SINGAPORE (Oct 30): Here are three positives and three negatives to take away from OCBC’s results, according to Phillip Capital analyst Jeremy Teong who is upgrading the lender to “buy” from “accumulate” with a higher target price of $13.48.

First, the positives....

Strong loans growth
Loans grew 11% y-o-y to beat analysts’ consensus and even management’s guidance for mid-single-digit loans growth. OCBC’s loans also outpaced Singapore domestic system loans growth in 3Q17. The strong loans growth was led by the drawdown of loans by Singapore based corporates expanding overseas for property-related projects and other Hong Kong based loans.

Stronger Net Interest Income
NII grew 14% as Loans to Deposit Ratio expanded to 85.3% from 83.1% a year ago. Net interest margin increased to 1.66%, 4 bps higher y-o-y as Singapore and Hong Kong benchmark rates rose sharply in 3Q17. Higher rates on interbank placements also supported the NIM expansion.

Stable Non-Performing Loan
NPL ratio is stable at 1.26% for the past four quarters. New Non-Performing Assets (NPA) formation has been declining over the four quarters too. Management’s outlook is more sanguine as they see better utilisation of offshore Oil & Gas assets though charter rates and duration remain low. There were also no new names going into NPA and specific provisions were largely set aside for existing restructured loans.

Now for the negatives...

Wealth management income down
Wealth management income declined 6.1% q-o-q to $741 million due to the launch of fewer blockbuster funds in 3Q17. But this is still 18.2% higher y-o-y.

Wing Hang's NIM declines
Within OCBC Wing Hang, Hong Kong and Macau operations registered higher NIM. But the consolidation of OCBC China into OCBC Wing Hang caused the NIM in aggregate to decline. The reason is treasury business is a large component of OCBC China’s operations and in 3Q17, this segment experienced some volatility.

Net trading income stays weak
OCBC isn’t the only one facing this problem. Universal banks and investment banks in the developed West have also reported weak trading income in the past two quarters citing low global market volatility as the challenge.

As at 1.36pm, shares of OCBC are up 2 cents at $11.82 or 12 times FY17 earnings.