OCBC's net profit down 16% to S$696m in 1Q13

Blame it on lower trading gains.

According to Barclays, OCBC reported 1Q13 net profit of S$696m, +5% q/q, -16% y/y, and 3% above their estimates. The beat was entirely due lower than expected credit costs which fell to 6bps (vs 19bps in 4Q12).

Here's more from Barclays:

Other underlying trends fell short of our expectations as both revenue and pre-provision profits declined by 4-5% q/q, due to net interest margin compression, lower trading gains and a fall in Great Eastern’s mark to market investment gains (87% life insurance subsidiary).

Key highlights:

Net interest margin contracted by 6bps q/q to 1.64%, more than our estimate, driven by lower yields on interest earning assets which more than offset lower funding costs. Net interest income declined by 1% q/q, as volumes cushioned margin pressure. Loans grew by 3.1% q/q, led by transport and general commerce sectors.

Fee income rose 4% q/q, led by wealth management and brokerage fees, on stronger market sentiment in 1Q. However, trading gains were weaker q/q and life assurance profits declined due to lower mark to market gains in GEH’s Non Participating Fund.

Asset quality remains strong with NPL ratio falling to 0.73% (from 0.79% in 4Q12) while credit cost declined to 6bps (vs 19bps in 4Q12).

Core and Tier 1 Capital adequacy ratio under Basel III transitional arrangements was 16.2% (vs. 16.6% in 4Q12). We await any comments from management on Basel III on a fully loaded basis, in particular, the treatment of its 87% stake in Great Eastern Holdings and preference shares which may not be considered core Tier 1 on full implementation of Basel III.