May 7, 2020 / 11:26 PM / a month ago

Singapore bank OCBC's profit slides as it builds loan-loss defences

SINGAPORE (Reuters) - Southeast Asia’s second-largest lender Oversea-Chinese Banking Corp (OCBC) (OCBC.SI) on Friday flagged a weak outlook after doubling loan-loss provisions for the economic fallout from the coronavirus and posted a 43% slump in first-quarter net profit.

The worse than expected performance was the Singapore bank’s lowest quarterly profit in seven years as it joined larger rival DBS Group (DBSM.SI) and global banks in building defences against credit losses as a result of the pandemic.

“Even if there is a stabilisation by the end of this year, a strong recovery is unlikely until 2021,” CEO Samuel Tsien said in a media call. He said OCBC was buiding allowances for both impaired and non-impaired assets to factor in the weak near-term economic outlook.

OCBC’s net profit fell to S$698 million ($494 million) in the three months to March 31, from S$1.23 billion a year earlier and well below an average estimate of S$941 million from four analysts, according to Refinitiv data.

Singapore’s trade-reliant economy is expected to suffer the worst recession in its history as economic and consumer activity slumps in the face of government restrictions on travel.

Last year Singapore banks had forecast muted earnings growth for 2020 on softening interest rates and more moderate lending after strong performance over the past few years.

OCBC said provisions for credit losses swelled to S$657 million from S$249 million a year earlier, building a buffer for “stresses expected against the recessionary market outlook”. It also cited allowances for a Singapore oil trader without disclosing the name of the company.

The oil and gas sector accounted for 5% of OCBC’s S$271 billion loan book.

Kevin Kwek, a senior analyst at research firm Sanford C. Bernstein in Singapore, said OCBC’s earnings are always more volatile than those of other local lenders - particularly in times of market volatility - because of its insurance subsidiary.

Profit contribution from OCBC’s insurance business plunged 94% to S$18 million from a year earlier, OCBC said.

Singapore has reported more than 21,000 confirmed coronavirus infections, among the highest in Asia, swelled by outbreaks in cramped migrant-worker dormitories.

Reporting by Anshuman Daga; Editing by Stephen Coates and David Goodman

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