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OCBC Profit Beats Estimates As Hong Kong Unit Bolsters Loans
Corporate Digest | 07 May 2015
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Oversea-Chinese Banking Corporation (OCBC), Southeast Asia’s second-largest bank, posted a higher-than-estimated 11 percent gain in first-quarter profit as it absorbed loans and deposits from the Hong Kong unit it acquired last year.

Net income for the three months ended 31 March climbed to $993 million (US$751 million) from $899 million a year earlier, the Singapore-based bank reported on 30 April. The average of six analyst forecasts in a Bloomberg survey was $911 million. United Overseas Bank (UOB), its smaller competitor, reported a 1.6 percent increase in profit.

Both lenders face the prospect of being able to charge borrowers more for loans amid rising domestic interest rates, which climbed to a six-year high in the first quarter. That may boost interest margins and offset any slowdown in lending volumes as the city’s economy cools.

“In terms of the banking sector, this is one sector that we are particularly overweight in because we think net interest margins will really help,” Kelvin Tay, a money manager at UBS Wealth Management in Singapore, said on 30 April in an interview. “While we have passed the worst, we don’t see a significant increase this year” for loan growth, he said.

While OCBC’s consumer loan spreads in Singapore improved, a 26 percent increase in deposits in the quarter and weaker income from money-market activities helped drag the bank’s net interest margin down to 1.6 percent from 1.7 percent a year earlier. UOB’s net interest margin rose 3 basis points to 1.8 percent.

DBS Profit
The margin for DBS Group Holdings (DBS), OCBC and UOB’s largest rival, gained 3 basis points to 1.7 percent in the period, the bank reported on 27 April. DBS posted a record $1.3 billion profit for the quarter on higher net interest income and proceeds from selling a Hong Kong property investment.

OCBC’s net interest margin is expected to “gradually improve” this year, chief executive officer Samuel Tsien said at a press briefing on 30 April. The three-month Singapore interbank offered rate more than doubled in the first quarter to exceed 1 percent for the first time since 2008.

“More loans are being priced to higher interest rates,” said He Yuxuan, an analyst at KGI Fraser Securities. “For the whole year, there will be an increase in interest income.”

Weaker Demand
OCBC’s loans grew 20 percent in the quarter as it incorporated lending from its OCBC Wing Hang Bank unit in Hong Kong, which it acquired last year for US$5 billion. Excluding Wing Hang, OCBC said its loans rose 4 percent, while deposits gained 8 percent.

Loans are expected to increase this year at a mid-single digit percentage rate amid weaker demand in Singapore, Tsien told reporters. They grew 24 percent in 2014. The city’s economy expanded an annualised 1.1 percent in the three months through March from the previous quarter, down from a 4.9 percent rate in the preceding period.

“We need to be more careful,” Tsien said on the sidelines of the briefing. “What we want to do is to build up a quality loan business rather than going out to just increase loans, because the operating environment from the credit perspective that we are in is not so favourable.”

The lender’s net interest income climbed 15 percent from a year earlier, it said. UOB reported net income in the quarter of $801 million as its net interest income climbed 8.3 percent, while fee and commission income gained 9.5 percent.

DBS Group Hldgs  25.000 -0.03 -0.12%   
Business: [FY18 Total Income] Institutional banking (43.7%), consumer banking/wealth management (42.9%), treasury markets and others (13.4%).

Insight: Apr-19, 1Q19 net profit rose 9% to a record $1.7b.... Read More
Oversea-Chinese Banking Corp  10.910 -0.04 -0.37%   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

Insight: May-19, 1Q19 total income rose 14.7% driven by str... Read More
United Overseas Bank  25.700 -0.20 -0.77%   
Business: [FY18 Turnover] Group retail (43.3%), group wholesale (43.2%), global markets & investment management (5.1%), others (8.4%).

Insight: May-19, 1Q19 total income rose 7.8% to $2.4b due t... Read More

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