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CORRECTED-UPDATE 4-Singapore banks flag cautious outlook as rates seen peaking

(Corrects OCBC CEO name in fourth paragraph)

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OCBC Q4 net profit rises 34% to S$1.31 billion, below estimates

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Bank targets 50% divided payout ratio

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Singapore lenders report record annual profits

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Banks' margins set to peak as interest rates moderate

By Anshuman Daga and Yantoultra Ngui

SINGAPORE, Feb 24 (Reuters) - Singapore's Oversea-Chinese Banking Corp (OCBC) on Friday rounded up a record annual results performance from the city-state's banks benefiting from higher interest rates, but the outlook is more cautious due to a looming rate peak.

Singapore's lenders, among the most well capitalised in the world, benefited from an early rebound in the pandemic-hit economy, but higher funding costs and weak wealth management fees have emerged as key risks.

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Like DBS, Southeast Asia's large bank by assets and smaller competitor United Overseas Bank, second-ranked OCBC warned that global interest rates were likely to peak in the second half of this year.

"Interest rate will continue to rise, but it will plateau off and potentially could come down in the second half of the year," Helen Wong, OCBC's Group CEO told analysts and media on Friday after the bank's net profit rose 34% to S$1.31 billion ($976 million) in October-December from a year earlier.

However, this missed analyst' estimates and the profit also fell 19% from the third quarter, sending the bank's shares down 0.3% in a strong broader market.

OCBC's non-interest income declined 42% from a year earlier, as wealth management fees were hit by subdued customer investment activities and valuation losses reported by the bank's insurance business.

However, OCBC's annual profit rose 18% to a record S$5.75 billion, following record numbers reported by DBS and UOB.

The outlook is more muted.

"The three banks will further improve their profitability in 2023; yet the pace of change will be less significant than last year because of growing funding and operating costs," said Eugene Tarzimanov, senior credit officer at Moody's Investors Service.

Singapore's economy grew slightly less than initially estimated in the fourth quarter from a year ago, and the government has kept its forecast for annual growth to come in at 0.5% to 2.5% this year.

But reflecting confidence in its growth prospects, Wong said OCBC would now target a 50% dividend payout ratio, a move that was welcomed by analysts who said the level was also above market estimates.

This is the first time in recent years that OCBC has set out a dividend policy.

The bank raised its fourth-quarter dividend, pushing the payout ratio to 53% for the full year, up from 49% for 2021.

"Clarity on payout ratio going forward is a nice step ahead," brokerage Jefferies, which rates OCBC as a "buy", said in a note.

Wong, a former CEO of HSBC Greater China, who took on the CEO role two years ago, has been pressured by analysts to provide a strategy for the bank's relatively large capital buffers. OCBC's main rivals have made big acquisitions in recent years.

OCBC, which counts Singapore, Greater China and Malaysia among its key markets and has a large insurance business, forecast a net interest margin of about 2.1% this year versus 1.91% for 2022 and 2.31% in the latest quarter.

Net interest margin is a key gauge of profitability.

Earlier, DBS and UOB flagged moderation in margins.

Wong said China's earlier-than-expected reopening could provide support to regional economies. ($1 = 1.3422 Singapore dollars) (Reporting by Anshuman Daga; Additional Reporting by Yantoultra Ngui; Editing by Muralikumar Anantharaman, Chris Reese, Jamie Freed and Lincoln Feast.)