OCBC's Quarterly Core Profit Rises 7% as Interest Income Gains

  • Net interest income advances 6%, Singaporean bank says
  • Bad loans rise as CEO warns of challenging environment

Oversea-Chinese Banking Corp., Southeast Asia’s second-largest lender, reported a 7 percent increase in core net profit for the third quarter as interest income offset a decline at its insurance business.

Excluding one-time items, earnings for the three months ended Sept. 30 rose to S$902 million ($646 million) from S$841 million a year earlier, the Singaporean bank said in an exchange statement Wednesday. The average of six analysts’ estimates compiled by Bloomberg was S$885 million. Net interest income gained 6 percent.

While rising borrowing costs have supported Singaporean banks’ interest margins, they still have to contend with weaker lending growth as economies slow in Asia. Bad loans rose in each of OCBC’s key markets, against the backdrop of what Chief Executive Officer Samuel Tsien described as a “more uncertain and challenging operating environment.”

The results are “pretty reasonable despite the drop in insurance and much higher credit costs,” said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. “The most important implication from the OCBC results is all about the 2016 earnings outlook, which can’t be as good as we had all assumed.”

OCBC shares lost 1 percent to S$9.19 as of 11:33 a.m. in Singapore as the benchmark Straits Times Index dropped 0.3 percent. The lender has slumped 12 percent this year, poised to end three straight years of gains.

Customer Loans

Net income for the third quarter was 27 percent lower than a year ago, when the bank booked a one-time gain from an investment in a Chinese bank.

OCBC’s customer loans increased 4 percent to S$213 billion, driven by advances to the building and housing industries, the bank said. Still, demand is weak, CEO Tsien told reporters at a briefing in Singapore, adding he expects to end the year with loan growth at a “low single-digit” percentage rate.

The lender’s nonperforming-loan ratio rose to 0.9 percent as of Sept. 30 from 0.7 percent a year earlier as bad loans rose in Singapore, Malaysia, Indonesia and Greater China, its statement showed.

OCBC’s net interest margin, a measure of lending profitability, fell to 1.66 percent in the third quarter from 1.67 percent as of June.

Non-interest income before one-time gains dropped 3 percent to S$775 million due to lower insurance income.

The company’s insurance unit, Great Eastern Holdings Ltd., reported last week a 65 percent slump in third-quarter earnings. The business was hurt by widening credit spreads, lower equity prices and long-term interest rates, as well as a weaker Malaysian ringgit, Great Eastern said in an Oct. 23 statement.

The bank is the first of Singapore’s three lenders to report third-quarter profit. United Overseas Bank Ltd. is due to announce results Friday, followed by DBS Group Holdings Ltd., Southeast Asia’s largest bank, on Nov. 2.

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