OCBC's Profit Falls 14% on Insurance Income Drop, Provisions

  • Net income of S$856 million was below analyst expectations
  • Lower contribution from Great Eastern insurance unit

Oversea-Chinese Banking Corp., Singapore’s second-largest bank, said first-quarter profit dropped 14 percent, as provisions for bad loans more than doubled and the contribution from its insurance unit declined.

Net income fell to S$856 million ($636 million) in the three months ended March 31 from S$993 million a year earlier, the company said Friday in a statement. That was below the S$899 million average of five analysts’ estimates compiled by Bloomberg.

OCBC joined its smaller rival United Overseas Bank Ltd. in reporting lower income amid the economic downturn in Singapore and around Asia. Central banks from Southeast Asia to China have delivered various fiscal and monetary measures to boost growth amid mounting troubled loans at lenders. OCBC more than doubled its buffers for bad debts to S$167 million in the first three months.

“Given the weak economic environment and further stresses noted especially in the oil and gas support services sector, we continued to adopt a conservative approach and this was reflected in the increased level of provisions set aside for the quarter,” Chief Executive Officer Samuel Tsien said in the statement.

Nonperforming Loans

Nonperforming loans rose to S$2.15 billion as of March 31, some 60 percent higher than a year ago, the bank said. That accounted for 1 percent of total loans, well up from 0.6 percent a year ago, but only slightly higher than 0.9 percent in the September to December period.

Net interest income at OCBC grew 5 percent to S$1.31 billion from a year earlier as customer loans rose 1 percent in constant-currency terms, the company said. That was offset by a 12 percent decline in non-interest income to S$753 million, partly because of a profit slump at Great Eastern Holdings Ltd., its insurance arm.

Great Eastern, in which OCBC is the majority shareholder, reported a first-quarter net income of S$97 million earlier this week, less than half of S$220.5 million posted a year ago. Volatility in financial markets resulted in unrealized mark-to-market losses at the unit’s non-participating fund, OCBC said.

The lender’s net interest margin, a measure of lending profitability, rose to 1.75 percent in the first quarter, compared with 1.62 percent a year ago and 1.74 percent in the fourth quarter.

Barclays Purchase

Earlier this month, OCBC said that Bank of Singapore, its private-banking unit, had agreed to buy the wealth division of Barclays Plc in Singapore and Hong Kong for $320 million in cash. The deal will bring assets under management at the private bank closer to the level of DBS Group Holdings Ltd., Singapore’s largest wealth manager in terms of assets under management. OCBC said Friday it expects to complete the acquisition of the Barclays wealth assets towards the end of the year.

OCBC shares rose 1.1 percent this year to S$8.9 at Thursday’s close, the only gainer among the three Singapore banks.

United Overseas Bank Ltd., OCBC’s smaller rival, reported Thursday a net income drop of 4.4 percent to S$766 million for the first quarter. The decline was mainly because a dip in earnings from wealth management, trading and investment offset gains from net interest income. DBS, Southeast Asia’s largest bank, will report its first-quarter results on May 3.

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