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Banks’ results: interest rate trends positive for net interest income, despite impact on HQLA and headwinds

Goola Warden
Goola Warden4/29/2022 08:24 PM GMT+08  • 6 min read
Banks’ results: interest rate trends positive for net interest income, despite impact on HQLA and headwinds
Banks expect positive impact on net interest income from rising rates despite inflationary pressures
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The local banks announced their 1QFY2022 business updates. Rising interest rates took centrestage - in terms of their impact on net interest income, on their customers and credit costs, and on banks’ own portfolios which comprise high quality liquid assets (HQLA).

In a nutshell, DBS Group Holdings’ 1QFY2022 net profit of $1.8 billion, up 30% q-o-q but down 10% y-o-y, just a tad outside the consensus forecast of $1.88 billion on Bloomberg; Oversea Chinese Banking Corp’s (OCBC) net profit - up 39% q-o-q but down 10% y-o-y - of $1.36 billion was comfortably above the $1.2 billion consensus forecast on Bloomberg. United Overseas Bank underperformed expectations. Its net profit of $906 million, down 11% q-o-q and 10% y-o-y, was notably below a consensus forecast of $1.02 billion.

UOB’s miss was because of a one-time cost from hedging as interest rates climbed. Its trading and investment income reported a double digit drop following a $117 million loss under ‘others’. UOB group CFO Lee Wai Fai explained: “The sharp drop was mainly from the accounting asymmetry on hedges for our perpetual capital securities. These hedges were done earlier when rates were lower. They were meant to match our funding profile to the asset book repricing. However, from the accounting perspective, there is a mismatch between the mark to market line on the hedges,” Lee says.

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