OCBC Q2 profit falls 40% on surging loan-loss provisions; first-half dividend at 15.9 cents

SINGAPORE (BLOOMBERG, REUTERS) – Singapore’s second-largest lender Oversea-Chinese Banking Corp reported a larger-than-expected 40 per cent fall in second-quarter net profit on Friday (Aug 7), as provisions for loan losses soared and lending income shrank during the Covid-19 pandemic.

Net income dropped to $730 million in the three months ended June 30 from $1.2 billion in the year-ago quarter. That missed the $930 million average estimate of eight analysts surveyed by Bloomberg.

OCBC joins its two local rivals in reporting another profit contraction as they build hefty buffers before the expiry of government relief measures leaves businesses more vulnerable to Singapore’s worst recession.

“Much uncertainty persists on both the economic front and human cost arising from the pandemic,” chief executive officer Samuel Tsien said in a presentation, noting the need to prepare for factors including the withdrawal of government relief.

“It is important for banks to defensively shore up their balance sheet and prepare for the slow recovery,” he said.

There were some early signs of an improvement in business activities, but they were neither “strong nor systemic”, he added.

OCBC’s provisions for credit losses swelled to $750 million in the second quarter from $111 million a year earlier.

Net interest margin sank as local interest rates plunged. Net interest income fell 7 per cent year on year to $1.48 billion as asset growth was more than offset by margin compression. 

Non-interest income rose 11 per cent to $1.14 billion, mainly due to to increased trading and insurance income. 

Operating expenses fell 4 per cent year on year to $1.11 billion.

The board declared a dividend of 15.9 cents per share for the first half of 2020, with the scrip dividend scheme applicable. Shareholders have the option to receive the dividend in the form of shares, with the issue price of the shares set at a 10 per cent discount. The move is in line with guidance from the Monetary Authority of Singapore (MAS) for local banks to moderate their dividends for 2020. OCBC paid a dividend of 25 cents per share for the year-ago period.

With additional information from The Straits Times

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