OCBC (OCBC.SI), Singapore’s second-biggest lender, said Asia’s strong economies will underpin earnings growth this year, even though second-quarter profit slightly missed forecasts as staff costs surged.

Singapore banks are benefiting from the city-state’s best-ever economic expansion and reduced bad debt charges, but historically low interest rates are keeping interest rate margins under pressure. 

 

"While we are alert to the possibility of renewed volatility in financial markets, on balance we have a positive outlook in light of the growth prospects in our key markets," said Oversea-Chinese Banking Corp (OCBC) CEO David Conner in a statement. 

 

Singapore’s economy is set to grow as much as 15% in 2010, making the city-state one of the fastest-growing economies in the world this year. 

 

OCBC said operating expenses rose 24% from a year earlier, led by staff costs due to higher salaries and hiring of bankers as it consolidated the newly acquired ING’s (ING.SA) private bank in Asia into the business. 

 

OCBC, which bought ING’s Asia private banking unit earlier this year for $1.4 billion, is betting heavily on wealth management to serve Asia’s growing ranks of millionaires. 

 

But it faces stiff competition from foreign and Asian players who are also aggressively expanding in the region.  

     

Singapore’s DBS (DBSM.SI), Southeast Asia’s biggest bank, hired Morgan Stanley’s (MS.N) well-known private banker Tan Su Shan this year and foreign rivals such as Credit Suisse (CSGN.VX) are also hiring bankers and boosting their presence in India and Indonesia. 

 

They are all keen to grab more business from Asian millionaires, whose combined wealth surged 31% to US$9.7 trillion ($13.2 trillion) in 2009, surpassing Europe’s US$9.5 trillion, according to the Merrill Lynch-Capgemini’s 2009 world wealth report. 

 

"We like stocks such as OCBC for quality and potential upsides from acquisitions and UOB (United Overseas Bank) for a low-risk exposure," said Nomura analyst Anand Pathmakanthan said before the earnings. Nomura is neutral on DBS. 

 

UOB (UOBH.SI) is Singapore’s third-biggest bank by assets. 

 

Pathmakanthan expects OCBC’s private bank’s earnings will grow 25% next year. 

 

OCBC clocked a net profit of $503 million in April-June, compared with $466 million in the year-ago period. Analysts had predicted a net profit of $508 million, according to the average of eight forecasts compiled by Reuters. 

 

The result came after rival DBS last week posted an unexpected loss due to one-time goodwill charge on its Hong Kong business. 

 

Excluding the charge, DBS’s net profit was up 30% to $718 million, the highest quarterly profit ever, versus $552 million a year ago.

 

UOB will unveil second-quarter earnings on August 10. 

 

OCBC’s net interest income rose only 1% to $720 million, despite a 21% jump in loans, faster than DBS’s 14% growth. 

 

However interest rate margins fell 33 basis points, more than DBS’s 17 basis points decline in margins. Fee and commission income rose 30%. 

 

Shares in OCBC are little changed this year compared with a 5.2% decline in DBS and a 1.4% rise for UOB. The benchmark Straits Times Index is up about 4% this year.