Oversea-Chinese Banking Corp., Southeast Asia’s second-biggest lender, reported its largest quarterly profit in almost two years on higher trading income and loan growth.
Net income climbed 54 percent to S$921 million ($739 million) for the three months ended June 30 from S$597 million a year earlier, the Singapore-based bank said in a statement to the stock exchange today. That beat the S$801 million average of five analysts’ estimates compiled by Bloomberg.
Under CEO Samuel Tsien, OCBC has been growing outside its home country to counter Southeast Asia’s lowest lending margins, an expansion that included the biggest takeover of a Hong Kong bank since 2001. OCBC’s $5 billion offer for Wing Hang Bank Ltd. won enough investor acceptances last week for the buyer to take its target private.
“They’re in bit of a sweet spot,” Paul Dowling, principal analyst at Sydney-based bank research firm East & Partners Pty, said by phone today. “The markets will reward them off the back of this second-quarter result, given what Wing Hang delivered to OCBC in terms of forward momentum.”
Shares of OCBC rose 1 percent to S$9.96 at 1:30 p.m. in Singapore, compared with the benchmark Straits Times Index’s 0.3 percent increase. The stock lost 2.4 percent this year, compared with gains of at least 6.6 percent by OCBC’s two rivals DBS Group Holdings Ltd. and United Overseas Bank Ltd. DBS gained 0.6 percent today, while UOB lost 0.8 percent.
DBS, Southeast Asia’s largest bank, reported last week a higher-than-estimated 9 percent increase in second-quarter net income on improved lending profitability and higher loan growth. UOB posted a 3.2 percent profit increase for the period amid gains from investments.
OCBC’s second-quarter profit was the most since it earned a record S$1.85 billion in the third quarter of 2012, when it booked gains from selling stakes in drinks manufacturer Fraser & Neave Ltd. and its Asia Pacific Breweries unit.
The lender’s net interest income, the difference between what it makes from loans and pays on deposits, climbed 17 percent last quarter from a year earlier to S$1.1 billion as loans expanded by 12 percent.
The bank’s net interest margin, a measure of lending profitability, widened to 1.7 percent from 1.64 percent a year earlier. OCBC expects NIM for the year to be between 1.64 percent and 1.7 percent, CEO Tsien said at a briefing in Singapore today.
Singaporean lenders have sought growth outside their home city, where banks had an average 12-month net interest margin of 1.76 percent, the lowest in Southeast Asia, according to filings compiled by Bloomberg. Indonesia had the highest average at 5.61 percent, the data show.
Some 52 percent of OCBC’s outstanding loans in the second quarter were from outside Singapore. Greater China lending climbed by 36 percent from a year earlier, while Malaysia expanded 13 percent, outpacing the 2.2 percent increase for Singapore, the bank reported.
The Wing Hang purchase will enable OCBC to offer banking services to Chinese companies expanding in Southeast Asia. The acquirer also intends to tap the owners of Wing Hang’s corporate clients, mainly small and medium-sized companies, for OCBC’s private-banking business, Tsien said in a July 10 interview.
“Wing Hang is a real accelerator for the bank,” said Dowling from East & Partners. “Our sense is that they’ve probably understated, rather than overstated, the speed with which that transaction will start becoming earnings accretive.”
OCBC will “shortly” organize a briefing that will detail plans for integrating the operations of the two banks and also address how the takeover will be funded, Tsien said today, without providing a date. The deal is the largest takeover of a Hong Kong bank since DBS bid $5.4 billion for Dao Heng Bank Group Ltd. in April 2001.
OCBC’s second-quarter non-interest income advanced 40 percent to S$850 million, boosted by a 48 percent climb in trading income and contributions from Great Eastern Holdings Ltd., the bank’s insurance unit.
Trading income increased as the bank offered more interest-rate hedging, foreign-exchange hedging and risk products to corporate customers, said Dowling.
Great Eastern’s second-quarter profit surged by 13 times to S$244.6 million from a year earlier, boosted by a higher market value for its fixed-income investments, the insurer reported on July 31.
Provisions OCBC set aside for sour debt in the second quarter decreased to S$66 million from S$83 million a year earlier. Its non-performing loan ratio remained unchanged at 0.7 percent, the bank said. The NPL ratio for loans booked in China was 0.3 percent, Tsien said.