Nov. 5 (Bloomberg) -- Oversea-Chinese Banking Corp., owner of Singapore's biggest life insurer, posted a fourth straight decline in quarterly profit as costs related to bad loans and credit- market investments quadrupled.

Net income fell 13 percent to S$402 million ($273 million) in the three months ended Sept. 30, from S$463 million a year earlier, the bank said in a statement to Singapore's stock exchange today. That's lower than the median estimate of S$411 million in a Bloomberg News survey of five analysts.

Oversea-Chinese increased provisions for soured loans and assets including collateralized debt obligations fourfold to S$156 million, reflecting the seizure in global credit markets. The move suggests bigger competitor DBS Group Holdings Ltd. may take charges against its S$1.11 billion investment portfolio when it reports earnings Nov. 7.

``The question is, are they really seeing weakness or being prudent?'' said Pauline Lee, a Singapore-based analyst at Kim Eng Securities Pte. ``This points to a weaker set of results for DBS.''

Oversea-Chinese said the provisions came as debt securities ``suffered losses following the unprecedented upheavals in global credit markets.''

The bank held S$615 million worth of CDOs at Sept. 30, including S$258 million linked to asset-backed securities, it said. CDOs repackage bonds, debt and credit-default swaps and use the income to pay investors.

Weaker Housing Market

United Overseas Bank Ltd., the first of the three Singapore lenders to announce third-quarter results, said Oct. 31 profit fell 5.1 percent as impairment charges for loans and debt securities surged. The lender's allowance for CDOs rose 27 percent to S$199 million from the previous three months.

Oversea-Chinese recorded a net loss of S$26 million from selling debt securities during the quarter, compared with a gain of S$32 million a year earlier.

Apart from volatility in credit markets, Oversea-Chinese's Chief Executive Officer David Conner also has to grapple with a weakening housing market in Singapore after the city-state's economy slipped into recession for the first time since 2002.

``For Singapore banks, the major concern will be the developers and that will primarily affect OCBC,'' Brian Hunsaker, a Hong Kong-based analyst at Fox-Pitt Kelton Asia Ltd., said before today's announcement.

`Challenging' Quarters

Loans to the building and construction industry made up 20 percent of Oversea-Chinese's total lending by the end of September, compared with 12 percent at United Overseas. DBS, Singapore's biggest bank by assets, extended 13 percent of its total loans to the industry.

Private home prices in Singapore fell 2.4 percent in the third quarter, the first retreat since the three months ended March 31, 2004, the Urban Redevelopment Authority said on Oct. 24. The share prices of 30 property developers listed in the city- state have fallen by an average 61 percent this year.

``The next few quarters are expected to be challenging,'' Conner said in the statement. He added at a briefing there's no ``stress'' in the bank's loan portfolio and it expects its net interest margin to ``firm.'' Still, it's bracing for more problem loans, he said.

Oversea-Chinese's net interest income rose 21 percent to S$684 million. The net interest margin, or the difference between what the bank earned on loans and paid for funds, widened to 2.18 percent in the third quarter from 2.07 percent a year earlier.

Customer loans expanded 20 percent to S$81 billion from S$68 billion as the bank lent more to companies and small businesses in Singapore as well as foreign markets, it said.

Non-interest income, which includes stockbroking commissions, fund-management fees and credit-card charges, fell 4 percent to S$462 million from S$481 million.

Shares of Oversea-Chinese gained 4.1 percent close to at S$5.28 in Singapore while the benchmark Straits Times Index gained 2.1 percent. The stock has fallen 36 percent this year, compared with a 31 percent decline for United Overseas and 45 percent at DBS.

To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net

Last Updated: November 5, 2008 05:21 EST