OCBC opens banks' Q3 earnings season with signs of continued oil-and-gas pain

OCBC Bank sees continued stress in the oil-and-gas sector, said chief executive officer Samuel Tsien on Thursday.

"Unfortunately there is no noticeable uptick in chartering rates, and no new capital coming in," Mr Tsien told reporters at a media briefing.

Of the new non-performing asset formation of S$409 million in the third quarter, 38 per cent is from the oil-and-gas segment.

OCBC opened the banks' earning season with a boost in net profit for the third quarter, but also as it raised specific provisions for bad debts that suggest continued weakness in the oil-and-gas segment.

Singapore's second-largest lender on Thursday reported a 12 per cent increase in net profit for the third quarter compared to a year ago, on "sustained momentum" across the group's banking, wealth management and insurance businesses in Singapore, Malaysia, Indonesia and Greater China.

Net profit for the three months ended Sept 30, 2017 stood at S$1.06 billion, up from S$943 million a year ago. That is slightly higher than the S$1.01 billion average forecast in a Bloomberg poll of seven analysts.

But specific allowances for loans for the quarter - an indicator for the extent of weakness in Singapore's oil-and-gas segment - were 40 per cent higher from a year ago at S$138 million, with an increased amount of specific allowances "prudently set aside".

OCBC said that the higher specific allowances were "driven by a number of restructured accounts which, though continuing to service their repayment obligations, exhibited ongoing weakness and declining collateral valuations".

To be sure, allowances for loans and other assets fell 6 per cent to S$156 million as compared to S$166 million a year ago. Total net allowances for loans comprises not just specific provisions for loans - that is, provisions for specific cases of bad loans - but also recoveries and write-backs, and general portfolio allowances.

Net interest income grew 12 per cent to S$1.38 billion for the quarter, from a year ago, underpinned by asset growth and higher net interest margin (NIM), with NIM for the quarter rising by four basis points to 1.66 per cent. The gain was largely attributable to an increase in the average loans-to-deposits ratio and higher yields from money market placements.

Non-interest income was one per cent higher at S$978 million. Fees and commissions increased 14 per cent to S$488 million, mainly from wealth management, fund management and trade-related income. Wealth management fee income grew 32 per from a year ago, partly contributed by the former wealth and investment management business of Barclays in Singapore and Hong Kong. The business was acquired in November 2016.

Profit from life assurance rose 23 per cent to S$201 million as operating profit from Great Eastern Holdings' underlying insurance business grew from a year ago. Its investment portfolio achieved positive performance as a result of "favourable market conditions", OCBC said.

Operating expenses for the quarter rose 5 per cent to S$1 billion, largely due to an increase in staff costs associated with the inclusion of Barclays' wealth management business. The cost-to-income ratio of 42.4 per cent was lower than 43.2 per cent in the year-ago quarter.