SINGAPORE (Reuters) – Singapore’s second-largest lender Oversea-Chinese Banking Corp <OCBC> reported a larger-than-expected 40% tumble in second-quarter net profit on Friday, hurt by loan-loss provisions in a pandemic-hit market and a slowdown in customer activity.
The result underscored a cautious sector outlook as larger peer DBS Group <DBSM.SI> and smaller competitor United Overseas Bank <UOBH.SI> shored up allowances and cut costs to deal with the double whammy of low interest rates and weak growth.
Kevin Kwek, senior analyst at Sanford C. Bernstein, said the sector’s results were “not too bad” considering that the June quarter globally would “arguably be the worst quarter in history”.
“If they still can maintain strong capital levels, as they did, remaining profitable despite the high provisions, the view that the Singaporean banks can prevail through this severe crisis is retained,” Kwek said.
OCBC’s net profit fell to S$730 million ($533.3 million) in April-June from S$1.2 billion a year earlier. The profit was lower than the average estimate of S$980 million of five analysts, according to data from Refinitiv.
Profit however rose 5% from the first quarter. Net interest margin, a key gauge of profitability, slumped to 1.6% in the latest quarter from 1.79% a year earlier.
OCBC’s provisions for credit losses swelled to S$750 million in the second quarter from S$111 million a year earlier, but it joined DBS in maintaining its credit cost estimates for the two years through 2021.
Banks are beefing up provisions to cope with expected bad loans as regulators ease billions of dollars in loan moratoriums over the next few months for consumers and businesses battered by the COVID-19 pandemic.
“With respect to the moratorium, there is quite a bit of uncertainty,” OCBC Group CEO Samuel Tsien said, adding that this related to how the programme was managed, how fast markets opened up and whether economic activity was able to pick up.
“It is important for banks to defensively shore up their balance sheet and prepare for the slow recovery,” he told reporters.
Singapore’s banking regulator asked lenders last week to cap their dividends, pummelling their shares.
On Thursday, DBS’s quarterly profit slumped by a fifth but was above market estimates and rose on the quarter.
UOB missed analysts’ estimates with a 40% fall in quarterly net profit due to lower margins and higher credit costs.
(Reporting by Anshuman Daga; Editing by Muralikumar Anantharaman and Stephen Coates)