(Updates with quote from analyst in the eighth paragraph.)
Feb. 20 (Bloomberg) -- Oversea-Chinese Banking Corp., Southeast Asia’s second-largest bank, posted an 18 percent increase in fourth-quarter profit, beating analysts’ estimates as loan demand climbed.
Net income in the three months ended Dec. 31 rose to S$594 million ($475 million) from S$505 million a year earlier, the Singapore-based lender said in a statement to the stock exchange today. That exceeded the S$574.3 million average of eight analysts’ estimates compiled by Bloomberg.
OCBC joins larger rival DBS Group Holdings Ltd. in reporting higher quarterly earnings on loan expansion. Lending may weaken in coming months after Singapore adopted measures to curb mortgages in December, and asset quality may decline as the economy cools.
“Loan growth was significant for all Singapore banks including OCBC over the quarter, and that should have done enough to offset the slight narrowing of net interest margins,” Sam Hilton, a Hong Kong-based analyst at Keefe, Bruyette & Woods Inc., said before the results.
OCBC’s net interest income, the difference between what a bank makes from lending and what it pays on deposits, grew 20 percent from a year earlier to S$925 million.
Non-interest income was little changed at S$572 million as a drop in earnings from stock broking and wealth management was offset by a 41 percent gain in net trading income. Operating profit from Great Eastern Holdings Ltd., OCBC’s insurance subsidiary, declined 18 percent to S$85 million.
Even as income from wealth management declined during the quarter, OCBC said assets under management at Bank of Singapore Ltd., its private banking franchise, grew 19 percent during the year to $32 billion.
“The markets are now taking off and that will help them this year, especially in their insurance business and private banking,” said Matthew Smith, a senior research analyst at Macquarie Capital Securities Singapore Pte.
OCBC has been tapping the growing ranks of wealthy Asians to boost assets. China’s millionaire tally jumped 31 percent in 2010 to 1.1 million households, according to a Boston Consulting Group survey released in June 2011. Singapore had the highest concentration of millionaires, accounting for 15.5 percent of the island-city’s population, the study showed.
Shares of OCBC rose 0.5 percent to S$8.89 as of 10:13 a.m. local time. The Straits Times Index gained 0.5 percent.
Bigger Loan Books
Loan books of banks in Singapore grew more than 30 percent in the last two months of 2011, fueling earnings growth. DBS said on Feb. 10 that its quarterly profit gained 7.8 percent to S$731 million.
For the full year, OCBC’s net income climbed 3 percent to S$2.3 billion, led by loan growth to the general commerce sector, housing loans and lending to professionals and individuals.
“Our results for 2011 underscore the strength of our customer franchise in a challenging operating environment,” Chief Executive Officer David Conner said in his last quarterly statement.
Conner will step down in April after 10 years at the helm, continuing to serve as a non-executive director on the bank’s board, OCBC said last month. Samuel N. Tsien, his replacement, has run the global corporate bank since 2007.
Lending income at Singapore banks may face pressure after the government on Dec. 7 imposed extra taxes on residential property purchases by foreigners and existing homeowners.
OCBC’s net interest margin narrowed to 1.85 percent in the fourth quarter from 1.96 percent a year earlier, according to the statement.
Singapore’s economy grew 4.9 percent in 2011, the trade ministry said last week. The government maintained its forecast for an expansion of 1 percent to 3 percent this year as the global economic outlook remains “subdued,” the ministry said.
--Editors: Russell Ward, James Gunsalus
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