OCBC Profit Beats Estimates as Fees Offset Shrinking Margin

Oversea-Chinese Banking Corp.’s profit fell less than analysts estimated last quarter as an increase in fees and commissions outweighed narrowing net interest margins at Southeast Asia’s second-largest lender.

Net income declined 16 percent from a year earlier to S$696 million ($564 million), the Singapore-based bank said in a statement today. That exceeded the S$640 million average of four analysts’ estimates compiled by Bloomberg.

Fee-generating businesses and profit growth from countries such as Malaysia and Indonesia helped Chief Executive Officer Samuel Tsien deliver better-than-estimated results as he grapples with Singapore’s slowing economy, diminished demand for borrowing and shrinking loan profitability. The bank’s net interest margin narrowed, while provisions for bad debts fell.

“Fees and commissions were driven by wealth management, and we expect this segment to continue to be strong this year,” said Ken Ang, an analyst at Phillip Securities Pte. “The magnitude of the decrease in net interest margin was quite significant.”

The stock rose 0.1 percent to S$10.93 as of 9:03 a.m. in Singapore trading. The shares have climbed 12 percent this year, compared with a 6.6 percent gain for the benchmark Straits Times Index.

Higher Fees

OCBC’s net fees and commissions climbed 15 percent in the quarter to S$316 million on the back of higher wealth and fund management income and loan-related fees. Non-interest income, excluding a S$56 million gain booked in the first quarter of last year, dropped 14 percent to S$676 million, led by declines in trading income and profit from life assurance.

Great Eastern Holdings Ltd., the lender’s insurance unit, said last week that first-quarter profit decreased 21 percent from a year earlier to S$207.5 million.

Singapore’s banks have the lowest net interest margin in Southeast Asia at 1.94 percent, according to the latest data compiled by Bloomberg. OCBC’s net interest margin contracted to 1.64 percent in the quarter from 1.86 percent a year earlier, owing to Singapore’s low interest-rate environment and a “re-pricing” of existing housing loans, the bank said.

Net interest income, the difference between what the bank makes from lending and pays on deposits, declined 4 percent to S$912 million as growth in loans was overshadowed by the declining lending margins.

Loan Growth

OCBC’S loan book grew 10 percent to S$149 billion. Loan growth in Singapore during the first two months of the year averaged 19 percent, cooling from 27 percent a year earlier, according to data compiled by Bloomberg. March loan data aren’t yet available from the Monetary Authority of Singapore.

The bank set aside S$21 million as provisions for loans and other losses, a 79 percent decrease from a year earlier. Its core equity Tier 1 capital adequacy ratio was 16.2 percent.

“Business momentum is strong, and asset quality remains sound,” Tsien said in the statement. “We will devote additional resources to strengthen the group’s regional franchise to tap on the higher economic growth potential in our key overseas markets.”

Singapore’s gross domestic product shrank an annualized 1.4 percent in the three months through March 31 from the previous quarter, when it rose 3.3 percent, the Trade Ministry said on April 12.

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