SINGAPORE – OCBC Bank joined peers DBS Bank and UOB in reporting third-quarter earnings that reached new highs, with its lending income boosted by rising interest rates.
The bank expects Asia to be resilient in the face of economic headwinds, but cautions that the region will not be spared from the impact of inflation and geopolitical tensions on the global economy.
OCBC group chief executive Helen Wong said there is uncertainty over whether interest rate hikes in the United States can curb high inflation and whether they will result in stagflation, where growth slows while inflation remains elevated.
“If the US and Europe both go into a stagflation environment, Asia will be impacted. But with the continued economic recovery as a lot of Asian economies step out of Covid-19, compared with 2020 or even part of 2021, (the region) is still more resilient. There is quite a lot of pent-up demand,” she told reporters at a results briefing on Friday.
Ms Wong added that recession risks remain high in the US and Europe, and geopolitical tensions might further complicate business matters.
“Our positioning for next year is good, but we remain very watchful for how the market turns in the coming year,” she said.
The net profit of Singapore’s second-largest bank stood at $1.6 billion in the third quarter, up 31 per cent from a year ago and 8 per cent from the second quarter. This exceeds the $1.44 billion forecast by analysts in a Bloomberg poll.
Ms Wong noted that interest income grew on higher net interest margin – a key gauge of a bank’s profitability – and loan growth was sustained.
“While subdued customer investment activity impacted wealth fees, we continued to attract net new money inflows into our wealth management franchise,” she said.
OCBC will continue to seize opportunities from cross-border supply chain activities and the migration of wealth in Asia, said Ms Wong, adding that the bank will ramp up hiring for relationship managers and in its wholesale business.
The lender’s quarterly net interest income surpassed $2 billion for the first time. It rose 44 per cent to $2.1 billion on the back of a 6 per cent growth in average asset balances and expansion of net interest margin (NIM) by 54 basis points to 2.06 per cent.
The bank expects a fourth-quarter NIM of above 2.1 per cent, and the full-year margin to be at the higher end of a 1.8 per cent to 1.9 per cent range.
However, similar to its local peers, OCBC’s non-interest income remained weak as investors stayed cautious due to volatile markets.
Net fee income fell 20 per cent to $453 million, mainly due to lower wealth management fees from subdued customer activities. The decline was partly offset by growth in other fee segments, including credit card, and loan- and trade-related fees.
Net trading income of $194 million, largely comprising customer flow treasury income, was higher than the $83 million a year ago.
Life insurance profit from OCBC insurance arm Great Eastern Holdings stood at $318 million, up 21 per cent from a year ago, as higher interest rates had a net mark-to-market impact on the valuation of assets and liabilities in insurance funds.
The group’s wealth management income – from segments such as insurance, private banking and asset management – grew 21 per cent to $1.12 billion and made up 35 per cent of its income in the third quarter.
OCBC said positive inflows of net new money were offset by a decline in market valuations, and noted that its wealth management assets under management stood at $250 billion as at Sept 30, down 1 per cent from a year ago.
The bank also set aside general allowances for potential bad debts, at $76 million in the third quarter, in a nod to the uncertain economic climate. In contrast, it wrote back, or restored to profit, $22 million in general allowances in the same period last year.
OCBC’s results wrap up the local lenders’ earnings season. Larger peer DBS similarly posted on Thursday a record net profit of $2.24 billion – 32 per cent higher than a year ago – while UOB’s earnings last week jumped 34 per cent year on year to $1.4 billion.
OCBC shares rose by 0.67 per cent to $12.03 as at 2.08pm on Friday, while DBS climbed 0.53 per cent to $34.38 and UOB jumped 1.21 per cent to $28.36. The benchmark Straits Times Index was up by 0.84 per cent.
