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SINGAPORE (Reuters) -Singapore’s second-biggest lender Oversea-Chinese Banking Corp (OCBC) on Friday posted a 34% rise in second-quarter net profit, in line with estimates, while flagging it expected interest rates to trend lower from 2024.
“We are assuming interest rates to start to fall next year but not substantially to pre-cycle,” OCBC Group (SGX:OCBC) Chief Executive Officer Helen Wong said in an earnings briefing, adding the bank forecast a 150 to 200 basis points drop in rates in major global economies by 2025, but on a gradual basis.
The quarterly results from OCBC, also Southeast Asia’s second largest lender by assets, rounded up a strong earnings season by Singapore banks as DBS Group (SGX:DBSM) and United Overseas Bank (SGX:UOBH) also delivered double-digit profit growth.
Besides higher interest rates, Singapore lenders have also benefited from strong inflows from wealthy customers amid global uncertainty, including U.S.-China geopolitical tensions, because of the city-state’s status as a financial safe-haven.
“With the potential for at least one more Fed rate hike, margins should get some more support going in to the rest of 2023,” said Thilan Wickramasinghe, head of equity research at Maybank Securities. “However, beyond this, we see risks.”
Higher interest rates and slower economic growth could raise asset-quality risks for businesses and individual customers, he said, adding weak loan demand could negatively impact net interest income growth momentum once margin expansion peaks. OCBC said April-June net profit climbed to S$1.71 billion ($1.28 billion) from S$1.28 billion a year earlier mainly driven by better income growth, partly offset by higher allowances for non-impaired assets. The figure compared with a mean estimate of a S$1.76 billion profit from four analysts polled by Refinitiv.
OCBC shares were down 0.5% in midday trading amid a slightly lower broader market.
OCBC, which counts Singapore, greater China and Malaysia among its key markets, was watchful of the effects of persistent inflationary pressures and higher interest rates as it expected global growth momentum to slow heading into 2024, Wong said.
The bank projected its full-year net interest margin, a key profitability gauge, to be above 2.2%, return on equity in the range of 14% and low-to-mid single-digit loan growth.
($1 = 1.3410 Singapore dollars)
