Bloomberg News

OCBC Profit Misses Estimates on Trading Loss, Insurance

November 02, 2011

(Updates with analyst comment in third paragraph.)

Nov. 3 (Bloomberg) -- Oversea-Chinese Banking Corp., Southeast Asia’s second-largest bank by assets, said earnings fell for the second time in three quarters as income from the insurance unit declined and trading brought a loss.

Third-quarter net income fell 10 percent from a year earlier to S$513 million ($402 million), the Singapore-based bank said in a statement to the stock exchange today. That missed the S$543 million average of six estimates compiled by Bloomberg.

“Historically, OCBC’s profits have been more volatile than the other two Singapore banks’ because of a larger dependency on insurance income, which in turn is dependent on the health of the capital markets,” said Ng Wee Siang, head of Asean financials at BNP Paribas Securities Singapore Pte. The insurance subsidiary usually accounts for about 20 percent of the bank’s earnings, he said.

Profit from the insurance unit’s funds fell as stocks worldwide posted the steepest quarterly loss since 2008 and global banks including JPMorgan Chase & Co. had the worst quarter in trading and investment banking since the depth of the global financial crisis. OCBC’s smaller rival United Overseas Bank Ltd. said yesterday profit declined 24 percent.

OCBC’s shares fell 1.7 percent to S$8.16 as of 9:18 a.m. in Singapore trading, extending their decline this year to 17 percent. That compares with decreases of 13 percent and 10 percent respectively at local rivals DBS Group Holdings Ltd. and United Overseas Bank.

Stalling Economy

OCBC’s total non-interest income, including revenue from trading and the insurance subsidiary Great Eastern Holdings Ltd., fell 30 percent to S$436 million.

Singapore’s economic growth will stall over the next few quarters and gross domestic product will probably increase by about 5 percent this year, the Monetary Authority of Singapore said in a report on Oct. 27. The central bank also said the expansion may slow to below the economy’s potential rate of 3 percent to 5 percent in 2012.

While trading and insurance pulled earnings down, OCBC’s asset quality, loan growth and interest income were in line with those of other banks, Ng said.

Net interest income, the difference between what a bank charges borrowers and pays lenders, rose to S$874 million from S$754 million a year earlier. That gives a net interest margin of 1.85 percent, compared with the 1.84 percent median of four analyst forecasts calculated by Bloomberg News.

The loan book grew 27 percent, driven by lending for general commerce and for housing. Net new provisions fell 12 percent as the nonperforming loan ratio improved to 0.7 percent from 1.1 percent a year ago.

DBS, Southeast Asia’s largest bank, yesterday reported a 6 percent gain in net income.

--Editor: Nathaniel Espino, Linus Chua

To contact the reporter on this story: Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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