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OCBC Q1 profit jumps 39% to record $1.88 billion; CEO cautious on tighter financial conditions

SINGAPORE – OCBC Bank posted on Wednesday record first-quarter earnings from higher interest rates, even as its chief executive cautioned that tighter financial conditions might slow global economic growth and elevate overall risks.

Singapore’s second-largest lender saw its net profit rise 39 per cent year on year to $1.88 billion, beating the $1.74 billion estimate by analysts in a Refinitiv poll.

OCBC’s net interest income rose 56 per cent to $2.34 billion amid a 5 per cent growth in average asset balances. Net interest margin (NIM) – a key gauge of a lender’s profitability – shot up by 75 basis points to 2.3 per cent following the US Federal Reserve’s series of interest rate hikes.

NIM compares the interest income a bank generates from credit products like loans and mortgages, with the interest it pays out such as to savings accounts or fixed deposits.

Meanwhile, OCBC’s non-interest income slipped 11 per cent to $1.01 billion. It was weighed down by declining wealth management fees that were partly offset by a rise in trading income and net realised gains from the sale of investment securities.

Group chief executive Helen Wong said the bank is watchful of tighter financial conditions but confident of long-term prospects in its key Asian markets, adding that it has ample buffers for uncertainties and to pursue growth opportunities.

The bank set aside total allowances of $110 million for potential bad loans, up from $44 million a year ago, mainly due to higher general allowances. However, the amount was lower than the $314 million set aside in the fourth quarter.

Greater China is a key region for OCBC outside of Singapore, and the lender has started to see growth in cross border flows from China’s reopening, said Ms Wong.

On the whole, growth in non-trade corporate loans and mortgages offset softer trade loans, while the wealth management business continued to attract net new money inflows, she added.

The bank will have to contend with a likely peak in its margins as the Fed comes to the end of its rate-hiking cycle, as well as slowing loan growth amid the higher rates.

Ms Wong expects NIM to come in around 2.2 per cent in 2023 amid low to mid single-digit loan growth, comparable with her previous forecast for mid-single-digit growth.

OCBC, which pays dividends half-yearly, saw its first-quarter earnings grow by 44 per cent compared with the previous quarter. A rebound in wealth management activities drove a 14 per cent increase in fee income to $453 million that was buoyed by higher wealth management fees.

Its numbers wrap up local banks’ earnings season. The net profit of Singapore and South-east Asia’s largest lender DBS climbed by 43 per cent to $2.57 billion, while UOB’s rose by 67 per cent to $1.5 billion.