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SINGAPORE: OCBC has booked better than expected third quarter earnings. Net income came in at S$450 million up 12 per cent on year. Analysts were expecting to see a drop instead of as much as 30 per cent.
Gains in insurance, trading, and investment income helped boost the bottomline for OCBC.
The 12 per cent increase in net profit came despite the S$213 million loss from the redemption offer of GreatLink Choice policies by the bank's insurance unit, Great Eastern.
When asked how the lender managed to surprise the markets, the CEO of OCBC David Conner, said: "It's negative analysts I guess. They should have more faith in OCBC. It's quite encouraging that several parts of the business came through despite significant loss with GreatLink choice redemption exercise."
The GreatLink Choice exercise pushed non-interest income down by 15 per cent to S$392 million.
On the other hand, net interest income for the third quarter edged up by one per cent to almost S$690 million.
Mr Conner said: "As far as earnings in OCBC are concerned, fee income we expect to come back with investor sentiment improving. Similarly we expect sales of new products at Great Eastern to come back with investor sentiment improving. Sales of wealth management product, we're already seeing that in the third quarter."
The bank also saw improvement in its asset quality during the quarter. It's non-performing loan ratio fell to 1.8 per cent, from 2.1 per cent previously. This was due to lower inflows of non-performing loans, and higher repayments and recoveries.
But what's making analysts sit up is the company's latest purchase of ING's Asian private bank.
Moh Tze Yang, investment analyst, SIAS Research, said: "We are quite sanguine on the prospects of OCBC on the back of their acquisition. They may be a bit expensive, at about 1.69 times price to book, whereas we are looking at DBS trading at about 1.2 times.
“However, investors have to note that unlike the other two, UOB and DBS, OCBC actually has a very clear direction going forward. At the end of 2009, the ING move will be completed. And that's where I would look at for future upside."
Singapore's two other local banks will be reporting their results in the coming weeks. - CNA/vm
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