OCBC's Q2 net profit up 15%, misses consensus

Oversea-Chinese Banking Corp (OCBC.SI), Singapore’s second-biggest lender, missed street forecasts for its April-June quarterly profit as staff costs and bad debt charges jumped, partially offsetting strong income from robust loan growth.

Singapore banks have shown impressive loan growth this year as Asian economies remained healthy, but have not been able to take full advantage of the expansion as interest rate margins are hostage to low U.S. rates.

OCBC said it saw a loan growth of 27% in the second quarter from a year earlier, faster than the 15% expansion recorded by bigger rival DBS (DBSM.SI).

But net interest income rose 15% as interest rate margins dropped by nine basis points to 1.87%.

Analysts are looking for signs that margin compression will ease over the next few months as rates  rise in Asia.

OCBC warned of inflationary risks in Asia and debt problems in the West, which could affect global markets.

“While we are cognizant of inflationary risks, as well as possible negative implications of fiscal issues in the U.S. and Europe on global markets, we will continue to focus on expanding our regional franchise for further growth,” said CEO David Conner in a statement.

OCBC posted a net profit of $577 million in April-June, compared to $503 million a year earlier.

Analysts polled by Thomson Reuters had an average forecast of $619 million for net profit.

The result comes after DBS, Southeast Asia’s biggest bank, last week posted a quarterly profit that was slightly above analyst forecasts, helped by strong loan growth as it rebounded from a loss a year ago when it took a goodwill charge.

OCBC took bad debt charges of $56 million in the second-quarter up from $18 million a year ago, as it took upfront provisions to account for strong loan growth.

Operating expenses rose 11% from a year earlier, driven largely by staff costs which grew 14% as it hired more staff.

Fee and commission income climbed 20% to $299 million, fueled by growth in the wealth management business while life assurance profits jumped 53%.

OCBC’s purchase of ING’s Asian private banking unit in early 2010, has boosted share of revenue from wealth management services.

OCBC shares are flat so far this year, underperforming DBS whose shares are up 5.4% and shares of United Overseas Bank (UOBH.SI) which have rallied about 11% in 2011.

The overall index is down about 2% over the year.