OCBC Quarterly Profit Up 32% on Loans, Trading Income

OCBC Quarterly Profit Up 32% on Loans, Capital Market Income
Traffic moves past an Oversea-Chinese Banking Corp. (OCBC) branch in Singapore. Photographer: Munshi Ahmed/Bloomberg

Oversea-Chinese Banking Corp., Southeast Asia’s second-largest lender, posted a 32 percent increase in first-quarter profit on higher income from corporate borrowing, insurance, trading and investments.

Net income advanced to S$832 million ($664 million) from S$628 million a year earlier, OCBC said in a statement to the stock exchange today. That exceeded the average S$632 million of seven analysts’ estimates compiled by Bloomberg.

The bank follows domestic rivals DBS Group Holdings Ltd. and United Overseas Bank Ltd. in posting first-quarter profit increases higher than analysts’ estimates. OCBC Chief Executive Officer Samuel Tsien boosted non-interest income 28 percent, from businesses including wealth management, trading and the Great Eastern Holdings Ltd. insurance unit, while higher lending offset lower interest margins.

“Overall, the results were good as trading gains and income from insurance came in strong,” said Sharnie Wong, a Hong Kong-based analyst at Barclays Plc. “The underlying operating trends were not as strong as peers though,” she said, citing a deterioration in asset quality and a narrowing of net interest margins.

The insurance business registered profit gains of 66 percent, OCBC said today. Its S$279 million operating profit for the quarter accounted for 28 percent of the group’s total.

Margins Narrow

Shares of the bank slipped 0.2 percent to S$8.91 as of 1:38 p.m. in Singapore. OCBC has risen 14 percent this year, compared with the 8.9 percent gain of the Straits Times index.

Tsien, who took over as CEO from David Conner last month, is competing with Singapore-based rivals to expand in Asia as banks in the city-state face the lowest loan profitability in Southeast Asia. The average net interest margin for Singapore banks was 2.02 percent, the lowest among countries including Indonesia, Malaysia and the Philippines, according to data compiled by Bloomberg.

Tsien told reporters today in Singapore, that greater China and Indonesia are the bank’s new core markets. China, Hong Kong and Taiwan accounted for 7 percent, or S$73 million, of pretax profit in the first quarter, compared with 5 percent, or S$38 million, a year earlier.

Interest Income

OCBC’s net interest income, the difference between what a bank makes from lending and what it pays on deposits, grew 21 percent from a year earlier to S$951 million as loans grew. Margins on loans contracted to 1.86 percent from 1.9 percent a year earlier, it said in the statement.

Provisions for credit and other losses jumped 98 percent last quarter to S$96 million from a year earlier.

“On a relative basis, OCBC’s performance was the least impressive,” said Wee Siang Ng, a banking analyst at BNP Paribas Securities Singapore Pte, citing quarter-on-quarter comparisons with city rivals.

Gross loans to customers contracted 0.4 percent, compared with an expansion of 1.5 percent at DBS and 2.6 percent at UOB, he said. OCBC also had the smallest quarter-on-quarter widening of the net interest margin at 1 basis point versus 4 basis points at DBS and 3 basis points at UOB.

Loan Quality

Deterioration in loan quality from the fourth quarter was unique to OCBC, Ng said.

DBS, Southeast Asia’s largest bank, last quarter unexpectedly posted a profit increase of 16 percent to a record S$933 million, compared with a year earlier, on higher income from interest and trading.

United Overseas Bank, the region’s third-biggest, also beat analysts’ estimates for the quarter on May 9, posting a profit increase of 12 percent on higher income from lending, fees and commissions, and trading and investment.

‘Wild Card’

Net trading income at OCBC climbed 98 percent to S$160 million, and gains from investments were up 85 percent to S$43 million, as financial markets rallied worldwide.

The MSCI World Index posted its best performance in six quarters in the period as Europe’s debt crisis eased and U.S. unemployment fell, helping boost trading revenue at lenders worldwide including Bank of America Corp.

“The wild card will always be income related to the capital markets,” Ng said before the results.

The bank’s net fees and commissions were unchanged at S$274 million as gains from wealth management and loan-related activities were offset by declines in brokerage and investment banking.

Private banking assets under management grew to $35 billion as of the end of the quarter, a 25 percent increase from a year earlier, the bank said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE