SINGAPORE – OCBC Bank started the year strong as its earnings rose on the back of higher non-interest income and a pickup in loan growth, even as its net interest margin fell.

Net profit for the first quarter rose 5 per cent to a new high of $1.98 billion, up from $1.88 billion a year ago, it said on May 10.

The results beat the $1.85 billion consensus estimate of analysts in a Bloomberg poll.

The bank expects net interest margin (NIM), an important measure of profitability, to be at the higher end of a previously forecast range of 2.2 per cent to 2.25 per cent, from the possibility of fewer interest rate cuts than originally expected.

The United States Federal Reserve is expected to keep rates higher for longer to fight stubborn price increases.

OCBC group chief executive Helen Wong said that while some recent economic indicators look more favourable, near-term risks remain, such as heightening geopolitical volatility arising from ongoing wars and the outcome of a number of key elections in 2024.

“Our key markets in Asia are expected to be resilient, benefiting from increasing capital flows and supply chain diversification,” she added.

The bank is also making progress on its goal of achieving $3 billion in incremental revenue on top of its current growth trajectory by 2025, she said, adding that the bank has already made a $500 million headway into this target and expects that it will reach the $1 billion mark in 2024. 

OCBC’s first-quarter net interest income rose 4 per cent to $2.44 billion, led by a 5 per cent growth in average assets. This more than compensated for a decline in NIM, which dropped by three basis points as rising funding costs offset higher asset yields, said the bank.

Loans grew 2 per cent from a year ago and 1 per cent from the fourth quarter on constant currency terms. The growth of $4 billion was supported by an increase in both corporate and consumer loans, with the expansion led by the bank’s home market of Singapore.

Sustainable financing loans grew 34 per cent from a year ago to $43.1 billion, against a total loan commitment of $60.5 billion. 

OCBC maintained its target for low single-digit loan growth in 2024 amid lingering economic uncertainty.

Customers are generally not making major investments in their businesses while still repaying existing loans, said Ms Wong, who expects a clearer picture of loan growth in the second quarter. “We try to be prudent. It doesn’t mean that we don’t work hard, but at this point, we don’t see that there is a very high opportunity to (change our target to) a mid-single digit.”

Meanwhile, non-interest income jumped 17 per cent to $1.19 billion, buoyed by improvement in fee, trading and insurance income.

Fee income stood at $479 million – higher than the past four quarters – due to increased demand for wealth management products such as structured deposits and unit trusts. The bank saw about $6 billion in net new money inflows.

The group’s wealth management income, comprising income from segments such as insurance, private banking, asset management and stockbroking, rose to a record $1.29 billion, up from $1.09 billion a year ago.

Trading income also reached a new high. It surged 45 per cent to $370 million, owing to record customer flow treasury income and improved non-customer flow treasury income.

Ms Wong said: “As the market has become more favourable, we see more action among our customers... We do not see a big jump in leveraging, though. I think people are still cautious about the market.”

Meanwhile, operating expenses grew 8 per cent to $1.35 billion, while total allowances set aside for potential bad loans rose to $169 million, up from $110 million a year ago, mainly due to increased allowances for impaired assets.

The bank’s non-performing loan ratio stood at 1 per cent, improving from 1.1 per cent a year ago and unchanged from the fourth quarter.

Return on equity (ROE) stood at 14.7 per cent, unchanged from a year ago and up 2.3 percentage points from the fourth quarter. The bank expects ROE to be at the higher end of its 13 per cent to 14 per cent target in 2024.

Compared with the previous quarter, the earnings of Singapore’s second-largest bank rose 22 per cent, up from $1.62 billion.

OCBC shares rose on May 10 and were up 1.5 per cent at $14.12.