OCBC Boosts Quarterly Profit on Non-Interest Income Gains

Oversea-Chinese Banking Corp., Southeast Asia’s second-largest lender, posted a 12 percent gain in fourth-quarter profit as higher income from wealth management and insurance offset narrowed lending margin.

Net income rose to S$663 million ($537 million) from S$594 million a year earlier, the Singapore-based bank said in a statement to the stock exchange today. That exceeded the S$624 million average of 10 analysts’ estimates compiled by Bloomberg.

OCBC, like its bigger domestic competitor DBS Group Holdings Ltd., is relying on income from businesses such as private banking as lending profitability remains under pressure. Singapore’s loan growth cooled in 2012 as the slowest economic expansion in three years curtailed credit demand.

“Non-interest income was slightly stronger than expected and this was driven by” its Great Eastern Holdings Ltd. insurance unit, said Julian Chua, a Kuala Lumpur-based analyst at Nomura Advisory Services Sdn. “The wealth management income growth numbers were also very strong.”

Net interest margin, a measure of loan profitability, narrowed to 1.7 percent last quarter from 1.85 percent a year earlier, the bank said, after repricing mortgage rates in response to competition. Non-interest income jumped 32 percent in the period to S$757 million as wealth management income surged 61 percent to S$89 million.

OCBC shares closed 0.4 percent lower at S$9.99 in Singapore trading today, the lowest in a week. The benchmark Straits Times Index dropped 0.2 percent.

Industry Margin

DBS last week reported its interest margin narrowed to 1.62 percent from 1.73 percent a year earlier. Singapore’s banks earn the least on loans in Southeast Asia, based on their average net interest margin of 1.98 percent, according to the most recent data compiled by Bloomberg.

OCBC’s net interest income, the difference between what it makes from lending and pays on deposits, was little changed from a year earlier at S$921 million. Its loan book grew 7 percent from a year earlier to S$142 billion.

Loan growth in Singapore slowed to 10.4 percent in 2012 from 24 percent a year earlier, Daiwa Capital Markets Singapore Ltd. analysts led by Srikanth Vadlamani wrote in a Jan. 31 note. The city’s economy grew 1.2 percent in 2012, the slowest pace in three years, and the government predicts an expansion of 1 percent to 3 percent for 2013.

New Opportunities

“Although the market outlook remains uncertain, we expect the global economy to post low-to-moderate growth in the year ahead,” Chief Executive Officer Samuel Tsien said in the statement, adding that he’s set to drive the bank’s businesses and seek out new opportunities.

Net fees and commissions climbed 18 percent in the quarter to S$304 million, OCBC said. Other non-interest income advanced 44 percent to S$453 million, led by gains from insurance.

Great Eastern said last week that fourth-quarter profit tripled from a year earlier to S$225.6 million.

Provisions for credit and other losses declined 14 percent from a year earlier to S$68 million, the bank said in the statement.

Tsien has been selling assets to focus on the bank’s financial business. One-time gains from the sale of stakes in drinks manufacturer Fraser & Neave Ltd. and its Asia Pacific Breweries Ltd. unit helped OCBC post a record quarterly profit in the three months ended September.

“We don’t have a lot more to divest,” said Tsien. “We will always say that these are non-core investments,” he said, while referring to F&N and APB. The proceeds from non-core investment divestments will be put back into our core activities, he said.

For the full year, excluding one-time gains from the sale of assets, profit grew 24 percent to a record S$2.83 billion, the bank said in today’s statement.

(Updates with share closing price in sixth paragraph.)
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