OCBC surprises with 5 per cent rise in net profit after tax for Q3

SINGAPORE - OCBC Bank on Thursday reported an unexpected rise in net profit after tax for the third quarter - up 5 per cent to S$943 million - boosted by higher wealth-management fees and increased earnings from insurance.

Analysts polled by Bloomberg and Reuters had expected the bank - the first of the three local ones to post its Q3 results - to report a second straight quarterly decline in profit on the back of bad loans.

Core banking lending business was lower with net interest income down 6 per cent to S$1.23 billion; the loan book shrank and net interest margin fell amid a slowing economy.

Minister for Trade and Industry Lim Hng Kiang had already warned this month that the economy is expected to grow by the lower end of a 1-2 per cent growth range, and that "some quarters of negative growth" cannot be ruled out, although the government does not expect an outright recession.

OCBC chief executive Samuel Tsien told reporters at the bank's results briefing that overall operating conditions remain challenging and that it is too early to say whether the troubled oil and gas (O&G) sector, which has dominated the earnings of the local banks for over a year now, has hit rock bottom.

"For O&G, we probably will have to see another quarter (Q4) before we can opine on whether this will be the end of it or not," he said. He noted that the bank has not come across any fresh names on the roll call of "distressed" companies since Q3 last year, but that the sector continued to be under stress.

"The problem in the O&G sector for our portfolio has not broadened but it has deepened, with those companies that are under stress continuing to be under stress," he said.

The sector's non-performing loans (NPLs) amounted to S$1.1 billion as at Sept 30, representing 0.53 per cent of total customer loans; as at end June, the sector's NPLs had made up 0.45 per cent.

OCBC's O&G exposure of S$14.1 billion is 6 per cent of total loans.

OCBC's group NPLs rose by S$615 million to S$2.48 billion as at Sept 30 from a year ago, mainly due to more bad loans in the O&G sector. NPL ratio was higher at 1.2 per cent, from 0.9 per cent a year ago, and from 1.1 per cent in the previous quarter.

Mr Tsien also identified the retail and food-and-beverage sectors as weak ones which need watching.

Mortgages are fine; NPL in property at 0.6 per cent is stable, he said.

"At individual level, we do not see any trend that's worrisome."

Developers also are "well positioned" as they have built up profits from past years, he said.

OCBC's net interest income of S$1.32 billion during the quarter was 6 per cent lower than a year ago due to lower loan volumes and net interest margin.

But Mr Tsien expressed confidence that the loan book will grow in Q4, mainly from more trade loans. For the full year this year and the next, OCBC can expect to see low single-digit growth, he said.

As at Sept 30, customer loans were S$209 billion or 2 per cent lower than the year before, led by a decline in trade-related lending to Greater China, which offset an increase in housing loans and other consumer loans.

Turning to the positive drivers for the bank's results, Mr Tsien named three - its wealth-management business, insurance unit and Indonesia.

Non-interest income grew 25 per cent to S$970 million. As a share of the group's total income, wealth-management contributions were 28 per cent for the quarter, compared to 22 per cent in the year before.

Fee and commission income rose 5 per cent to S$428 million, boosted by continued growth in wealth-management fee income.

OCBC's private bank Bank of Singapore grew assets under management by 20 per cent to US$62 billion from a year ago.

Profit from life assurance was S$164 million in Q3, a spike from the S$62 million a year ago, mainly due to insurance business growth and unrealised mark-to-market gains in Great Eastern Holdings' (GEH) equity and bond investments.

Strong underlying insurance business growth by GEH was accompanied by a 29 per cent increase in new business embedded value and robust quarterly total weighted new sales.

Indonesia was another bright spot for the bank. The net profit of Bank OCBC NISP rose 37 per cent from a year ago, and contributed 8 per cent to the group's income, up from 6 per cent a year ago.

Indonesia's economic growth of 5-6 per cent is the highest in the ASEAN markets in which OCBC operates, said Mr Tsien.

Indonesia is welcoming investors, and NISP has a network of more than 330 branches, which stand ready to serve foreign investors who are less familiar with Indonesian domestic banks, he said.

"A few thousand Chinese companies want to invest, especially in the resource sector," he said.

Graphic: The Business Times

lisen@sph.com.sg
@SiowLiSenBT

This article was first published on October 28, 2016.
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