Flat earnings growth looms for OCBC in FY13

Markets income is reverting to norm.

According to Nomura, OCBC’s contributions from trading income, insurance related earnings and asset quality have been outperforming expectations this year. We had expected credit costs to average 30bps for FY12F but the current run rate is only 20bps.

Here's more from Nomura:

Trading income and the profit from life insurance also outperformed at 0.8% of liquid assets (vs historical average of 0.4%) and 1.3% of life insurance assets (historical average of 1.0%) respectively.

Offsetting the positive surprises wasa weaker loan growth of 9% while NIMs have been lower than earlier thought. Going forward, however, we lower our FY13-14F net profit by 1-6% due to a more conservative loan growth and NIM outlook while trading income/insurance earnings return roughly to historical trend levels.

We expect a loan CAGR of ~8% while NIMs are forecast to fall about 4bps over the next 2 years to 1.69%. The weaker NIM is in anticipation of continued loose monetary policies globally. Credit costs are currently near their cyclical lows and we have factored in an increase in the charge-off rate to 27bps by FY14F from ~20bps currently.

Corporate gearing levels in Asean appear to be relatively healthy but in Singapore, our property analyst highlights the risk of a pullback in property prices which would pose a risk to investment property mortgages (estimated at 5% of group total loans).