SINGAPORE - OCBC beat market expectations on Friday (May 7) as its first-quarter profit more than doubled on the strong performance of its wealth and insurance businesses and lower allowances for bad loans.
Net profit for Singapore’s second-biggest local bank came in at a quarterly high of $1.5 billion for the three months to March, topping the $901.9 million average of analysts’ estimates compiled by Refinitiv, and versus $698 million for the year-ago quarter.
Non-interest income surged by 70 per cent year on year to $1.47 billion from higher fees, trading and insurance income, against the backdrop of an improving operating environment and favourable market conditions, said OCBC.
Net interest income was 11 per cent lower at $1.44 billion, compared with $1.63 billion last year. This was due mainly to a 20 basis point compression in net interest margin in the sustained low interest rate environment, said the bank.
Net interest margin, a key gauge of banks’ profitability, stood at 1.56 per cent. It was unchanged from the previous quarter, and lower than the 1.76 per cent for the first quarter of 2020.
Credit costs also fell to 22 basis points from 86 a year ago, amid the improved economic outlook.
Allowances for the quarter at $161 million, mostly for impaired assets, were 75 per cent lower than the $657 million for the year-ago period.
Roughly half of the allowances for impaired assets was set aside for the bank’s remaining oil and gas exposure on its book.
Net fees and commissions rose 7 per cent to a high of $585 million, driven by a record $321 million in wealth management fees.
Net interest margin stood at 1.56 per cent, unchanged from the previous quarter, and lower than the 1.76 per cent for the first quarter of 2020.
Group CEO Helen Wong, delivering her first set of OCBC results, said the earnings were exceptional due to conductive market conditions.
“We have had very strong earnings across key markets and businesses. We also see diversified earnings, and that rests on the strength and resilience of our three pillars – wealth, insurance and of course, banking operations,” she told a media briefing on Friday.
Ms Wong said the bank is seeing strong recovery in global output and trade this year, led by the revival of economic activities in the US amid monetary stimulus and fiscal spending.
China, another important economy, has seen accelerated pickup in exports and a very strong domestic demand, said Ms Wong, who added that economic recovery is also expected to be strong in the bank’s core markets of Singapore, Malaysia, Indonesia and Greater China.
She cautioned, however, that recovery is not broad-based yet. “This is very much due to emerging variants of Covid-19 and also slow roll-out of vaccination in certain countries. So a true return to normal will take time, and perhaps longer than we think in this year.”
The bank will focus on deepening its network to support its customers and capitalise on signs of sectorial recovery, added Ms Wong. “We’ll look at our loan book as having momentum to lead to faster growth in the rest of the year, and I’m thinking about a mid to high single digit growth in our loan book.”
OCBC is already seeing higher demand for loans in infrastructure, logistics, transportation and real estate, as well as growing appetite from private funds managing the region’s wealth, she said.
Ms Wong said she does not expect huge allowances in the next three quarters, with relief programmes seeing healthy repayments as such schemes taper off.
Loans under relief made up 2 per cent of OCBC’s total loans, unchanged from the last quarter, and their quantum fell from $5.7 billion to $5.1 billion.
Globally, bank earnings have rebounded from their Covid-19 slump, boosted by a return to income growth, a surge in trading profits and lower provisions for losses that hurt their earnings last year.
OCBC shares were up 15 cents or 1.2 per cent at $12.55 at 11.16am on Friday.