OCBC Beats Expectations With $532m Q2 Profit

Source : The Business Times, August 9, 2007

OVERSEA-CHINESE Banking Corporation (OCBC Bank) achieved strong operating profits for the second quarter.

Its net profit for the three months to June 30 also beat analysts' expectations but was a third lower than the year-ago earnings which included a big divestment gain.

Q2 net profit came to $532 million, beating the $476 million median estimate of analysts polled by Bloomberg.

But it was 33 per cent lower than the previous corresponding quarter's $795 million, which included net divestment gains of $482 million from its sales of a property at Kim Seng Road and stakes in Robinson, Straits Trading and Southern Bank.

Net profit for the first half rose 6 per cent year on year to $1.18 billion, helped in part by a $90 million divestment gain and a tax refund of $62 million.

Excluding exceptionals, the group's Q2 core net profit was up 65 per cent at $518 million, against the previous Q2's $314 million. First-half core net profit was 63 per cent higher at $1.03 billion.

At yesterday's results briefing, the bank said it marked down its collateralised debt obligations (CDOs) portfolio by $33 million to reflect low market liquidity. OCBC said it has US$430 million or $650 million invested in CDOs, representing 4.2 per cent of shareholders' equity and just 0.4 per cent of its total assets.

Chief executive David Conner said yesterday: 'We have not made any impairment charge as the entire portfolio is still performing and there are no losses.'

Turning to the bank's results, he said strong growth across all business and geographic segments boosted the earnings for the quarter.

Net interest income for Q2 rose 28 per cent to $558 million.

The bank saw net customer loans grow 13.5 per cent over the year to $63.7 billion as at end-June, but behind its larger rivals United Overseas Bank and DBS Bank which reported a 17.5 per cent and 18.6 per cent loans growth, respectively.

OCBC said the increase in loans was mainly to the building and construction, manufacturing, non-bank financial institutions, investment and holding companies.

'We anticipate significantly higher volumes in second quarter flowing into the third quarter, so we anticipate the loan book growing for the rest of the year,' Mr Conner said, adding that the bank had been winning more financing for condo projects.

The bank's net interest margin in Q2 improved to 2.13 per cent, up 13 basis points from a year ago largely due to lower deposit costs in Singapore and Indonesia.

The booming capital markets raked in huge profits for the local banks in terms of fees from stockbroking, wealth management and investment banking.

Non-interest income for Q2 surged 50 per cent from last year to reach $493 million, contributed mainly by higher fee and commission income, life assurance profits and net gains from investment securities.

Turning to the group's overseas joint ventures, Mr Conner said the group was not looking at investing more in Bank of Ningbo, in which OCBC has a 10 per cent stake. 'But in the long term, we'd like to own a lot more, but current regulations prevent us from doing so.'

OCBC declared an interim net dividend of 14 cents a share. Its share price ended 3.6 per cent or 30 cents higher at $8.70 yesterday.