(Bloomberg) -- Oversea-Chinese Banking Corp.’s second-quarter profit beat expectations, as a strong haul in trading and wealth fees bolstered tepid lending income gains.
Net income increased 14% to S$1.94 billion ($1.45 billion) from a year earlier in the three months ended June 30, Southeast Asia’s second-largest lender said Friday. That surpassed the S$1.8 billion average estimate of four analysts surveyed by Bloomberg.
OCBC, led by Chief Executive Officer Helen Wong, is the second major Singapore-based bank to report results that were underpinned by the wealth-management business. The lender is “firmly on track” to meet this year’s targets that include a 50% dividend payout, CEO Wong said. “As we look ahead, we are alert to the heightened level of geopolitical uncertainties,” she said, adding OCBC is well-positioned to navigate the environment.
Net interest income expanded 2% to S$2.43 billion, as a lower net interest margin was negated by an increase in assets. This year’s lending-margin target is likely to be in the lower end of a 2.20%-2.25% range, Wong said at a briefing. The CEO previously guided for the higher end of the same range, if rate cuts turn out to be less than originally expected.
Robust gains from fees in wealth, trading and insurance drove non-interest income 13% higher. OCBC’s private bank unit has been adding relationship managers, and clients are increasing trading activities in anticipation of rate cuts, according to Jason Moo, CEO of Bank of Singapore Ltd.
“The trading and other income beat was supported by more recurring lines, such as insurance and customer flows,” said Sam Wong and Shujin Chen, Jefferies Hong Kong Ltd. analysts. The bank’s asset quality fared better than its local rival United Overseas Bank Ltd., they said.
UOB posted a 1% drop in net income, excluding one-off costs, on Thursday. DBS Group Holdings Ltd., Southeast Asia’s largest lender, will publish its figures on Aug. 7.
Deals Pursuit
OCBC’s elevated common equity Tier-1 ratio signals the bank may still have dry powder for acquisitions. It completed a takeover of an Indonesian bank in May, and in the same month, announced a S$1.4 billion bid to take full control of Singapore insurer Great Eastern Holdings Ltd.
At the close of the offer in July, OCBC and concert parties garnered 93.52% of shares in the insurer. Great Eastern’s independent financial adviser EY had supported the bid, calling it “not fair but reasonable.” Wong said at the briefing that there are discussions to offer Great Eastern products in Greater China, expanding it from the current Southeast Asia markets.
Any future offer to mop up the remaining shares will be made in the interest of the bank and its shareholders, OCBC said. It will be “prudent and calibrated in our approach, striking a balance between cost and returns,” the lender said.
OCBC’s high capital levels will be maintained to brace for any uncertainties, Wong said. There is room for acquisitions if suitable opportunities come up, or to also distribute it to shareholders, she added.
Other highlights from the results:
- Interim dividend raised 10% to 44 Singapore cents a share
- Wealth management fees rose 17% to S$212 million
- Wealth AUM expanded 2% to S$279 billion
- Trading income rose more than 14% to S$356 million
- Common equity Tier-1 ratio 15.5%, from 15.4% a year ago
- Net interest margin at 2.2%
- Allowances for loans, other assets S$144 million, down 43%
- Commercial real estate office sector at 11% of group loans and is largely secured
(Adds analyst comment in fifth paragraph, and earning details throughout.)
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