SINGAPORE (BLOOMBERG) - Shares of Oversea-Chinese Banking Corp rose to a record in Singapore trading as quarterly profit beat estimates and return on equity climbed to the highest in two years on gains in wealth management and lending income.
Second-quarter net income jumped 22 per cent to S$1.08 billion, South-east Asia's second-largest lender said in a filing on Thursday (July 27). Return on equity, a measure of profitability, rose to 11.9 per cent, the highest since the June quarter of 2015.
OCBC, the first of the three large Singapore banks to report quarterly earnings, saw gains in its wealth management and insurance businesses in the first three months of the year, helped by its US$227.5 million acquisition of Barclays's wealth units in Singapore and Hong Kong, which was completed in November. That helped boost profitability that had previously sagged because of bad debt from Singapore's offshore marine services sector.
The ROE improvement "will be well-received", said Kevin Kwek, an analyst at Sanford C Bernstein & Co in Singapore. The bank's "areas of strength were maintained, with non-interest income helping".
Shares of OCBC rose 1.2 per cent to S$11.39, an intraday record, as of 9.31am local time. The stock has gained 28 per cent this year, outpacing the benchmark Straits Times Index's 16 per cent advance.
Non-interest income rose 34 per cent to S$1.05 billion from a year earlier, thanks to a surge in fees and commission from wealth management, as well as profit from life insurance, OCBC said. The bank's quarterly net income beat the S$938 million average forecast in a Bloomberg survey of six analysts.
The Barclays acquisition helped OCBC's private-banking unit, Bank of Singapore, climb four places to rank seventh among Asia's largest private banks in terms of assets under management last year, according to data compiled by Asian Private Banker.
Second-quarter profit at Great Eastern Holdings more than doubled to S$279.5 million, from S$102.2 million a year earlier amid favourable conditions in the financial markets, the OCBC insurance unit said July 25.
OCBC's net interest margin stood at 1.65 per cent, down from 1.68 per cent a year earlier. However, an 11 per cent increase in lending helped boost net interest income by 7 per cent to S$1.345 billion during the second quarter, the bank said.
Singapore banks have been grappling with souring loans to regional oil services firms, which have been hit by low energy prices. The latest casualty is Nam Cheong, a Malaysia-based and Singapore-listed oilfield services group, which said earlier this month it plans to cease repayment on its borrowings and seek court approval for a debt restructuring.
Nam Cheong has not disclosed the identity of its main bankers, though a recent filing showed that OCBC has loaned about US$10 million to the firm.
OCBC's nonperforming-loan ratio stood at 1.3 per cent in the second quarter, unchanged from the previous quarter, and up from 1.1 per cent a year ago. Nonperforming assets rose to S$2.92 billion, from S$2.87 billion in the first quarter.