OCBC

OCBC: 3Q12 results above Street expectations. Recall DBS and UOB also beat estimates. Net income more than tripled to $1.85b from $513m yoy. Excluding a one time gain of $1.13b, mainly from sale of its stakes in FNN and APB, net profit was $724m, +41% yoy. Net interest income rose 8% to $944m, as loans to customers were 8% higher, driven by 8% increase in Spore, while Msia and Indonesia grew 12% and 40% respectively in local currency terms, and partly offset by a 6% decline in Greater China. Net interest margin annualized 1.75% vs yr ago 1.85%; 2Q was 1.77%. The decline was largely attributable to competition and limited gapping opportunities in a persistently low interest rate environment, and higher interest cost arising from issuance of longer dated debt securities. Allowances for loans & impairment of other assets $70m vs yr ago $38m. Non-interest income, which includes trading and insurance investment, rose 73% to $436 m. Operating expenses $685m vs yr ago $611m. Cost-income ratio 40.3% vs yr ago 46.6%; 2Q was 43.3% ROE cash basis 13% vs yr ago 10.1%, 2Q was 11.9% Tier 1 ratio 15.9% vs yr ago 14.4%, 2Q was 14.1% Mgt says it is in a strong position to capitalise on market opportunities, but remains vigilant on global economy given lack of visibility in many major markets. Citi says, it will be interesting to see how OCBC deploys its 3Q divestment windfall, noting the three Singapore banks have rarely returned excess capital in recent years, generally preferring to retain surplus capital when there are growth opportunities. OCBC trades at 1.2x P/B.