OCBC profit down, will the smallest bank throw a bomb? things are certainly getting interesting...
OCBC Q3 net profit down 13% on bad debt charges
By ANGELA TAN
SINGAPORE - Oversea-Chinese Banking Corporation reported on Wednesday a net profit of $402 million (US$272 million) for third quarter 2008, 13 per cent lower than a year ago.
Excluding tax refunds from both periods, core net profit fell 7 per cent to $396 million. The decline was largely due to increased allowances which offset growth in operating profit driven by strong net interest income.
Net allowances for the quarter amounted to $156 million, substantially higher than the $39 million in Q307. The allowances were mainly for the Group's holdings of debt securities which suffered losses following the unprecedented upheavals in global credit markets.
Core operating businesses delivered steady results, as reflected in the 5 per cent year-on-year increase in operating profit before allowances.
Net interest income grew 21 per cent, underpinned by healthy loan growth and better interest margins. Non-interest income held up well under challenging market conditions, registering a modest decline of 4 per cent, as weaker stockbroking, wealth management and investment income were largely compensated by stronger contributions from the insurance business and other fee-based activities.
Compared with Q208, the Group's core operating profit and core net profit increased by 16 per cent and 4 per cent respectively, in spite of the higher allowances. The profit growth was driven mainly by stronger insurance and foreign exchange income. Insurance contributions improved significantly compared to a weak first half performance, as the decline in long term interest rates in Singapore and rise in government bond prices during the third quarter boosted the Singapore non-participating fund profits of Great Eastern Holdings (GEH).
For the nine months ended Sept 30 2008 (9M08), the Group's reported net profit fell 12 per cent to $1,449 million, while core net profit declined 15 per cent to $1,237 million (excluding $174 million divestment gains and $38 million tax refunds). Robust net interest income growth of 23 per cent was offset by lower insurance income, reduced gains on investment securities and losses on trading securities, while allowances were significantly higher at $203 million. Operating expenses rose 16 per cent due to increases in staff costs, business promotion expenses and costs associated with the Group's continued overseas expansion. GEH's core net profit contribution to the Group fell to $113 million in 9M08 from $332 million in 9M07. Annualised return on equity for the nine months, based on core net profit, was 11.6 per cent, down from 14.1 per cent for 9M07.
Net interest income rose 21 per cent year-on-year to $684 million in Q308. Customer loans grew by 20 per cent from a year ago and 4 per cent from the previous quarter, contributed mainly by increased corporate and SME loans in Singapore as well as overseas markets. Net interest margin improved by 11 basis points to 2.18 per cent on lower cost of funds and improvement in loan spreads.
Compared with Q208, net interest income grew 1 per cent. Net interest margin narrowed by six basis points due mainly to lower average yields on the investment securities portfolio, particularly for Singapore government bonds.
For the nine months period, net interest income grew 23 per cent to $2,000 million, and net interest margin improved by 12 basis points to 2.20 per cent.
OCBC continues to maintain a strong capital position and a solid deposit funding base, which are vital attributes for banks given the current global financial crisis. The Group's Tier 1 capital increased to $14 billion as at Sept 30 2008, following the successful issues of $2.5 billion of Tier 1 preference shares during the third quarter. Its Tier 1 ratio of 14.4 per cent ranks among the highest in the world, and is well above the regulatory minimum of 6 per cent.
The Group has a stable and growing deposit base, with customer deposits growing by 11 per cent year-on-year to $95 billion as at Sept 30 2008.
Hee Teck
Credit Review
DBS Bank Ltd
Fax: 6878 9954
DID: 6223 2653
DBS. Living, Breathing Asia
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