The more concerted push by the Indonesian government to limit loan rates is putting pressure on net interest margins (NIMs) at OCBC Bank's operations in the country, said chief executive Samuel Tsien yesterday.
He told a results briefing that while this pressure is continuing, the bank hopes the weaker NIM will be more than offset by the expanding margins in Singapore, Malaysia and China.
Mr Tsien's remarks came after OCBC reported a 29 per cent boost in net profit for the first quarter to $1.11 billion, a number that met expectations based on a Bloomberg poll of analysts. This translated to annualised earnings per share of $1.073 for the quarter, up from 82.1 cents in the same period a year ago.
The gains reflected in part a 10 per cent boost in overall loans for the three months to March 31, as well as stronger insurance performance and lower allowances.
Still, OCBC shares closed sharply lower, falling 48 cents, or 3.5 per cent, to $13.17 yesterday. DBS Group Holdings and United Overseas Bank shares ended higher.
OCBC reported a five-basis-point expansion of NIM to 1.67 per cent from 1.62 per cent a year earlier, but it is unchanged from the previous quarter.
AT A GLANCE
TOTAL INCOME: $2.33 billion (+10%)
NET PROFIT: $1.11 billion (+29%)
NIM reflects the profitability of the bank's interest-yielding assets.
The bank's NIM was weaker than its peers', both on the rise from a year earlier and on an absolute basis.
DBS closed off the first quarter with an NIM of 1.83 per cent, while UOB posted the highest NIM of the trio, with 1.84 per cent.
The pressure comes as funding costs for banks operating in Indonesia have broadly risen.
A report in March last year noted that, in general, Indonesian banks had recorded strong NIM trends in 2016 that were driven mainly by falling funding costs. The margins were fattened previously as banks cut deposit rates more aggressively than lending rates.
Mr Tsien also noted that the overall loan book included more trade finance than before. Trade finance loans typically have a lower NIM than commercial ones.
Net interest income for the first quarter grew 11 per cent from a year earlier to $1.42 billion, while non-interest income rose 8 per cent to $918 million. The non-interest income reflects gains in fee and commission income, though some of it was offset by lower trading income and net realised gains from the sale of investment securities.
Mr Tsien said its allowances for loans and other assets for the quarter were "very low" at $12 million, when compared with the $178 million in allowance from the preceding quarter and $168 million a year earlier.
The bulk of the allowances in the previous quarters were set aside for bad loans in the offshore support services segment.
Profit from life assurance jumped from $49 million in the first quarter last year to $166 million.
Mr Tsien noted that Great Eastern - the bank's insurance arm - has been able to switch to selling more high-margin insurance products, with the new business embedded value margin rising to 43.6 per cent from 39.6 per cent a year earlier.
The group has also adopted the new accounting standard, the Singapore Financial Reporting Standards International, which should mean relatively less volatility in the reported numbers for the insurance business over time.