SINGAPORE (Oct 15): UOB Kay Hian is maintaining its “buy” call on Oversea-Chinese Banking Corporation (OCBC) ahead of the bank’s scheduled 3Q18 results announcement before market opens on Nov 1.

However, the brokerage believes OCBC will report slower growth compared with 1H18. “We expect loan growth to moderate to 1.2% q-o-q and 9.9% y-o-y with expansion driven by developed markets Singapore and Hong Kong in 3Q18,” says analyst Jonathan Koh in a Monday report. “The expansion was driven by residential property developers, mortgages, and OCBC Wing Hang.”

On the other hand, loan growth from emerging market Malaysia is expected to be muted due to uncertainties over government policy, while Indonesia is likely to be slowed by the depreciation of the rupiah.

Koh forecasts that OCBC will report a net profit of $1.10 billion for 3Q18, up 4% y-o-y.

However, this will be some 9.1% lower q-o-q. OCBC in 2Q18 reported record-high earnings of $1.21 billion, driven by robust performance across each of the group’s banking, wealth management and insurance businesses.

See: OCBC 2Q earnings up 16% to record $1.21 bil on robust performance across all businesses

“NIM expansion has resumed in 2H18 due to higher interest rates for mortgages and trimming of surplus US$ fixed deposits. Unfortunately, 3Q18 was hampered by weakness in fees as high net worth clients adopted risk-off mode,” says Koh.

The analyst expects OCBC’s net interest margin to expand by 2 basis points q-o-q to 1.69% in 3Q18.

Non-interest income is expected to come under pressure, with fees anticipated to be flat y-o-y but down 5.6% q-o-q.

“We also expect loan and trade-related fees to be lacklustre due to the slowdown in loan approvals and tapering off of trade finance activities,” Koh says.

UOB Kay Hian has raised its FY18 net profit forecast for OCBC by 1% to $4.49 billion, on the back of lower credit costs in 2H18.

The brokerage has raised its target price for OCBC to $14.05, from $13.68 previously.

As at 12.50pm, shares in OCBC are trading 10 cents down at $10.65, implying an estimated price-to-earnings ratio of 10.1 times and a dividend yield of 3.8% for FY18.