Oversea-Chinese Banking Corp., Southeast Asia’s second-largest bank, posted a third straight quarter of increased profit, beating analyst estimates on gains in lending income and lower provisions for bad debts.
Net income for the second quarter rose 12 percent to S$648 million ($519 million) from S$577 million a year earlier, the Singapore-based lender said in a statement to the stock exchange today. That beat the S$609.5 million average of eight analysts’ estimates compiled by Bloomberg.
OCBC reduced allowances for impairment of loans and other assets, known as credit costs, even as Singapore’s economy slowed. The earnings add to evidence that Asian lenders are withstanding the European debt crisis, with Japan’s three megabanks this week posting profit that beat estimates.
“People have been saying for a long time that credit costs could pick up when the economy goes down, but it just hasn’t happened for OCBC,” said Matthew Smith, an analyst at Macquarie Capital Securities Singapore Pte. “They have a risk-management system they put in place quite a long time ago and it certainly appears to have worked for them.”
Singapore’s gross domestic product growth will probably slow to 1 percent to 3 percent this year, according to the Monetary Authority of Singapore. Growth could slow further if there is an economic slump in the U.S. and China or a significant escalation of the euro area crisis, the Monetary Authority of Singapore said last week.
OCBC’s allowances for credit and other losses declined 34 percent from a year earlier to S$38 million.
Shares of the lender rose 0.5 percent to S$9.63, the highest in a year, at 10:02 a.m. local time. The benchmark Straits Times Index slipped 0.2 percent.
Net interest income, the difference between what OCBC makes from lending and what it pays on deposits, climbed 13 percent to S$931 million. The net interest margin, a measure of lending profitability, narrowed to 1.77 percent from 1.87 percent a year earlier.
OCBC’s non-interest income increased 2 percent as higher trading income and fees from wealth management and investment banking outweighed lower contributions from insurance, the bank said. Great Eastern Holdings Ltd., the insurance unit in which OCBC holds 87 percent, yesterday said second-quarter profit declined 31 percent to S$81.4 million on weak investment performance from unfavorable market conditions.
“While the economic environment remains uncertain, we will continue to grow our customer franchise across all key markets with our strong capital and liquidity base,” OCBC Chief Executive Officer Samuel Tsien said in the statement.
Loan growth in Singapore, Hong Kong and Malaysia will probably slow this year as economic growth cools, Standard & Poor’s analysts led by Ivan Tan wrote in a July 30 report. Singapore and Hong Kong are “particularly exposed to spillover effects” of economic conditions in their trading partners, they said.
“Credit costs do pick up when the economy goes down,” said Smith. “That’s obviously something they have to watch as they have been growing their loans fairly aggressively.”
Gross loans grew 14 percent in the quarter from a year earlier to S$137 billion, according to the statement.
Mizuho Financial Group Inc. led earnings at Japanese banks that exceeded analysts’ estimates last quarter. Mizuho, the country’s third-biggest bank by market value, almost doubled net income to 183.9 billion yen ($2.3 billion) in the three months ended June as bond-trading income offset a decline in lending.
Tsien is competing with Singapore-based rivals to expand into other parts of Asia. Indonesia and greater China, including the mainland, Hong Kong and Taiwan, are now the bank’s new core markets, he said in April, the month he took over from David Conner.