SINGAPORE - Oversea-Chinese Banking Corp (OCBC), Singapore's second-largest lender, reported on Tuesday (May 9) a surprisingly strong 14 per cent jump in first-quarter net profit, thanks to higher income from wealth management and insurance.
Earnings rose to S$973 million in the three months to March 31, 2017, from S$856 million a year earlier, easily topping the S$845 million average forecast in a Bloomberg survey of seven analysts. It was also 23 per cent higher than the S$789 million net profit in the previous quarter.
OCBC said its strong year-on-year performance was largely driven by the sustained growth in wealth management income, higher profit from insurance operations as well as increased earnings in local currency terms from all of the group's overseas banking subsidiaries, particularly from Indonesia.
This more than offset a 3 per cent decline in net interest income to S$1.27 billion from S$1.31 billion a year ago. OCBC said average customer loans grew 5 per cent year-on-year, led by broad-based growth across most industry segments and key markets, but net interest margin contracted 13 basis points - 1.62 per cent from 1.75 per cent - largely due to reduced customer loan yields and excess liquidity placed in high quality but lower yielding interbank placements.
Non-interest income surged 30 per cent to S$977 million from S$753 million a year ago. Fee and commission income climbed 29 per cent to S$481 million, led by a 70 per cent jump in wealth management fee income, partly contributed by the acquisition of the former wealth and investment management business of Barclays in Singapore and Hong Kong in November 2016.
Net trading income of S$158 million grew 30 per cent from S$122 million last year, while net realised gains from the sale of investment securities rose 10 per cent to S$65 million.
Profit from life assurance more than doubled from S$83 million in the previous year to S$176 million, largely from positive performance in Great Eastern Holdings' investment portfolio as a result of favourable market conditions. OCBC said Great Eastern continued to deliver strong underlying insurance business growth, with total weighted new sales and new business embedded value increasing 29 per cent and 24 per cent year-on-year respectively.
Said CEO Samuel Tsien: "We are pleased to report a rise in first quarter earnings. Our results reflect the underlying strength and diversity of our banking, wealth management and insurance franchise. We achieved broad-based loan growth, grew our private banking AUM (assets under management), and reported significantly higher fee income. Our Hong Kong, Malaysian and Indonesian banking subsidiaries saw higher year-on-year earnings growth in local currency terms and Great Eastern continued to deliver robust underlying total weighted new sales and new business embedded value growth."
OCBC said its nonperforming assets climbed 29 per cent to S$2.87 billion in the first quarter from a year earlier amid ongoing stress in oil and gas services. Its nonperforming-loan ratio climbed to 1.3 per cent from 1 per cent. Allowances for loans and asset impairments edged up to S$168 million from S$167 million a year ago.
"The overall quality of the loan portfolio remained stable," said Mr Tsien. "Although the stress in the oil & gas support services sector is continuing, sufficient provisions have been made."
He added: "While we see some sectorial strength in the domestic economy, this is not yet broad-based, and we remain watchful to the persistent headwinds in the operating environment."
Singapore's other two big banks earlier reported first-quarter earnings that beat expectations. Top lender DBS' net profit edged up 1 per cent to S$1.21 billion, while UOB saw a 5.4 per cent rise in earnings to S$807 million.
