By Yantoultra Ngui
SINGAPORE (Reuters) -Singapore’s second-biggest lender Oversea-Chinese Banking Corp (OCBC) on Friday posted a 34% rise in second-quarter net profit in line with estimates, while flagging it expected slowing global economic growth heading into 2024.
The quarterly results from OCBC, also Southeast Asia’s second largest lender by assets, rounded up a strong earnings season by Singapore banks as DBS Group and United Overseas Bank also delivered double-digit profit growth.
Besides higher interest rates, Singapore lenders have also benefited from strong inflows from wealthy customers amid global uncertainty, including U.S.-China geopolitical tensions, because of the city-state’s status as a financial safe-haven.
“With the potential for at least one more Fed rate hike, margins should get some more support going in to the rest of 2023,” said Thilan Wickramasinghe, head of equity research at Maybank Securities. “However, beyond this, we see risks.”
Higher interest rates and slower economic growth could raise asset-quality risks for businesses and individual customers, he said, adding weak loan demand could negatively impact net interest income growth momentum once margin expansion peaks. OCBC said April-June net profit climbed to S$1.71 billion ($1.28 billion) from S$1.28 billion a year earlier mainly driven by better income growth and partly offset by higher allowances for non-impaired assets. The figure compared with a mean estimate of a S$1.76 billion profit from four analysts polled by Refinitiv.
OCBC, which counts Singapore, greater China and Malaysia among its key markets, said it was watchful of the effects of persistent inflationary pressures and higher interest rates, according to presentation slides accompanying its results.
The lender projected its full-year net interest margin (NIM), a key profitability gauge, to be above 2.2%, return on equity (ROE) in the range of 14% and low-to-mid single-digit loan growth.
OCBC’s NIM increased to 2.26% during the second quarter from 1.71% a year earlier. ROE rose to 13.5% in the quarter from 10.3% in the same period of 2022.
It declared an interim dividend of 40 Singapore cents per share, up 43% from a year ago.
($1 = 1.3410 Singapore dollars)
(Reporting by Yantoultra Ngui; Editing by Tom Hogue, Shri Navaratnam and Jamie Freed)