UPDATE: OCBC reports 1Q19 net profit rose 11 percent on growth in wealth management, banking

OCBC Bank branchOCBC Bank branch

This article was originally published on Friday, 10 May 2019 at 7:51 A.M. SGT; it has since been updated.

OCBC reported Friday its first quarter net profit rose 11 percent on-year to S$1.23 billion amid strong income growth across the banking, wealth management and insurance franchise.

UOB KayHain had forecast net profit of S$1.12 billion, while Daiwa had forecast net profit of S$1.21 billion.

Net interest income increased 8 percent on-year to a record S$1.53 billion on “healthy” asset growth and a rise in the net interest margin (NIM), OCBC said in a filing to SGX before the market open. UOB KayHian had forecast net interest income of S$1.55 billion, while Daiwa had a forecast for S$1.53 billion.

The net interest margin (NIM), or the difference between the interest rate banks charge to lend and their cost of funds, rose 9 basis points to 1.76 percent on higher asset yields in a rising interest rate environment and an increase in gapping income from money market placements, OCBC said. That beat some analysts’ forecasts:  Daiwa had forecast NIM of 1.72 percent and UOB KayHian had forecast 1.73 percent.

Non-interest income rose 24 percent on-year to S$1.14 billion, the filing said. Daiwa had forecast non-interest income of S$1.08 billion.

“Market-related income has benefited from favorable financial market conditions, contributing to higher non-interest income,” OCBC CEO Samuel Tsien said in the statement.

 

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Profit from life insurance rose 40 percent on-year to S$233 million, mainly on more favorable financial markets, OCBC said.

Net fees and commissions fell 8 percent on-year to S$495 million for the quarter, as higher credit card, investment banking, loan and trade-related fees were offset by lower wealth management fees due to fund launches in the year-ago quarter, OCBC said. On a quarter-on-quarter basis, net fees and commissions rose 4 percent, it said.

Daiwa had forecast fee and commission income of S$524 million, while UOB KayHian had forecast S$510 million.

Overall wealth management-related income — including insurance, private banking, asset management, stockbroking and other wealth-management products — was up 27 percent on-year at S$921 million, the bank said.

Oil and gas loans written down

Allowances for impaired loans was S$231 million in the quarter, down from S$250 million in the fourth quarter, but up from S$13 million in the year-ago quarter, mainly on allowances for loans already classified as non-performing to the existing oil and gas support vessels and services sector, OCBC said.

“Despite the recovery in fuel oil prices, the OSV sector did not see a corresponding increase in vessel employment or rise in charter rates,” the banks said.

“Given the structural changes taking place in the offshore oil industry and continued absence of visible recovery in this sector, a prudent decision was made to substantially reduce collateral valuations further, to the extent of writing down vessels pending employment to scrap value,” the bank added.

Looking ahead, CEO Tsien was cautious.

“We will continue to stay watchful of the progress of trade negotiations between the United States and China, developments in financial markets and conclusion of a number of elections in the region,” he said.

But he also pointed to the bank’s “significant strides” to increase financing of renewable energy projects and its pledge to stop new coal-fired power plant financing.

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