OCBC net profit for Q2 falls 15% on lower insurance income

OCBC Bank branch at Paya Lebar Square. The bank reported an earnings drop in the second quarter, as insurance income slipped amid the choppy investment market.
OCBC Bank branch at Paya Lebar Square. The bank reported an earnings drop in the second quarter, as insurance income slipped amid the choppy investment market.PHOTO: TIFFANY GOH FOR THE STRAITS TIMES

SINGAPORE - Oversea-Chinese Banking Corporation reported an earnings drop in the second quarter, as insurance income slipped amid the choppy investment market while non-performing loans (NPLs) remained an issue.

Revenue dropped 8 per cent year on year to S$2.05 billion for the three months to June 30, pushing net profit for the period down 15 per cent to S$885 million.

The major drag on group performance was a 66 per cent fall in Great Eastern earnings contribution to S$78 million, driven by lower investment income and unrealized mark-to-market losses in the insurance portfolio. The base was also higher a year ago when the insurance unit sold an equity investment.

 

And with fee and commission income down 5 per cent to S$417 million, total non-interest income was 16 per cent lower at S$788 million, OCBC said when announcing its results before the market opened on Thursday (July 28).

Net interest income also fell, down 2 per cent to S$1.26 billion, on a net interest margin of 1.68 per cent, which was higher than 1.67 per cent a year ago but dropped from 1.75 per cent last quarter.

Meanwhile, the NPL ratio increased to 1.1 per cent, worsening from 0.7 per cent a year ago and 1 per cent last quarter. For the first half-year, net allowances for loans and other assets rose to S$255 million from S$144 million set aside a year ago.

"The year-on-year increase largely reflected downgrade of a number of corporate accounts in the oil and gas support services sector which required their loan repayment terms to be restructured," OCBC noted.

Asset quality was however well secured, the bank stressed, pointing to its cumulative allowances covering 100 per cent of total non-performing assets.

For the first half of the year, revenue was down 5 per cent to S$4.11 billion, while net profit pared 15 per cent to S$1.74 billion.

Still, the board recommended an interim dividend of 18 cents per share, unchanged from a year ago.

Chief executive Samuel Tsien said the bank's performance had been "resilient" amid the global economic uncertainties.

He added: "Credit quality is well-maintained, and our small European exposure was not adversely impacted by the recent market dislocations. We continued to be conservative in our loan classification and specific allowances provisioning to ensure that the bank is prudently covered for the risks associated with the current operating environment."