OCBC FY2008 Results

Not too favourable news from the 3rd largest local bank in Singapore.

To summarise the results, Q4 net profit declined by 30% from Q407, 25% drop from Q308 and full year net profit decreased by 16%. This is mainly due to (i) a 25% decline in non-interest income offset by a 24% increase in net interest income (NII) and (ii) higher provisions increased by a whopping 1142% (nope, there is no typo - this is a 4-digit number).

As a comparison, DBS's Q4 net profit fell by a similar quantum of 31% from Q407, 5% from Q308, and full year net profit fell by 17%. There was also a decline in non-interest income by 16%, but a 5% growth in NII. Allowances for credit and other losses increased by a substantial 82%.

Without delving further into the different reasons accounting for the tumble in profit numbers, OCBC's numbers do not fare that badly compared to DBS. At least a glimmer exists in the loan portfolio, and hopefully with government schemes encouraging loans to SME, OCBC will be able to grow its SME base.

There is definitely a clear signal that the local banks are facing a tough and potentially hostile environment. It will be interesting to see how UOB fares relative to its peers.

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18 Feb 09 (CNA)

OCBC posts 30% fall in Q4 net profit to S$301m

SINGAPORE: OCBC Bank has posted a worse-than-expected 30 per cent decline in fourth quarter net earnings.

Net profit for the three months ended December came in at S$301 million, down from S$428 million a year earlier.

The drop was due to lower contributions from its insurance arm and higher provisions for bad debt amid the economic downturn. The bank's full-year net profit was down 16 per cent at S$1.7 billion.

OCBC's net interest income grew 28 per cent during the quarter to S$783 million. But this was not enough to offset a 44 per cent drop in non-interest income as challenging market conditions affected trading income and life assurance profits. Net allowances also rose significantly to S$243 million in the fourth quarter, up from S$13 million a year ago.

David Conner, CEO, OCBC, said: "The results have been hurt by increased allowances and that's an indication of the fact that we're entering into some very difficult times. We're starting to get hit by loan losses in particular, and impairments on investments we had - particularly CDOs and debt securities. "So at the bottom line, the bank is not doing as well as we'd like, for sure, but what's important is that the operating level is holding up and generating a significant amount of income to assist us getting through what is a challenging period." The earnings may miss expectations, but OCBC said there is still significant income generation to support the bank through current economic conditions. Going forward, the lender is optimistic there are opportunities for some loans growth.

Mr Conner added: "We do see opportunity to upgrade our portfolio with regard to many of those companies that need refinancing with bonds coming due. There are opportunities where foreign banks are pulling out. So we do see opportunity for loan growth, but not nearly as high as what we've seen over the past couple of years. "Secondly, the government scheme here supporting SMEs is very attractive and we are quite active in that scheme to support SMEs and we see significant opportunity to grow our SME portfolio in that sense." OCBC said it has so many loan requests from small and medium sized businesses that it is facing a backlog. It has already approved "several hundred million dollars" of loans.

Overall, the lender said it plans to manage expenses tighter and maintain a high alert for risk management. For a start, it is reviewing its bonus structure for 2010. Mr Conner said: "We have a study underway and we're going to rethink it. We'll adjust to meet our needs as well as to make sure that we're competitive in the market."

The bank has proposed a final dividend of 14 cents per share for the financial year and shareholders can elect to receive this in shares, instead of cash. OCBC is the second of Singapore's three banks to report fourth-quarter earnings. The remaining one, United Overseas Bank, will report its earnings on February 27.