(Bloomberg) -- Oversea-Chinese Banking Corp.'s third-quarter profit fell as surging provisions and a one-time charge in Indonesia overshadowed higher lending and wealth management income.
The 6% drop in net income reflects what Chief Executive Officer Samuel Tsien described as a “challenging operating environment,” as both global and regional economic growth continued to slow while geopolitical risks persisted. Most of the bank's provisions are for its home market of Singapore, where the export-reliant economy has stagnated.
The bank's inability to generate sufficient wealth management and trading income to make up for the rise in loan allowances was highlighted as a concern by Bloomberg Intelligence analyst Diksha Gera. Provisions “are a risk” for the fourth quarter, she wrote in a note after the results were published Tuesday.
Net income slid to S$1.17 billion ($861 million) in the three months ended Sept. 30, Southeast Asia's second-largest lender said. Excluding a S$91 million impaired-loan charge for its Indonesian unit, profit grew 1% from a year earlier, the bank said.
Allowances for loans and other assets more than tripled to S$179 million as OCBC budgeted for “weaknesses” in certain industries and the global economic slowdown, it said. Singapore expects the economy to grow between zero and 1% this year, as the U.S.-China trade war hits exports.
Chief Financial Officer Darren Tan attributed most of the increases in nonperforming assets during the quarter to two corporate accounts -- one in the offshore support vessel sector and the other in transportation.
Shares of OCBC fell 0.4% in local trading. The stock has dropped about 2% this year.
Singapore banks are also contending with low interest rates and price competition that are squeezing lending profitability. OCBC joined smaller rival United Overseas Bank Ltd. in posting a narrower net interest margin from the previous quarter, a result that Jefferies analyst Krishna Guha found surprising.
“Both OCBC and UOB are showing on-quarter decline in margin, which we thought would be a 2020 phenomenon, but it's starting to impact from the second half itself,” Guha said on Bloomberg Television.
For the year, loan margins will grow at a “meaningfully higher” rate than in 2018, CEO Tsien told reporters after the results. Loans will expand at a “low single digit rate” this year and next because of the global economic conditions, he said.
Key Figures
- Profit was in line with the S$1.2 billion average analyst estimate.
- Return on equity fell to 11.4% from 12.6% a year ago.
- Net interest income expanded 6% to S$1.6 billion.
- Non-interest income rose 2% to S$1.06 billion, driven by wealth.
- Net interest margin shrank to 1.77% from 1.79% three months earlier and rose from 1.72% on year.
- Wealth management fees rose 11%.
To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net
To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward, David Scheer
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