OCBC 1H14 results slammed expectations with 38% profit jump

Thanks to strong rebound in MTM gains.

Excluding exceptionals, Singapore-based OCBC’s 1H14 net profit jumped 38% y-y to SGD1.8bn – already making up 63% of Nomura’s and 61% of consensus’ full-year earnings forecasts.

According to a research note from Nomura, the strong performance was driven by a strong rebound in MTM gains on its investment securities portfolio, stronger-than-expected NIMs and lower-than-forecast credit costs.

On a q-q basis, earnings rose 2% due to higher MTM gains at the insurance division.

The report noted that OCBC’s loan growth looks on track to reach its low-teens growth rate, assisted by Indonesia (+10%) and Malaysia (+11%).

Growth in China trade loans declined as the interest rate differential between onshore and offshore compressed, thereby reducing the incentive for raising offshore loans for the Chinese corporates.

Here’s more from Nomura:

Based on management’s estimates, NIMs improved 6bp y-y due to:

1) improvement in corporate spreads, a trend that has continued over the past few quarters and present in all operating countries except Malaysia (base rate hike effective from 3Q14);

2) new mortgage originations are now higher yielding than the portfolio; and

3) higher interbank rates in China have benefited its onshore business where the RMB LD ratio is only 40%.

Asset quality remains robust, with an NPL ratio of just 0.7%.

Housing loan NPLs remained below group average at 0.6% while SG loan asset quality remains better than 0.6%.

NIMs for FY14 are expected to hover between FY13 and 1H14 levels.

NIMs in Malaysia are expected to improve (impact of base rate hikes getting realised from 3Q) while funding pressures are likely to persist in Indonesia.

On asset quality, there is so far no evidence that the NPL ratio will deteriorate.

Even for its China book, OCBC believes credit quality is strong (NPL at 0.3%) as it deals mainly with large state-owned corporates mainly financing the movement of goods rather than their storage.

Also, the asset quality of the housing loans continues to remain good at 0.6%, below the group average (0.7%).