OCBC Drops on Concern Profit Growth Relied on Loan Provisions

(Bloomberg) -- Oversea-Chinese Banking Corp. shares fell the most in a month after the Singaporean bank posted first-quarter profit growth that relied largely on a drop in loan provisions as lending margins stagnated.

Southeast Asia’s second-largest bank slid as much as 3.2 percent in Singapore on Monday morning after Chief Executive Officer Samuel Tsien signaled that last quarter’s decline in loan allowances may be as good as it gets this year. Analysts expressed concern that OCBC’s loan margins failed to widen from the previous quarter -- unlike those at DBS Group Holdings Ltd. and United Overseas Bank Ltd. -- even as benchmark interest rates rose.

“Investors probably expected a stronger performance” in net interest margins, Bloomberg Intelligence analyst Diksha Gera said.

OCBC was the last of Singapore’s three major banks to report results. The lenders are benefiting from rising interest income and an improved credit environment, and their growing wealth management operations have provided a new revenue stream.

‘Sound’ Portfolio

Net income increased 29 percent from a year earlier to S$1.11 billion ($832 million) in the three months ended March, OCBC reported. The bad-loan ratio improved from the previous quarter and the bank’s loan portfolio is “sound,” Tsien said in a statement. Still, he said later at a news briefing that loan provisions may increase in subsequent quarters.

Net interest income climbed 11 percent from a year earlier, reflecting gains in the local interest-rate benchmark. The three-month Singapore interbank offered rate is near a 10-year high reached earlier this year. The net interest margin was 1.67 percent, unchanged from the previous quarter and 5 basis points higher than a year earlier.

Tsien said the net interest margin was affected by Indonesia, where the government aims to spur economic growth by asking banks to lower their lending rates.

Other Key Figures From Results
  • Allowances for loans and other assets shrank 93 percent
  • Wealth management fees climbed 19 percent
  • Return on equity increased to 11.8 percent from 9.6 percent
  • Nonperforming loan ratio rose to 1.4 percent from 1.3 percent
  • Operating expenses increased 6 percent
  • Loans grew 10 percent
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