OCBC profit climbs 15% on loan growth

Oversea-Chinese Banking Corp., Southeast Asia’s second-largest bank by assets, said second- quarter earnings climbed 15 percent as loan growth and fee income outweighed a decline in lending profitability.

Net income rose to $577 million from $503 million a year earlier, the Singapore-based bank said in a statement to the stock exchange today. That was less than the $603 million average of eight estimates compiled by Bloomberg.

Singapore banks are tapping credit demand to make up for the narrowest loan margins in Southeast Asia. The city’s loan growth accelerated in June to the fastest pace in at least 12 years. Rival DBS Group Holdings last week said it returned to profit even as trading income fell.

“Net interest margins will remain depressed until next year at the least,” James Koh, an analyst at Kim Eng Holdings in Singapore, wrote in a July 25 note. Koh has a “buy” rating on OCBC. “The thin margins, however, will be compensated by the continued strong loan growth.”

Net interest margin narrowed to 1.87% in the quarter from 1.96% a year earlier, Oversea-Chinese Banking said.

Smaller Interest Margins
Singapore’s banks had an average net interest margin of 1.94% for 2010, according to estimates from Credit Suisse Group AG. That compared with 2.79% for lenders in Malaysia, 3.1% for Thailand and 6.36% for Indonesia, analysts led by Anand Swaminathan in Singapore said in a July 19 note to clients.

Shares of Oversea-Chinese Banking are unchanged this year, compared with gains of 5.4% for bigger rival DBS and 11% for Singapore-based United Overseas Bank.

Loan growth in Singapore climbed to 26% in June, the fastest pace in at least 12 years, according to data compiled by the Monetary Authority of Singapore.

DBS said last week that its loan margins contracted to 1.8% from 1.84% a year earlier. Southeast Asia’s largest lender reported net income of $735 million for the quarter, compared with a loss of $300 million a year earlier when it booked a one-time charge at its Hong Kong unit.

Singapore’s gross domestic product fell an annualized 7.8% in the second quarter from the previous three months, when it climbed 27.2%, the trade ministry said on July 14. On July 21, the Monetary Authority of Singapore reiterated a prediction that the economy will expand 5% to 7% this year.