(Updates with share prices in fifth paragraph.)
Nov. 1 (Bloomberg) -- DBS Group Holdings Ltd. and Oversea- Chinese Banking Corp., Southeast Asia’s largest lenders, unexpectedly posted third-quarter profit gains as rising loans and fee income offset tighter interest margins.
Net income at DBS rose 1 percent to S$862 million ($694 million) for the quarter ended Sept. 30 from S$856 million a year earlier, the Singapore-based lender said in a stock exchange statement. That beat the S$839 million average of seven analysts’ estimates compiled by Bloomberg. OCBC profit rose 5 percent to S$759 million from S$724 million, beating the S$662 million average of eight analysts’ estimates. The year-ago profit excludes a S$1.1 billion gain from asset sales.
DBS and OCBC are seeking growth in overseas markets including China and Indonesia as they combat the lowest loan profitability in Southeast Asia. The Singaporean lenders are also looking to expand fee-generating businesses such as wealth management at home and abroad.
“The increase in loan volumes could mitigate the lower interest rates, and that can potentially lead to an overall higher interest income going forward,” said Ken Ang, a Singapore-based analyst at Phillip Securities Pte. “Fees and commissions have gained good traction over the past few quarters and that should continue to grow.”
Shares of OCBC fell 0.5 percent to S$10.35 as of 9:46 a.m. in Singapore trading. DBS lost 0.4 percent to S$16.68. The benchmark Straits Times Index dropped 0.1 percent.
DBS’s net interest margin, a key gauge of bank profitability, shrank to 1.6 percent in the third quarter from 1.67 percent a year earlier, today’s earnings report showed. That’s the 16th straight year-on-year decline. At OCBC, the measure shrank for the 17th straight quarter, to 1.63 percent from 1.75 percent a year earlier.
Net interest income, the difference between what is earned on loans and paid on deposits, rose at both banks as they expanded their loan books. DBS’s net interest income climbed 6 percent to S$1.4 billion in the quarter from a year earlier as OCBC’s increased 4 percent to S$978 million.
Non-interest income at DBS rose 11 percent to S$744 million, led by trade and transaction services, wealth management and treasury cross-selling.
OCBC’s higher fees from wealth management and credit cards and profit contribution from its insurance subsidiary, Great Eastern Holdings Ltd., boosted non-interest income by 3 percent to S$779 million.
Great Eastern said on Oct. 29 that its third-quarter profit advanced 43 percent from a year earlier to S$282.8 million, excluding gains from selling stakes in beverage maker Fraser and Neave Ltd. and its Asia Pacific Breweries Ltd. unit in August 2012.
OCBC Chief Executive Officer Samuel Tsien aims to expand in China and Indonesia in search of higher-yielding loans and borrowing demand. The bank now is considering a bid for Hong Kong’s Wing Hang Bank Ltd., people familiar with the matter said last week.
While average net interest margin in Hong Kong at 1.73 percent is lower than Singapore’s 1.8 percent, Hong Kong is seen by banks as a gateway into China and a way to benefit from the country’s efforts to increase the global use of the yuan.
OCBC’s Malaysian and Indonesian units each posted a 21 percent increase in profit from a year earlier, the lender said in the statement.
DBS Chief Executive Officer Piyush Gupta’s efforts at expanding abroad suffered a setback three months ago when he dropped a $6.5 billion offer for PT Bank Danamon Indonesia after failing to win regulatory approval for a majority stake.
When DBS first made the bid for the Indonesian lender in April 2012, it had said 2011 revenue from South and Southeast Asia would have increased to 27 percent from 7 percent with Danamon. Reliance on Singapore would have declined to 49 percent from 62 percent, the bank said.
The bank’s third-quarter profit from Hong Kong declined 15 percent from a year earlier to S$159 million, while profit from South and Southeast Asia excluding Singapore shrank 23 percent to S$54 million, it said.
--Editors: James Gunsalus, Darren Boey