OCBC Profit Beats Estimates on Lending, Lower Allowances

(Bloomberg) -- Oversea-Chinese Banking Corp.’s second-quarter profit rose more than analysts estimated as lending income increased and loan allowances fell.

Net income climbed 16 percent to record S$1.21 billion ($884 million) in the three months ended June from a year earlier, the Singapore-based bank said Monday. That beat the S$1.12 billion average forecast in a Bloomberg survey of four analysts.

Southeast Asia’s second-largest bank joins its two Singapore rivals in boosting lending income, thanks in part to rising interest rates in the region. United Overseas Bank Ltd. also posted better-than-expected profit, while DBS Group Holdings Ltd. missed estimates after being hit by losses at its treasury and markets division.

OCBC Chief Executive Officer Samuel Tsien joined his counterparts at UOB and DBS in sounding a cautious note about the impact of global trade tensions, while remaining positive about the long term outlook for his bank. “The operating environment is increasingly challenging and we are watchful of the severe implications to the global economy and financial markets from the escalating trade and political tensions,” Tsien said.

Higher margins and loan growth pushed up OCBC’s net interest income by 8 percent to S$1.45 billion. Non-interest income increased 2 percent, as growth in trading and wealth management was offset by a 97 percent drop in net gains from the sale of investment securities.

“Nothing major to complain about overall as diversification in businesses is helping the bank," said Kevin Kwek, an analyst at Sanford C. Bernstein.

Other Key Figures

  • Allowances for loans and other assets shrank 87 percent to S$21 million
  • Wealth management fees rose 5 percent to S$225 million
  • Return on equity was 12.6 percent versus 11.4 percent
  • Net interest margin rose 2 basis points to 1.67 percent
  • Nonperforming loan ratio rose to 1.4 percent
  • Operating expenses increased 4 percent to S$1.04 billion
  • Customer loans grew 10 percent
  • Interim dividend up 2 Singapore cents to 20 cents
  • OCBC shares have lost 8.4 percent this year, compared with a 4 percent drop in the benchmark Straits Times Index.

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