OCBC Bank's 2Q14 exceeds expectations on strong net trading income

And also on life assurance profit.

2Q core PATMI of SGD921m (+6.2% QoQ, +54.3% YoY) took Singapore-based OCBC Bank's 1H14 core PATMI to SGD1.79b (+38.3%).

According to a research note from Maybank Kim Eng, this formed 59% of its FY14E forecast for the bank.

The positive surprise came from net trading income (better customer flows), profit from life assurance of SGD220m (1Q14: SGD183m, 2Q13: SGD16m) and a better NIM.

Better life insurance profit was fuelled by higher marked-to-market gains on favourable interest rates and tighter credit spreads.

Here’s more from Maybank Kim Eng:

Like DBS, OCBC’s NIM held up well, at 1.70% (flat QoQ, +6bps YoY), with better asset yields (+2bps QoQ, +8bps YoY).

This cushioned higher cost of funds (+2bps QoQ, +1bp YoY).

Loan growth slowed to 1.2% QoQ or 11.7% YoY (1Q14: +3.3%, +18.1%), due to weaker demand for trade loans.

Mirroring its peers, OCBC’s SGD deposits contracted 1.6% QoQ, taking its SGD LDR to 81.6% (DBS: 76.6%, UOB: 100.1%).

Asset quality was resilient, with housing NPLs staying at SGD253m QoQ.

We leave our forecasts unchanged for now pending our sector review. Its purchase of Wing Hang Bank (WHB) remains an overhang.

While cheap, we believe its share-price weakness will persist.