OCBC Quarter Profit Down 30% as Bad Debt Spikes

Singapore's Oversea-Chinese Banking posted a bigger-than-expected 30 percent drop in quarterly profit as a slumping economy boosted bad debt charges.

The smallest of three Singapore banks warned on Wednesday that 2009 will be challenging as a recession is expected to last throughout the year.

OCBC, like its Asian peers, largely escaped the credit storm that badly damaged Western banks, but is now threatened by rising bad loans due to an economic downturn in Asia and lower fees from crippled capital markets.

"Clearly asset quality is deteriorating and we saw that in the big jump in provisions," said David Lum, a banking analyst at Daiwa Institute of Research in Singapore. "That is something, like all other banks, they will have to tackle."

OCBC CEO David Conner said in a statement that the bank plans to manage its expenses more tightly and its risk management will be on high alert given the uncertain outlook.

Net profit for October-December fell to S$301 million ($197 million) from S$428 million a year ago. Analysts had, on average, forecast a net profit of S$381 million, according to five
forecasts compiled by Reuters.
     
Bad Debt

Bad debt charges surged to S$243 million in the fourth-quarter from S$13 million a year earlier, led by bad loans.

DBS Group, Singapore's biggest bank, reported last week a bigger-than-expected 40 percent drop in October-December profit, its worst results in three years, also hurt by an increase in bad debt provisions.

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OCBC's net interest income rose 28 percent from a year ago to S$783 million in the quarter, helped by 12 percent growth in loans and higher interest rate margins.

But non-interest income, which includes commissions and fees on investment products such as mutual funds, dropped 44 percent to S$259 million, the bank said.

OCBC also saw a drop in contributions from its insurance arm Great Eastern, which reported a 47 percent drop in net profit in the fourth quarter. OCBC owns 87 percent of Great Eastern.

OCBC shares were down 0.4 percent at S$4.88 by midsession. The shares are down around 2 percent this year after dropping 40 percent in 2008.

United Overseas Bank has fallen about 16 percent this year and DBS is down 4.5 percent. The benchmark Straits Times Index has fallen 7 percent so far this year.

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