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OCBC suffers margin pressure in Singapore, Indonesia, China


Group margin dipped by 5bps to 1.70%.

While OCBC’s life insurance and wealth management business was strong in 4Q, the banking business suffered from margin pressure and lower market-related fee income. 

Margins and loan growth could remain under pressure in FY13. 

OCBC reported FY12/4Q12 net profit of S$3.99bn/S$663m, 1%/5% above Barclays estimates due to 1) better investment return on Great Eastern Holdings (GEH is OCBC’s 85% life insurance subsidiary) Non-Par Fund and 2) lower-than-expected credit costs.

Here's more from Barclays:

Core banking revenue was weak, down 3% q/q as net interest income declined while fee income was flat. Margin contracted by 5bp q/q to 1.70% (same magnitude as DBS’s 5bp q/q decline), pressure was evident in Singapore (downward loan repricing), Indonesia (fierce deposit competition and low return on government bonds) and China (interest rate cuts).

Lower investment banking and brokerage revenue offset growth in wealth management and loan-related fees.

Group margin declined by 5bps q/q to 1.70% attributable to lower margins in Singapore, Indonesia and Greater China. Management guides for margins to remain under pressure in FY13 (though at slower pace than in FY12 where margins declined by 15bps).

Singapore margin declined q/q (exact figure not disclosed) due to downward loan repricing pressure and persistently low interest rates. OCBC was able to reprice up mortgages slightly over the past few months, but was not enough to offset the repricing pressure on the back book.

Indonesia margin declined by 34bps q/q to 3.98% as fierce deposit competition drove funding costs higher (deposit rates in excess of 6%), while return on investment securities are relatively lower than deposit costs (e.g. 2Y government bond yield at 4.35% currently).

Malaysia margin was surprisingly strong, up 25bps q/q to 2.28% (though still down from 2.34% a year ago) due to higher investment yields and lower funding costs.

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