OCBC’s net profit may rebound 21 percent on-quarter in the first quarter on expansion in the net interest margin (NIM), recovery in both wealth-management fees and net trading income and declines in credit cost, UOB KayHian said in a note this week.
NIM is the difference between the interest rate banks charge to lend and their cost of funds.
Overall, UOB KayHian forecast net profit of S$1.21 billion for the first quarter, up 21 percent on-quarter, but flat on-year.
Management has guided for credit cost to fall within 12 to 15 basis points amid an improving outlook, UOB KayHian said, adding that was after the fourth quarter’s 32 basis points on higher non-performing loans.
The brokerage estimated OCBC’s first quarter loan growth would come in at 1 percent on-quarter and 5.5 percent on-year, mainly on the corporate and commercial segments, with a boost from trade loans and residential mortgages.
It forecast NIM expanded by 1 basis point on-quarter and 6 basis points on-year to 1.73 percent in the first quarter, as a 55 basis point increase in the mortgage-board rate in January was partially offset by higher fixed deposit interest rates.
Management has guided for 2019 NIM to expand less than 2018’s 5 basis point expansion, the note said.
After markets’ recovery from the late-2018 selloff, wealth management fees were set to rebound 9 percent on-quarter as market activity increased, UOB KayHian said. But it added wealth management fees likely were down 12 percent on-year on a high base due to the year-ago launch of bespoke funds.
The insurance business was expected to contribute income of S$205 million, the note said.
“We expect mark-to-market losses from shareholders’ fund suffered by Great Eastern in the fourth quarter of 2018, which affected OCBC’s net trading income, to reverse into gains in the first quarter of 2019,” UOB KayHian said.
OCBC reported in February its fourth quarter net profit declined 11 percent on-year to S$926 million, missing some analysts’ forecasts as the contributions from insurer Great Eastern Holdings and wealth management fees fell.