OCBC : O39 +0.57%&rsquo s net profit for its first quarter rose 39 per cent to S$1.9 billion, buoyed by strong net interest income growth.

 

This was compared with S$1.4 billion for the year-ago period the earnings also beat the S$1.6 billion consensus forecast in a Bloomberg survey of five analysts.

 

At the bank&rsquo s earnings briefing on Wednesday (May 10), OCBC group chief executive Helen Wong noted that the record results came despite global volatility.

 

Total income for the quarter rose 27 per cent year on year to S$3.4 billion, supported by higher net interest income, which helped offset a drop in non-interest income.

 

Net interest income was the second-highest on record, climbing 56 per cent to S$2.3 billion. This was supported by a 75 basis point rise in net interest margin (NIM), which stood at 2.3 per cent.

 

But quarter on quarter, net interest income fell 2 per cent largely due to a shorter first quarter.

 

NIM also fell by one basis point on the quarter, as the rise in asset yields was offset by higher funding costs and a lower loan-to-deposit ratio.

 

Wong noted that the lender will likely have limited potential to reprice its loan book upwards given that interest rates have likely peaked.

 

Funding costs will also continue to catch up, which is &ldquo a natural phenomenon in a rapidly rising interest rate environment&rdquo , Wong said.

 

Non-interest income was down 11 per cent to S$1 billion due to a drop in wealth management fees, partly offset by a rise in trading income and net realised gains from the sale of investment securities.

 

Wong noted that investor sentiments have somewhat returned, however, which boosted income for the bank&rsquo s wealth management segment quarter on quarter.

 

In Q1, assets under management grew to S$270 billion, while the bank also saw a net new money inflow of about S$10 billion.

 

As for the group&rsquo s insurance business, total new business embedded value fell 11 per cent on the year, and total weighted new sales declined 22 per cent, due to softer single premium sales from the Singapore market.

 

The bank expects less volatility in insurance profits in the future, as the adoption of new accounting reporting standards would reclassify some assets and liabilities into fair value through other comprehensive income.

 

The bank&rsquo s non-performing loans ratio at the end of the quarter was 1.1 per cent, down 0.3 percentage point from the previous year.

 

On the year, total allowances rose 151 per cent to S$110 million, with about S$56 million in allowances for impaired assets, and S$54 million for non-impaired assets.

 

But Wong noted that the allowances were down 65 per cent from the previous quarter. &ldquo We always remember to be forward-looking, and do something a bit earlier rather than when something happens, (and have the amount) jump up.&rdquo  

 

Customer loans remained unchanged at S$294 billion as at Mar 31, but was up 3 per cent on the year on a constant currency basis. Meanwhile, customer deposits grew 5 per cent to S$367 billion due to a rise in fixed deposits.

 

The lender raised its NIM guidance to 2.2 per cent from 2.1 per cent as it was a &ldquo natural conclusion for the whole year&rdquo , Wong said.

 

OCBC&rsquo s NIM guidance is the highest among the three local banks &ndash UOB was looking to keep it at between 2.1 per cent and 2.2 per cent, while DBS is guiding for between 2.05 per cent and 2.1 per cent.

 

Wong said OCBC&rsquo s NIM had a higher starting point, and based on assumptions that interest rates will be maintained at current levels, the adjustment better reflects its projections.

 

OCBC also cut loan growth guidance from a mid single digit growth to a low-to-mid single digit growth, given its experiences in the first quarter and the volatility of the markets, Wong said.

 

She said the lender will continue to look into spillover effects from the banking crisis in the US, as well as stress test its developed markets commercial real estate portfolio.

 

It kept its credit cost guidance of 15 to 20 basis points. Credit costs stood at 12 basis points for Q1.

 

Looking ahead, Wong said OCBC remains well-positioned as its key markets in Asia are expected to stay resilient.

 

She also noted opportunities if political tensions continue &ndash customers may look for support from a strong Singapore bank for their &ldquo China Plus One&rdquo strategy in Asia.

 

&ldquo We do see opportunities of banking more multinational companies in this region, as competitors from the West are in a way less competitive now in Asia,&rdquo she said.

Analysts are all keeping their &ldquo add&rdquo and &ldquo buy&rdquo calls on Oversea-Chinese Banking Corporation (OCBC)  after the bank reported its results for the  FY2022 ended Dec 31, 2022, on Feb 24.