 million ($488 million) from S$545 million a year earlier, the Singapore-based bank said in a statement today. Earnings beat the S$514.9 million average estimate of seven analysts surveyed by Bloomberg.

Oversea-Chinese and local rivals DBS Group Holdings Ltd. and United Overseas Bank Ltd. are benefiting as Singapore’s $182 billion economy is estimated to expand as much as 9 percent this year. The outlook for the rest of the year is “positive” as an economic recovery in Asia continues to build momentum, David Conner, OCBC chief executive officer, said in the statement.

The lender “clearly is in a very strong position for the rest of the year with improving market conditions, and there is scope for an earnings upgrade on the back of these numbers,” said Trevor Kalcic, a Singapore-based analyst at Royal Bank of Scotland Plc. Oversea-Chinese “did really well in the first quarter.”

The stock rose 1.4 percent to S$8.71 at 2:36 p.m. in Singapore today. The shares have slipped 4.3 percent this year, while the benchmark Straits Times Index has fallen 0.9 percent.

Private Banking

Oversea-Chinese in October agreed to buy ING Groep NV’s private-banking assets in Asia for $1.46 billion to tap the growing number of wealthy people in the region. It said the deal will more than triple its private-banking assets, to $23 billion.

Operating expenses rose 21 percent to S$502 million in the quarter from a year earlier, mainly from increased costs for staff and partly due to the consolidation of Bank of Singapore, the new name of the lender’s private banking operations, according to the statement.

First-quarter non-interest income, which includes fees and commissions, insurance, trading and investment income, rose 12 percent to S$681 million. Allowances for loans and other assets plunged 87 percent to S$25 million in the quarter.

Net interest income, or the difference between what the bank makes from lending and what it pays on deposits, fell 5 percent to S$704 million in the quarter. The net interest margin, a measure of loan profitability, narrowed to 2.03 percent from 2.42 percent a year earlier, it said.

Outlook

“While slow growth prospects for the European and U.S. economies warrant caution, Asia’s economic recovery continues to build momentum, signaling a positive outlook for the rest of the year,” Conner said in the statement.

Oversea-Chinese’ loans grew 12 percent to S$90.4 billion from a year earlier. Total loans in Singapore rose to S$286.3 billion in March from S$284.8 billion a month earlier, data from the Monetary Authority of Singapore showed.

Singapore’s trade ministry last month raised its 2010 economic growth forecast for the second time this year and said inflation will accelerate more than expected, prompting the central bank to join regional counterparts in tightening monetary policy.

Gross domestic product in Singapore will increase 7 percent to 9 percent this year, the trade ministry said on April 14, compared with a previous prediction for growth of as much as 6.5 percent.

Great Eastern Holdings Ltd., the bank’s insurance unit, said yesterday first-quarter profit fell 24 percent to S$179.1 million. In the year-earlier period, the insurer booked a one-time gain of S$195.5 million mainly as the result of an accounting change in Malaysia.

To contact the reporter on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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