OCBC Profit Misses Estimates on Lending Margins, Insurance

Oversea-Chinese Banking Corp., Southeast Asia’s second-largest lender, posted an 8 percent decrease in second-quarter profit, missing estimates as lending and insurance profitability fell and staff expenses climbed.

Net income declined to S$597 million ($468 million) from S$648 million a year ago, the Singapore-based lender said in a statement to the stock exchange today. That lagged behind the S$640 million average of seven analysts’ estimates.

OCBC’s results contrast with those of DBS Group Holdings Ltd. and United Overseas Bank Ltd., which yesterday reported higher quarterly profit led by gains in fee income. Singapore banks, which have the lowest loan profitability in Asia, may start to see lending returns stabilize as interest rates rise and competition for deposits eases.

“We’re expecting a quarter-on-quarter stabilization of net interest margins going forward as longer-term interest rates move up,” Ken Ang, a Singapore-based analyst at Phillip Securities Pte, said before the results. “Banks have also become more rational in competing for deposits, thereby lowering their funding costs.”

OCBC’s net interest margin narrowed to 1.64 percent in the quarter from 1.77 percent a year earlier, the 16th straight decline. It was unchanged compared with the previous quarter.

Net interest income, the difference between what the bank earns on loans and what it pays on deposits, advanced 3 percent from a year earlier to S$961 million as loan growth of 15 percent offset the narrower margin, the report showed.

OCBC shares slipped 0.5 percent to S$10.61 in Singapore trading at 9:52 a.m. today, while the benchmark Straits Times Index rose 0.4 percent.

Fee Businesses

Non-interest income advanced 2 percent to S$606 million as fees and commissions from wealth management, brokerage services and fund management offset declines in profit from life assurance. Great Eastern Holdings Ltd., OCBC’s insurance unit, said on July 31 that its second-quarter profit fell 77 percent from a year earlier to S$18.6 million.

OCBC’s operating expenses swelled 9 percent to S$718 million as the lender boosted headcount 5 percent over the quarter, increased salaries and paid incentive compensation.

China, Indonesia

Chief Executive Officer Samuel Tsien has focused on expansion in markets including China and Indonesia in search of higher-yielding loans. At 1.82 percent, banks in Singapore have the lowest average net interest margins in Southeast Asia, according to data compiled by Bloomberg before this week’s earnings.

Bigger rival DBS’s efforts at expanding abroad suffered a setback this week when it dropped its $6.5 billion offer for PT Bank Danamon Indonesia after failing to win regulatory approval for a majority stake.

DBS, Southeast Asia’s largest bank, said yesterday that net income for the quarter climbed 10 percent to S$887 million, led by fees and commissions and trading income. UOB’s profit jumped 10 percent to S$783 million, beating analysts’ estimates on increases in lending and fees and commissions.

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