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Nikkei Markets

OCBC benefits from higher rates, posts record profit

Despite trade war, bank's markets remain sound, says CEO

Oversea-Chinese Banking Corp. has a large presence in Malaysia, Indonesia, Hong Kong, China and Macau in addition to its home market of Singapore.   © Reuters

SINGAPORE (Nikkei Markets) -- Oversea-Chinese Banking Corp., Singapore's second-largest lender, downplayed concerns about loan quality due to worsening trade tensions between the U.S. and China, pointing instead to higher rates for its mortgages as it assessed its outlook.

Speaking to media after the bank revealed record high profits for the third quarter, chief executive Samuel Tsien said, "We have not seen any significant deterioration in any of the markets that we are in nor for any of the industries we are in."

OCBC has a large presence in Malaysia, Indonesia, Hong Kong, China and Macau in addition to its home market of Singapore. It also owns around 88% of Great Eastern Holdings, a major life insurer in Singapore and Malaysia.

Turning to Indonesia, Tsien minimized worries about capital outflows from emerging markets that have caused the rupiah to lose more than 10% of its value against the U.S. dollar this year.

Unlike some other countries, Indonesia was relatively insulated from the trade diversions caused by U.S. tariffs on Chinese goods, he said.

The capital flows into U.S. markets are also unlikely to be sustainable, he added, as these were prompted by tax cuts and incentives for companies to repatriate dividends.

"Once the situation stabilizes, I think the capital flows will look for yield and this part of the world is expected to have higher, long-term sustainable growth as compared with developed markets," he said.

Earlier Thursday, the bank reported a 12% year-on-year rise in net profit to 1.25 billion Singapore dollars ($903 million) for the three months ended September. Loans grew 10% while net interest margin, which is the difference between the interest charged by banks and what they pay depositors, widened by 6 basis points to 1.72%.

The earnings were better than the S$1.13 billion consensus forecast of analysts polled by Bloomberg.

Compared to the preceding quarter, net profit increased by 3%.

The bank's non-performing loans ratio was unchanged from the previous quarter's level at 1.4% while assets under management rose to a record.

OCBC shares soared as much as 4.4% after the results as investors took heart from the sharp rise in net interest margin, which contrasted with the narrower spread reported by smaller rival United Overseas Bank last week.  DBS Group Holdings, the largest of Singapore's three banking groups, will release its results on Monday.

According to Tsien, OCBC's net interest margin rose during the third quarter as it raised mortgage rates in Singapore.

The bank said loan margins would continue to rise in the current quarter as Hong Kong mortgage rates are repriced due to the increase in the prime rate there.

"We do expect that the net interest margin will have another slight improvement in the fourth quarter because the repricing will have a full quarter's impact," he added.

Looking ahead to 2019, Tsien said loans growth would probably slow to the mid- to high-single digits from around 10% this year, while provisions for bad debt would likely edge up slightly.

Unlike rivals DBS and UOB, OCBC has no plans to set up a standalone digital bank and would rather improve its existing operations through the use of digital technologies, Tsien said.

--Kevin Lim

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