Why OCBC's 2Q13 is a sneak-peek to the impact of interest rate hikes

Headline accounting earnings to be hurt.

According to CIMB, they see OCBC’s 2Q13 miss as a prelude to what can happen to its profitability when interest rates start to rise.

Sure, higher interest rates will eventually make its leading insurance franchise more valuable – NBEV of insurance policies written in a high-interest rate environment tends to be higher but that is for the future. 

Here's more from CIMB:

As interest rates rise, expect headline accounting earnings to be impacted. Worst for OCBC is if its current below-industry NPL ratio starts to head up and have credit costs add to further earnings headwinds.

We retain our Underperform recommendation, with a recently lowered GGM-based target price of S$10.09, based on 1.27x CY13 P/BV.

Catalysts for underperformance include future quarters when markets get volatile and rising provisions.