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OCBC Quarter Profit Beats Forecast, Despite Debt Charge

Oversea-Chinese Banking Corp, Singapore's third-biggest bank, said quarterly profit rose a better than expected 22 percent, despite a S$221 million ($152.4 million) charge on its exposure to credit market turmoil.

The bank said on Tuesday that Asian growth opportunities were encouraging, following a third quarter that saw global credit and equity markets suffer sharp falls after defaults in the U.S. subprime mortgage market spread to hammer financial stocks.

OCBC took an allowance worth S$221 million against its exposure of S$270 million in asset-backed collateralised debt obligations (CDOs), though this was offset to a net S$39 million by write-backs on allowances for loan and property assets.

"They really took a big haircut," said David Lum, an analyst at Daiwa Institute of Research. "I think going forward OCBC would be the least likely to write-down more, given they have written down a lot."

Lum said that underlying earnings for Singapore's three banks remain strong due to strong loan growth, fee income and negligible allowances outside their investments on risky debt.

"We have exercised prudence in making substantial allowances for our ABS CDO portfolio," OCBC's CEO David Conner said in a statement. "Given the sound economic fundamentals in our main markets -- Singapore, Malaysia, Indonesia and China -- growth opportunities for OCBC continue to be encouraging."

OCBC reported July-September net profit of S$463 million, up from S$379 million a year ago, and against an average forecast of S$417 million by five analysts polled by Reuters Estimates.

Singapore's strong economic growth and buoyant property markets have lifted loans and earnings of its three banks, but these gains may be difficult to sustain if there is a sharp economic slowdown in the United States -- Asia's biggest export market.

Investors are also worried that exposure to CDOs may continue to trigger losses for banks in the coming quarters.

Last month, second-ranked United Overseas Bank, posted a smaller-than-expected 8.2 percent rise in quarterly profit as trading and investment income was hit by U.S. credit turmoil.

DBS Group, Southeast Asia's biggest lender by assets, posted a better-than-expected 11 percent rise in quarterly profit on strong loan and fee growth, despite taking a small hit from the credit turmoil.

OCBC's loan growth of 15 percent was below the 23 percent reported by DBS, but almost at par with UOB's 15.6 percent.

Net interest income rose 19 percent to S$565 million, while non-interest income climbed 35 percent to S$481 million. Fee and commission income grew 36 percent to S$211 million.

OCBC said operating expenses rose 28 percent to S$427 million, due to higher staff costs and business promotion expenses.

Shares of OCBC and DBS were hit by the global credit squeeze in the third quarter. OCBC dropped 2.7 percent and DBS fell 5.3 percent, while UOB, which has benefited from Singapore's property boom, rose 0.5 percent. All lagged a 4.5 percent gain in the benchmark Straits Times Index.