By Anshuman Daga
SINGAPORE (Reuters) -Southeast Asia's second-largest lender Oversea-Chinese Banking Corp Ltd (OCBC) joined its Singapore peers in beating market estimates and pumping out record quarterly profits as banks rake it in on higher interest rates.
The city-state's banks, which boast some of the strongest capital buffers in the world, have effectively weathered the COVID-19-induced slump and are now benefiting from rebounding Asian economies.
But analysts say growth could be derailed by a big increase in U.S. interest rates - already at multi-year highs - as central banks try and tackle runaway inflation.
"Risks would be if growth dives significantly as inflation bites harder across the region. For now, that seems more like a worst case scenario, with modest credit growth of mid single digit looking reasonable," said Kevin Kwek, a senior analyst at Sanford C. Bernstein.
OCBC said on Friday its net profit increased to S$1.6 billion ($1.13 billion) in July-September versus the S$1.55 billion average estimate from four analysts, according to Refinitiv data.
"I am comfortable and quite confident. We will continue to build on the momentum," Group CEO Helen Wong told reporters, referring to the bank's outlook, adding that asset quality was healthy, with no indication of systemic stress.
Wong, who took over as CEO of the lender in April 2021 and has made a slew of management changes, said OCBC was on track to deliver full-year targets, including mid-single-digit loan growth.
On Thursday, the bank's larger peer DBS Group (OTC:DBSDY) reported a forecast-beating 32% jump in quarterly profit to a record high while UOB Group also posted a record quarterly profit.
Singapore bank shares have gained some 5% to 6% this year in a flat broader market on expectations of big expansions in their net interest margins.
OCBC, which counts Singapore, Greater China and Malaysia among its key markets and has a large insurance business, said allowances for credit losses declined by 6%, while net interest income surged 44% to a new high of S$2.1 billion.
Analysts have said it would make sense for OCBC to use its relatively large capital buffers for an acquisition, with its local rivals having snapped up targets in recent years.
"Holding on to the excess capital with lower payout remains an issue compared to peers," said Kwek.
The bank's net interest margin, a key gauge of profitability, increased 54 basis points to 2.06% in the quarter.
($1 = 1.4214 Singapore dollars)