Singapore's OCBC Bank on Wednesday said fourth-quarter net profit fell 30 percent year-on-year as deteriorating credit markets and economic conditions led to higher allowances for loans. Net profit was 301 million dollars (201 million US) against 428 million for the same period a year earlier, the bank said. Analysts polled by Dow Jones Newswires had estimated an average 312 million dollar profit for the three months ended December 31.
Net allowances for loans and impairment of other assets were 243 million, a rise of 56 percent from the preceding quarter and a marked increase from the 13 million dollars recorded for the fourth quarter a year earlier, OCBC figures showed. "Deterioration in credit markets and economic conditions resulted in a substantial increase in net allowances for loans and other assets" over the financial year, when they reached 447 million dollars. That compared with 36 million dollars the previous year, the bank said.
Non-interest income in the fourth quarter fell 44 percent to 259 million dollars "when global markets and confidence were at their most depressed levels for the year," it said. The fall came from declines in fee income and life assurance profit, net losses from foreign exchange, securities and derivatives trading and investment securities.
The declines in non-interest income and the higher allowances offset a strong 28 percent rise in net interest income, said the bank, Singapore's third-largest by assets. Full-year net profit was 1.75 billion dollars, down 16 percent from the 2007 year, it said.
"The severe market conditions and depressed economic environment during the year, especially in the second half, adversely impacted the Group's insurance, investment and trading income, and also resulted in significantly higher allowances for loans and other assets," OCBC said in a statement.
OCBC is the second of Singapore's three banks to report fourth-quarter earnings. DBS Group Holdings, Southeast Asia's biggest bank by assets, said Friday its fourth-quarter net profit fell 40 percent year on year as weak financial markets hit income.
Including one-time items, DBS's net profit was 295 million Singapore dollars and the bank reported that specific loan allowances rose to 224 million dollars from 106 million because of higher charges made for business loans in Hong Kong and China, as well as private banking loans.
"There's a clear sign of provisioning growth coming through in the sector," said Thilan Wickramasinghe, an analyst with independent brokerage and investment group CLSA, in reference to the higher allowances. "(The) non-performing loan ratio is expected to go up," he said. Non-performing loans are bad loans. OCBC's chief executive officer, David Conner, said the current recession is expected to continue throughout this year.
"While our strategic direction remains unchanged, we intend to manage our expenses more tightly and maintain our high alert for risk management given the uncertain outlook," he said. The bank has strong liquidity and capital, leaving it well-placed to deal with the challenges, Conner added. OCBC shares were down three cents at 4.87 Singapore dollars Wednesday. Singapore's third bank, UOB, is to report its earnings on February 27.