NIM slippage clouds OCBC's 1Q15 earnings

Even if the bank met earnings expectations.

It has been noted that OCBC’s 1Q15 earnings met expectations but loan growth and NIM slippage disappointed.

According to a research note from RHB, however, it noted that it maintains a buy rating for the bank as OCBC is making progress with its Greater China strategy, as evident by its improved funding position and growth of its wealth management and treasury businesses.

Also, its asset quality remains solid, said the report.

Here's more from RHB:

1Q15 earnings in line. OCBC’s 1Q15 net profit of SGD933m (+15% YoY, +26% QoQ) accounted for 25%/26% of our/consensus FY15 forecasts. OCBC Wing Hang’s (OCBC WH) earnings improved 19% QoQ to HKD490m and accounted for 8% of 1Q15 group pretax profit.

Pre-impairment operating profit rose 11% QoQ, lifted mainly by: i) non-interest income growth of 13% QoQ (net trading gains: +29%, investment gains: +73%, wealth management income: +24%); and ii) a 5% QoQ drop in overhead expenses. Its cost-to-income ratio improved to 41.4% (4Q14: 45.2%).

Loan demand subdued. Loans were flat QoQ, with growth in housing and manufacturing loans offset by a drop in China trade loans. Management cut its FY15F loan growth guidance to a mid-single digit from a high-single digit due mainly to weak loan demand in Singapore.

Net interest margin (NIM) slipped 5bps QoQ to 1.62% from: i) increased excess liquidity with its loan-to-deposit ratio lowered to 83% (Dec 2014: 84.5%; Mar 2014: 87%); and ii) weaker income from money market-gapping activities with the convergence of onshore-offshore Chinese interest rates. The flattish loans and lower NIM led to a 2% QoQ drop in net interest income. Management expects NIM to recover in 2Q15 – but not to the 1.67% level recorded in 4Q14.

Gross non-performing loans (NPLs) rose 5% QoQ to SGD1.35bn largely due to one account in the transportation industry. Gross NPL ratio was relatively stable at 0.64% (Dec 2014: 0.61%). With no systemic risk in sight, management expects asset quality to stay resilient in 2015.

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