Oversea-Chinese Banking Corp. (OCBC), Southeast Asia’s second-largest lender, posted a 32 percent increase in first-quarter profit on higher income from corporate borrowing, insurance, trading and investments.
Net income advanced to S$832 million ($664 million) in the three months ended March 31 from S$628 million a year earlier, OCBC said in a statement to the stock exchange today. That exceeded the average S$632 million of seven analysts’ estimates compiled by Bloomberg.
The bank follows domestic rivals DBS Group Holdings Ltd and United Overseas Bank Ltd in posting first-quarter profit increases higher than analysts’ estimates. OCBC Chief Executive Officer Samuel Tsien boosted non-interest income from businesses including wealth management, trading, and its Great Eastern Holdings Ltd unit rose 28 percent, while higher lending offset lower interest margins, the bank said.
“Overall, the results were good as trading gains and income from insurance came in strong,” said Sharnie Wong, a Hong Kong-based analyst at Barclays Plc. “The underlying operating trends were not as strong as peers though,” she said, citing a deterioration in asset quality and a fall in net interest margins.
The insurance unit led profit gains across all of OCBC’s main businesses with a 66 percent increase, OCBC said today. Great Eastern’s S$279 million operating profit for the quarter accounted for 28 percent of the bank’s total operating profits.
Shares of the bank rose 0.5 percent to S$8.97 as of 10:20 a.m. in Singapore. OCBC has risen 15 percent this year, compared with the 9.2 percent gain of the Straits Times index.
Tsien, who took over as CEO from David Conner last month, is competing with Singapore-based rivals to expand in Asia as banks in the city-state face the lowest loan profitability in Southeast Asia. The average net interest margin for Singapore banks was 2.02 percent, the lowest among countries including Indonesia, Malaysia and the Philippines, according to data compiled by Bloomberg.
OCBC’s net interest income, the difference between what a bank makes from lending and what it pays on deposits, grew 21 percent from a year earlier to S$951 million as loans grew. Margins on loans contracted to 1.86 percent from 1.9 percent a year earlier, it said in the statement.
Provisions for credit and other losses jumped 98 percent last quarter to S$96 million from a year earlier.
Trading Wild Card
Net trading income climbed 98 percent in the quarter to S$160 million, and gains from investments were up 85 percent to S$43 million, as financial markets rallied worldwide.
The MSCI World Index posted its best performance in six quarters in the period as Europe’s debt crisis eased and US unemployment fell, helping boost trading revenue at lenders worldwide including Bank of America Corp.
“The wild card will always be income related to the capital markets,” said Wee Siang Ng, a banking analyst at BNP Paribas Securities Singapore Pte, before the results.
The bank’s net fees and commissions were unchanged at S$274 million as gains from wealth management and loan-related activities were offset by declines in brokerage and investment banking.
DBS (DBS), Southeast Asia’s largest bank, last quarter unexpectedly posted a profit increase of 16 percent to a record S$933 million on higher income from interest and trading. The bank last month offered to buy PT Bank Danamon Indonesia for $7.2 billion.
United Overseas Bank, the region’s third-biggest bank, also beat analysts’ estimates for the quarter on May 9, posting a profit increase of 12 percent on higher income from lending, fees and commissions, and trading and investment.