OCBC Completes The Hat-Trick

Source : TODAY, Thursday, August 9, 2007

THE banking sector lived up to analysts’ expectations as they completed a hat trick of impressive second-quarter results, rounded off by Oversea-Chinese Banking Corp yesterday.

And the sector’s stellar performance is set to continue, with some analysts predicting another record year of profits.

“The economy is doing well. The fee income and non-interest part of the business will perform reasonably well in the second half, and grow slightly faster. In terms of other core parts of business, lending is what I expect to pick up in the second half, with higher volumes and reasonably stable margins. The outlook is still fairly positive for their earnings,” said Mr David Lum, an analyst at Daiwa Institute of research.

According to OCBC, net profit in the three months ended June 30 was $532 million— 65 per cent higher from a year earlier, but down 33 per cent if one-time items were included.

Analysts had forecast average earnings of $476 million. Total income was $1.05 billion, up 37 per cent from $764 million a year earlier, while net interest income was $558 million, 28 per cent higher than the comparative quarter’s $435 million.

OCBC’s chief executive officer David Conner said the bank’s first-half performance was “underpinned by strong growth across all our key business segments and geographies …(reflecting) not only the healthy business environment but also the significant investments we have made over the years to grow our customer businesses.”

The economy grew 7.6 per cent in the first half, and is expected to keep its blistering pace for the rest of the year, with the official forecast raised to 7 to 8 per cent for this year.

“The wealth factor reality in Singapore is positive. The outlook for our business in the region is quite good, but there are potential risks of a recession from the US,” said Mr Conner.

Even if a United States recession does occur, Mr Conner is confident it will have minimal effect on the global economy, expecting the economies of Japan, Europe, China and India to take over as “engines of growth”.

Bank shares rose sharply yesterday, helping to push the benchmark ST Index up 3.4 per cent, to 3,413.17. OCBC advanced 3.6 per cent to $8.70, DBS Group Holdings Ltd rose 5.3 per cent to $21.80, while United Overseas Bank Ltd climbed 6 per cent to $21.20.

Bank shares have been volatile in recent days as concerns heightened over how the problems of US subprime mortgages might hurt the quality of risky assets that banks hold.

OCBC, which said earlier its exposure to the US subprime mortgage market is small, yesterday said it made a loss provision of US$33 million ($49.9 million) on its collateralised debt obligations (CDO) portfolio, to reflect the “low liquidity” in the CDO market in recent months.