SINGAPORE (BLOOMBERG) - Oversea-Chinese Banking Corp's third-quarter profit fell 6 per cent as surging provisions and a one-time charge in Indonesia overshadowed higher lending and wealth management income.
The earnings drop reflects what chief executive officer Samuel Tsien described as a "challenging operating environment," as both global and regional economic growth continued to slow while geopolitical risks persisted. Most of the bank's provisions are for its home market of Singapore, where the export-reliant economy has stagnated.
The bank's inability to generate sufficient wealth management and trading income to make up for the rise in loan allowances was highlighted as a concern by Bloomberg Intelligence analyst Diksha Gera. Provisions "are a risk" for the fourth quarter, she wrote in a note after the results were published on Tuesday (Nov 5).
OCBC's net profit slid to $1.17 billion in the three months ended Sept 30, Singapore's second-largest lender said. Excluding a $91 million impaired-loan charge for its Indonesian unit, net profit grew 1 per cent to $1.26 billion from a year earlier, the bank said.
The one-off charge related to changes in its expected credit loss modelling at the Indonesian unit Bank OCBC NISP.
Allowances for loans and other assets more than tripled to $179 million as OCBC budgeted for "weaknesses" in certain industries and the global economic slowdown, it said. Singapore expects the economy to grow between zero and 1 per cent this year, as the US-China trade war hits exports.
Shares of OCBC fell 0.2 per cent on Tuesday morning. The stock has dropped about 2 per cent this year.
Singapore banks are also contending with low interest rates and price competition that are squeezing lending profitability. OCBC joined smaller rival United Overseas Bank Ltd. in posting a narrower net interest margin from the previous quarter, a result that Jefferies analyst Krishna Guha found surprising.
"Both OCBC and UOB are showing on-quarter decline in margin, which we thought would be a 2020 phenomenon, but it's starting to impact from the second half itself," Guha said on Bloomberg Television.
As loan growth moderates and interest rates soften, banks are gearing up for a challenging outlook after clocking robust growth rates in recent years.
OCBC's net interest income grew 6 per cent to $1.60 billion and net interest margin rose 5 basis points to 1.77 per cent from improved asset yields, and a 2 per cent increase in customer loans.
Meanwhile, non-interest income for Q3 was up 2 per cent to $1.06 billion, from $1.04 billion a year ago.
Net fees and commissions grew 10 per cent to a new record of $550 million from $502 million a year ago, led by higher fees from wealth management, investment banking and remittance services. Net trading income meanwhile stood at S$182 million, lower than $213 million a year ago, as a decline in treasury income offset a rise in customer-related flow income.
Total income for the quarter rose 4 per cent to $2.66 billion from $2.54 billion a year ago.
No dividend was declared for the third quarter in line with the bank's policy of payouts on a semi-annual basis.
Commenting on the group's performance and outlook, CEO Samuel Tsien said loans rose year on year and fee income climbed to a record high led by wealth management as the private banking business continued to attract net new money inflows.
Its insurance arm Great Eastern also reported increased operating earnings and new sales as well as higher business embedded value and margin.
"Global and regional economic growth continued to slow, and geo-political event risks have increased. We shall remain vigilant and will maintain prudent risk management practices while exercising disciplined cost management," he added.
With additional information from The Business Times
