OCBC reports 28% rise in Q2 profit due to rising interest rates and economic recovery

OCBC, Singapore’s second-largest lender, reported a 28% increase in quarterly profit, surpassing market expectations due to a rise in interest rates, which increased its net interest margins. The bank’s net profit was S$1.48 billion ($1.1 billion) for the second quarter of 2021, compared to S$1.16 billion in the same period last year. CEO Helen Wong is positive that the growth in net interest income will compensate for the near-term pressure on non-interest income. The bank’s shares rose by 1.35% in early trading on Wednesday.

Wong added that the bank is expecting positive economic growth in its key markets but at a slower pace, with the operating environment facing heightened headwinds. Despite this, Wong is optimistic about the bank’s future performance, citing an expectation of credit costs being at the low end of its guidance.

OCBC’s net interest margin, increased by 13 basis points to 1.71%, which is a crucial metric for measuring banks’ profitability the highest level in two years, according to Refinitiv data. Meanwhile, JPMorgan analysts predicted that Singapore banks will report a net interest margin expansion of 10 basis points quarter-to-quarter, outperforming their Asian peers.

The bank reported a decline in net fee income by 15%, primarily due to lower wealth management, brokerage, and investment banking fees. However, non-interest income rose due to higher trading income and profits from its life insurance business. OCBC’s robust performance is attributed to the rebound of the Asian financial hub since Singapore relaxed most of its COVID-19 local and travel restrictions earlier this year.

Last week, another Singaporean lender, United Overseas Bank Ltd (UOB), announced an 11% increase in quarterly profit, supported by a strong improvement in net interest income. The bank’s net profit was S$1.05 billion ($785 million) for the second quarter of 2021, up from S$954 million a year earlier.

As Singapore emerges from the pandemic’s impact, banks are expected to continue benefiting from the rebound in economic recovery. Despite the slowing pace of economic growth, Wong remains positive about OCBC’s future performance, citing the bank’s efforts to drive digitalisation and innovation, which she says will enable it to better serve customers and strengthen its competitive edge.

In conclusion, OCBC’s second-quarter performance exceeded market expectations due to the increase in interest rates, leading to an expansion in the bank’s net interest margins. Although non-interest income was under pressure, the bank’s net fee income declined by 15%. Nevertheless, the bank’s CEO, Helen Wong, remains optimistic about its future performance, expecting credit costs to be at the low end of its guidance. With the expected continued growth in economic recovery, Singaporean banks are likely to continue benefiting in the upcoming quarters.