Singapore's OCBC Q4 profit misses expectations, sees softer 2024 margins

By Yantoultra Ngui

SINGAPORE (Reuters) -Singapore's Oversea-Chinese Banking Corp (OCBC) expected a drop in 2024's net interest margin (NIM), a key profitability gauge, after posting a 12% jump in fourth-quarter net profit that missed expectations due to weaker insurance income.

"We expect 2024 to be a more challenging year than 2023," OCBC's Chief Executive Officer Helen Wong said in an earnings briefing on Wednesday.

"It's a lot about uncertainties, and global growth slowdown is anticipated, although we do expect Asia to perform better than the world average," she added.

Against the expectation that interest rates would start falling from the second half of the year, OCBC is targeting the 2024 NIM to be in the range of 2.20% to 2.25%, lower than 2023's 2.28%, Wong said.

Return on equity (ROE) in 2024 was set to range between 13% and 14%, versus 13.7% in 2023, while loan growth is expected to be in the low single digits.

Credit costs, or allowances for loans as a percentage of average loans, were forecast at between 20 to 25 basis points versus 20 bps in 2023, Wong added.

Shares of OCBC dropped 2.5% to S$12.98, near a two-week low by midday, underperforming the broader benchmark stock index's 0.3% decline.

OCBC, which is also Southeast Asia's second-largest lender by assets, said October-December net profit rose to S$1.62 billion ($1.21 billion) from S$1.44 billion a year earlier mainly driven by higher operating profit and lower allowances for assets including loans.

This was lower than the mean estimate of S$1.72 billion from four analysts polled by LSEG.

The earnings miss was due to weaker-than-expected insurance income arising from higher insurance claim, CGS International analysts Andrea Choong and Lim Siew Khee wrote in a note to clients following the results.

"We expect slight negative share price reaction following the miss," they said, while maintaining "add" on OCBC with a target price of S$14.00 due to "attractive risk-return profile".

OCBC's results rounded up a strong fourth-quarter earnings season by Singapore banks, the largest in Southeast Asia, which posted higher profits for the fourth quarter because of higher interest rates, though growth momentum is poised to slow as big central banks pivot toward rate cuts and volatile markets weigh on their mainstay wealth businesses.

Larger rival DBS Group posted this month a 2% rise in fourth-quarter net profit that beat forecasts and also projected its 2024 net interest margin to be slightly below last year because interest rates are expected to soften.

Smaller peer United Overseas Bank also reported last week a stronger-than-forecast fourth-quarter net profit that topped market expectations, but cut its 2024 loan growth projections amid a challenging global economic environment.

OCBC announced an increase in final dividend to 42 Singapore cents per share from 40 cents a year earlier, bringing its total 2023 dividend to 82 cents per share, up 21% from a year earlier.

($1 = 1.3436 Singapore dollars)

(Reporting by Yantoultra Ngui; Editing by Chris Reese and Jamie Freed and Miral Fahmy)