OCBC posts 14% fall in Q1 profit to $856m on lower insurance income, higher allowances

The OCBC bank logo is pictured outside an ATM booth in Singapore on Jan 5, 2016.
The OCBC bank logo is pictured outside an ATM booth in Singapore on Jan 5, 2016.PHOTO: REUTERS

SINGAPORE - Oversea-Chinese Banking Corporation (OCBC) reported a 14 per cent fall in net profit to S$856 million for the first quarter ended March 31 from the year-ago period, reflecting lower insurance income and an increase in allowances.

Operating earnings from the group's banking operations, however, were up 3 per cent year-on-year, underpinned by higher net interest income and disciplined cost management, said OCBC in its announcement on Friday (April 29).

Its net interest income grew 5 per cent to S$1.31 billion from S$1.25 billion a year ago. As at March 31, customer loans edged up 1 oer cent in constant currency terms, on growth in corporate and consumer loans which more than offset a decline in trade-related loans.

Net interest margin climbed 13 basis points to 1.75 per cent from 1.62 per cent in 1Q15, largely driven by improved customer loan yields in Singapore and Indonesia.

Non-interest income fell 12 per cent to S$753 million from S$859 million from a year ago. Fee and commission income fell 5 per cent to S$374 million, mainly from lower wealth management, trade-related and investment banking fees. The increase in income from private banking was more than offset by lower fees and commissions from other wealth management activities as a result of weak investment appetite of customers during the first half of the quarter.

Profit from life assurance tumbled 58 per cent year-on-year to S$116 million from S$83 million, largely due to unrealised mark-to-market losses from Great Eastern Holdings' bond and equity investment portfolio under its Non-participating Fund.

GEH's underlying business growth continued to be healthy as reflected by a 9 per cent increase in total weighted new sales driven by higher sales in both Singapore and Malaysia, while its new business embedded value was stable year-on-year, said OCBC.

Against the previous quarter, the group's net profit was 11 per cent lower, as a result of the decline in profit contribution from life assurance. Excluding GEH, net profit from banking operations was flat against the prior quarter.

The group's non-performing loans (NPLs) increased from a year ago, reflecting weakening economic conditions and the significant decline in commodity prices which particularly contributed to the stress in the oil and gas support services portfolio, said OCBC.

As at March 31, the absolute amount of NPLs was S$2.15 billion, up from S$1.97 billion in the prior quarter and S$1.35 billion a year ago. Most of the year-on-year increase in NPLs was from the downgrades of a number of large corporate accounts in the oil and gas support services sector which required their loan repayment terms to be restructured.

The overall NPL ratio was 1 per cent, as compared with 0.9 per cent of the previous quarter and 0.6 per cent in 1Q15.

OCBC is the second of Singapore's Big Three banks to report first-quarter results. A day earlier, UOB posted a 4.4 per cent decline in net quarterly profit to S$766 million, with gains in net interest income offset by a fall in earnings from wealth management, trading and investment.

DBS will report next Tuesday.