OCBC Shares Rise to Record as Profit, Return on Equity ClimbBy
Net income rises to S$1.08 billion vs S$938 million estimate
Return on equity increases to highest level since June 2015
Oversea-Chinese Banking Corp. rose to a record in Singapore trading as quarterly profit beat estimates and return on equity climbed to the highest in two years on gains in wealth management and lending income.
Second-quarter net income jumped 22 percent to S$1.08 billion ($796 million), Southeast Asia’s second-largest lender said in a filing on Thursday. Return on equity, a measure of profitability, rose to 11.9 percent, the highest since the June quarter of 2015.
OCBC, the first of the three large Singapore banks to report quarterly earnings, saw gains in its wealth management and insurance businesses in the first three months of the year, helped by its $227.5 million acquisition of Barclays Plc’s wealth units in Singapore and Hong Kong, which was completed in November. That helped boost profitability that had previously sagged because of bad debt from Singapore’s offshore marine services sector.
The ROE improvement “will be well-received,” said Kevin Kwek, an analyst at Sanford C. Bernstein & Co. in Singapore. The bank’s “areas of strength were maintained, with non-interest income helping.”
Shares of OCBC rose 1.7 percent to S$11.44, an intraday record, as of 12:38 p.m. local time. The stock has gained 28 percent this year, outpacing the benchmark Straits Times Index’s 16 percent advance.
OCBC’s quarterly net income beat the S$938 million average forecast in a Bloomberg survey of six analysts.
Non-interest income rose 34 percent to S$1.05 billion from a year earlier, thanks to a surge in fees and commission from wealth management, as well as profit from life insurance, OCBC said. Insurance unit Great Eastern Holdings Ltd. reported July 25 that its second-quarter profit more than doubled amid favorable conditions in financial markets.
“Looking forward, we believe that the momentum is still there” for the bank, Chief Executive Officer Samuel Tsien said in an interview with Bloomberg Television’s Haslinda Amin from Singapore. “Some of that is market driven, so it’s kind of difficult to forecast exactly what the future quarters are going to look like, but I can say that the momentum that was created since the end of last year has continued into the first quarter and has continued into the second quarter.”
Tsien said OCBC will keep building its wealth business, including hiring more relationship managers. Further acquisitions for wealth “depends on market opportunities,” he said, without elaborating.
The Barclays deal helped OCBC’s private-banking unit, Bank of Singapore, climb four places to rank seventh among Asia’s largest private banks in terms of assets under management last year, according to data compiled by Asian Private Banker.
OCBC’s net interest margin dropped to 1.65 percent from 1.68 percent a year earlier. However, an 11 percent increase in lending helped boost net interest income by 7 percent to S$1.345 billion during the second quarter, the bank said.
Singapore banks have been grappling with souring loans to regional oil services firms, which have been hit by low energy prices. The latest casualty is Nam Cheong Ltd., a Malaysia-based and Singapore-listed oilfield services group, which said earlier this month it plans to cease repayment on its borrowings and seek court approval for a debt restructuring.
Nam Cheong hasn’t disclosed the identity of its main bankers, though a recent filing showed that OCBC has loaned about $10 million to the firm. Tsien declined to comment on the bank’s exposure at a briefing with reporters and analysts.
A recovery for the oil and gas sector is still not visible “because of the continuing depressed oil prices, which led to the oil majors not truly investing in any big way yet,” Tsien said in the interview. “Recovery is not yet in sight, but the situation has stabilized.”
OCBC’s nonperforming-loan ratio stood at 1.3 percent in the second quarter, unchanged from the previous quarter, and up from 1.1 percent a year ago. Nonperforming assets rose to S$2.92 billion from S$2.87 billion in the first quarter.
Key figures reported by OCBC:
- Allowances for loans and asset impairments S$169 million vs year earlier S$88 million
- Net interest income rose 7% to S$1.345 billion
- Net interest margin 1.65% vs 1.68%
- Non-interest income grew 34% to S$1.05 million
- Cost-to-income ratio 41.4% vs 45.5%
Local rival United Overseas Bank Ltd. will report its second-quarter results Friday, followed by DBS Group Holdings Ltd., Southeast Asia’s largest bank, on Aug. 4.
— With assistance by Abhishek Vishnoi, and Anand Menon