Oversea-Chinese Banking Corp., Southeast Asia’s second-largest bank, posted second-quarter profit that beat analysts’ estimates on higher interest income and contributions from Greater China and Indonesia.
OCBC’s net income for the three months ended June 30 rose 14 percent to S$1.05 billion ($764 million) from a year earlier, the Singaporean bank said in a statement on Friday. That beat the average forecast of S$969 million in a Bloomberg survey of eight analysts. Smaller competitor United Overseas Bank Ltd. reported an unexpected 5.7 percent drop in profit.
Both lenders are benefiting from domestic interest rates close to the highest levels since 2008, which have allowed them to increase charges to borrowers. The banks still face the prospect of weaker loan growth this year as the city’s economy contracts amid an Asia-wide slowdown led by China.
Banks “should benefit from higher local interest rates,” Bernard Aw, a strategist at IG Singapore Pte. wrote in a note after the earnings reports. “That said, prospects of slower loan growth may limit corporate net interest income.”
UOB shares sank 3 percent, the most since Jan. 9, as the benchmark Straits Times Index dropped 1.3 percent by 11:57 a.m. Singapore time. OCBC lost 0.7 percent, taking its decline this year to 2.5 percent, compared with UOB’s 9.4 percent slide.
The two banks’ earnings followed largest competitor DBS Group Holdings Ltd., which reported second-quarter profit of S$1.12 billion on Monday as its net interest margin rose to a three-year high and fee income climbed to a record.
UOB’s net income in the period fell to S$762 million from S$808 million a year earlier, the bank reported Friday. That missed the S$831.4 million average of seven analysts’ estimates as gains from interest and fee income were offset by a 14 percent drop in net trading income, and a 13 percent increase in staff expenses.
Its net interest margin, a measure of lending profitability, rose to 1.77 percent in the second quarter from 1.76 percent in the March quarter. The highest margin of the three Singaporean banks helped UOB boost net interest income by 8 percent to S$1.2 billion.
OCBC’s net interest margin increased to 1.67 percent from 1.62 percent in the first quarter. DBS reported Monday a margin of 1.75 percent, the highest in 13 quarters.
The banks’ interest margins benefited this year from higher domestic borrowing costs. The three-month Singapore interbank offered rate more than doubled in the first quarter to exceed 1 percent for the first time since 2008. It was at 0.87858 percent Thursday.
UOB’s Chief Executive Officer Wee Ee Cheong told reporters following his bank’s results that he expects interest margins to stay at current levels, while OCBC CEO Samuel Tsien said at a separate briefing that the improvement was “sustainable.”
Excluding currency effects, OCBC’s loans rose 16 percent from a year earlier as Greater China’s lending more than doubled. The bank spent $5 billion buying Hong Kong’s Wing Hang bank in October. OCBC said its loans rose 3 percent excluding Wing Hang.
Tsien forecast 2015 loan growth in the “mid-single digit” percentage range, while UOB’s Wee said he’s targeting an expansion of 5 percent. Gross customer loans expanded 4.8 percent in the second quarter from a year earlier, UOB reported.
“Looking ahead, we expect a bumpy ride for the next few months,” Wee said, citing uncertainties from Europe, especially Greece, and a slowing Chinese economy.