UPDATE 3-Singapore bank OCBC signals recovery as credit costs ease

(Recasts, adds comments from analyst and company executives)

By Anshuman Daga

SINGAPORE, Feb 24 (Reuters) - Singapore's second-biggestlisted bank, Oversea-Chinese Banking Corp Ltd, flaggedan improvement in its business outlook after full-year profitfell 26% in pandemic-hit markets.

The bank reported a lower-than-expected drop in quarterlyprofit and joined larger peer DBS Group in signallinga pick-up in growth after a difficult year.

"OCBC is well positioned for recovery," said Kevin Kwek, asenior analyst at Stanford C. Bernstein. "The beat came fromgood cost control with some help from stabilising margins, eventhough loan growth was expectedly weak and provisions stayedrelatively high."

Analysts expect profits to rebound at Singapore banks onsustained growth in wealth-management businesses. Improvingeconomic prospects are also likely to cushion the impact of lowmarket interest rates that have crimped banks' net interestmargins to near-record lows.

Singapore's economy is set to expand 4% to 6% this year,bouncing back from a 5.4% contraction in 2020, with thecity-state having largely brought the pandemic outbreak undercontrol and rolling now out its vaccination programme.

"We believe that a strong recovery will probably not be seenuntil towards the end of this year and stronger into next year,"said OCBC's Group CEO Samuel Tsien, who will be succeeded bydeputy president Helen Wong in mid-April.

Tsien said credit costs at the bank, which counts Singapore,Greater China and Malaysia, among key markets, are set to comein at OCBC's lower end of its forecast, with loan repaymentspicking up as moratoriums in countries come to an end.

Double-digit growth in wealth management over several yearshas enabled this segment to make up the biggest chunk of net feeand commission income for Singapore banks.

Speaking to reporters, Wong said: "It is too early for me totalk about how we are going to utilise our very strong capitalbut at the moment, we do not have any M&A plan under review."

OCBC's October-December net profit fell 9% to S$1.13 billion($856.1 million) from a year earlier, and versus the S$955.9million average estimate of four analysts, according to datafrom Refinitiv. Full-year profit shrunk 26% from a record.

Net interest margin, dipped to 1.56% from 1.77% a yearearlier. Net profit however rose for the third straight quarter.($1 = 1.3199 Singapore dollars)(Reporting by Anshuman Daga; Editing by Leslie Adler andLincoln Feast.)