The deepening problems in the energy industry forced OCBC Bank to set aside more allowances in the third quarter to cover for declining asset quality.
The specific allowances, which banks prepare to meet potentially sour loans, totalled $99 million in the three months to Sept 30, up from the $52 million set aside in the second quarter.
About $33 million of this figure was made for the oil and gas sector, OCBC chief executive Samuel Tsien said at the bank's results briefing yesterday. "Oil and gas portfolio continues to be the largest sector impacting us," said Mr Tsien.
OCBC's non-performing loan (NPL) ratio of 1.19 per cent in the third quarter was up from 1.14 per cent in the second quarter, a rise he attributed to the energy sector.
The bank noted that 6 per cent of OCBC's total customer loans as at Sept 30 were exposed to the oil and gas sector, which had anss NPL ratio of 0.53 per cent. "I don't think the oil and gas sector is on the recovery yet. It continues to be under stress and the fourth quarter will remain difficult," he said. "But we have not seen new names coming into the category of stressed accounts since the third quarter last year. And because we have identified the situation for quite some time, we do not think there will be any new names."
AT A GLANCE
$2.20 billion (+5%)
$943 million (+5%)
1.19% (up from 1.14% in Q2)
OCBC has taken a more stringent approach in classifying loans as non-performing over the past 12 months. This led to a large jump in total NPLs to $2.48 billion as at Sept 30, up from $2.36 billion a quarter earlier and $1.86 billion a year earlier.The initiative reflected the woes hitting the sector caused by plunging oil prices. The crisis has led to several high-profile bond defaults and the demise of energy services firm Swiber Holdings.
"However, recognising that the overall economy is weakening, we need to be cognisant of whether other sectors may also be impacted," Mr Tsien warned, pointing to consumer-driven segments such as retailing and food and beverage.
Despite the challenging conditions, OCBC net profit grew 5 per cent year on year to $943 million on a 5 per cent increase in revenue to $2.2 billion. One of the main earning contributors was insurer Great Eastern, which gave the group a profit of $159 million after a lacklustre second quarter.
Mr Tsien said wealth management was also a highlight, with its fee income rising to a record high of $155 million while asset under management grew 20 per cent year on year to US$62 billion (S$86.4 billion). As a result, non-interest income surged 25 per cent year on year to $970 million, helping offset the 6 per cent drop in net interest income to $1.23 billion.
Net interest income was squeezed by shrinking net interest margins, which tightened to 1.62 per cent - the lowest since the first quarter in 2015.
Customer loan yields are coming down amid low interest rates and loans volume also dropped, down 2 per cent year on year. Full-year loans growth in the low to mid-single digits is expected for 2016, Mr Tsien said. Earnings per share for the third quarter was 22.3 cents, unchanged from a year earlier, while net asset value was $8.31 per share as at Sept 30, up from $8.19 at the end of June. OCBC shares closed up three cents or 0.35 per cent to $8.58 after the results announcement.