OCBC takes a knock from oil and gas woes

Mr Tsien said about half the oil and gas non-performing loans are being serviced, while a big jump in new non-performing assets was caused by one state-owned Chinese manufacturer, which rescheduled its repayment.
Mr Tsien said about half the oil and gas non-performing loans are being serviced, while a big jump in new non-performing assets was caused by one state-owned Chinese manufacturer, which rescheduled its repayment.PHOTO: BLOOMBERG

CEO says bank faces challenges over loans to struggling sector, but risks are contained

OCBC still faces challenges over its loan book exposure to the struggling oil and gas sector, and expects uncertainties to persist in the coming months.

But the risks are well contained and no OCBC clients in the sector have thrown in the towel, chief executive Samuel Tsien said at its second-quarter briefing yesterday.

Asked if OCBC is exposed to offshore services firm Swiber Holdings, which is seeking provisional liquidation, Mr Tsien declined to comment, but noted that OCBC was not named as a principal banker in Swiber's annual report.

Oil and gas non-performing loans (NPLs) rose 4 per cent from the previous quarter to $933 million - or 39.6 per cent of total NPLs - in the three months to June 30.

This sent the bank's total non-performing assets surging 66.5 per cent to $2.49 billion as of June 30, from a year earlier, while the NPL ratio of total loans rose from 0.7 per cent a year earlier to 1.1 per cent.

The explosive growth of new NPAs was also caused by one state-owned Chinese manufacturer, which had had to reschedule its repayment in the quarter.

  • AT A GLANCE

  • REVENUE

    $2.05 billion (-8%)

    NET PROFIT

    $885 million (-15%)

    INTERIM DIVIDEND

    18 cents per share (unchanged)

"We would not lead you to believe that the NPL cycle has already peaked… My feeling is that we cannot say this is the bottom of the oil and gas sector yet. I believe we have at least two more quarters to go before we can have some certainty," Mr Tsien cautioned.

But he stressed that around half of the oil and gas NPLs are still being serviced, and the loans were classified as non-performing only out of prudence.

"Our distress indicators in the portfolio continue to deepen, but they have not broadened. As of this time, there is no borrower in our customer base who has abandoned their operations. This is a good sign," Mr Tsien said.

Aside from the oil and gas sector woes, OCBC also saw further weakening in its insurance profit.

Amid the quarter's volatile market conditions, Great Eastern's earnings contribution plunged 66 per cent owing partly to mark-to-market losses on its investment portfolio, and a high base from last year when earnings were lifted by divestment.

As a result, OCBC's total net profit was down 15 per cent year on year to $885 million, as revenue slipped 8 per cent to $2.05 billion.

Non-interest income pared 16 per cent to $788 million as fee and commission income fell 5 per cent to $417 million, largely from lower brokerage and investment banking income. But its wealth management unit Bank of Singapore saw its assets under management growing to US$61 billion (S$82 billion).

Net interest income declined 2 per cent to $1.26 billion on a net interest margin of 1.68 per cent, which was down from 1.75 per cent a quarter ago.

Total loans shrank 2.2 per cent from a year earlier to $205.49 billion, and OCBC will see only a very low single-digit percentage growth in full year loans, Mr Tsien noted.

Net asset value was $8.19 a share as of June 30, up from $7.80 a year earlier while quarterly earnings per share was 21 cents, down from 25.6 cents a year earlier.

The board announced an interim dividend of 18 cents a share, unchanged from last year.

OCBC shares closed five cents or 0.56 per cent lower at $8.80 after the results announcement.

A version of this article appeared in the print edition of The Straits Times on July 29, 2016, with the headline 'OCBC takes a knock from oil and gas woes'. Print Edition | Subscribe