OCBC watchful of global headwinds as it beats forecasts with 28% jump in Q2 profit

The bank declared an interim dividend of 28 cents per ordinary share, representing a payout ratio of about 44 per cent. PHOTO: REUTERS

SINGAPORE - OCBC Bank reported on Wednesday (Aug 3) a better-than-expected increase in second-quarter earnings as it benefited from rising interest rates, but cautioned of global uncertainties that could affect business. 

Net profit for Singapore's second-biggest local bank came in at $1.48 billion for the three months to June, up 28 per cent from $1.16 billion for the same period a year ago.

It also blew past the $1.26 billion forecast by analysts in a Bloomberg poll.

The latest results reversed a 10 per cent decline in first-quarter earnings.

OCBC declared an interim dividend of 28 cents per ordinary share, up from 25 cents last year.

Group chief executive Helen Wong said overall economic growth in the bank's key markets is expected to remain positive this year but at a slower pace due to heightened headwinds.

“The Russia-Ukraine war is worsening strains in the global supply chain. This also heats up inflationary pressures, with negative consequences on the overall global economy,” she told reporters on Wednesday. 

The bank cut its forecast for this year’s loan growth to a mid single digit, down from the mid to high single digit it announced during its first-quarter results. 

There are also rising recessionary risks induced by monetary policy tightening in key developed markets, said Ms Wong.

“A recession, though, is not on the cards for Singapore at this juncture. Rising interest rates and slowing economic growth may put pressure on the debt servicing abilities of businesses and consumers, so we also remain watchful of public health concerns from any new Covid-19 variants,” she added.

The bank expects its net interest income to continue benefiting from rate hikes and repricing of its loan book.

Higher net interest income will also offset lower fees from weaker capital markets, said Ms Wong. 

For the second quarter, net interest income surged 16 per cent to a record $1.7 billion.

Net interest margin - a key gauge of banks’ profitability - rose 13 basis points to 1.71 per cent as asset yields outpaced higher funding costs with rising interest rates.

Non-interest income stood at $1.18 billion, up 6 per cent from a year ago mainly from higher trading income and life insurance profit.

However, net fee income dropped 15 per cent to $477 million, largely due to lower wealth management, brokerage and investment banking fees, amid the global market downturn.

Ms Wong added: "Despite heightened market volatility, we are pleased to see net new money inflows in our wealth management business, as well as healthy new insurance sales.

OCBC's wealth management income - from areas such as insurance, private banking, asset management and stockbroking - grew 8 per cent to $1.03 billion and made up 36 per cent of the group's income in the second quarter.

Assets under management in the group's wealth management business stood at $250 billion as at June 30, down from $254 billion a year ago as net new money inflows were more than offset by a drop in market valuations.

Net trading income came in at $267 million, up 26 per cent from a year ago due to higher flow in treasury income.

OCBC's life insurance profit from its subsidiary Great Eastern Holdings stood at $372 million, compared with $205 million a year ago, amid an increase in operating profit and mark-to-market gains in its insurance funds from rising interest rates

Operating expenses increased 10 per cent to $1.25 billion amid higher staff costs due to annual salary increments and a growth in headcount.

Allowances set aside for bad loans fell 69 per cent from a year ago.

Asked about OCBC’s business in China amid the country’s property debt crisis, Ms Wong said onshore loans there make up 2 per cent of OCBC’s loan book. 

A third of this comes from real estate, and around 90 per cent of the bank’s corporate clients in the sector are its network customers, she added. 

“We do stress tests on our credit portfolio across a broad variety of macroeconomic factors... We do not see structural concerns so far and we are comfortable with our quality of the book,” she said. 

The bank's net profit rose 9 per cent from the first quarter. Its earnings for the first half of the year came in at $2.84 billion - a 7 per cent increase from the same period last year.

OCBC shares traded up 19 cents, or 1.6 per cent, to $12.01 at 3.30pm, after the results announcement.

Rivals DBS Bank rose 1.8 per cent to $32.29, while UOB inched up 0.2 per cent to $27.79.

UOB similarly got a boost from rising rates, posting an 11 per cent increase in its second-quarter earnings to $1.11 billion last week.

DBS, Singapore's largest lender, will report its results on Thursday.

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