Singapore Banks Put Bad Loans in Rearview Mirror as Profit Rises

(Bloomberg) -- Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. reported higher fourth-quarter profit even as they added bad-loan provisions in an effort to put the pain of soured credit to energy-services companies behind them.

OCBC’s specific net allowances for loans quadrupled year-on-year to S$1.06 billion ($802 million) in the three months ended December, the bank said Wednesday. Risks from the offshore marine sector are now “comfortably contained,” Chief Executive Officer Samuel Tsien told reporters.

UOB’s specific allowance on loans rose 77 percent to S$781 million. Larger rival DBS Group Holdings Ltd. took similar action in the previous quarter, and Chief Executive Officer Piyush Gupta said in November that the bank has “high confidence that we’ve cleaned the book.”

Singapore’s biggest banks have been grappling with bad loans to the struggling regional oil and gas services industry for more than a year. Analysts noted that both OCBC and UOB used extra cash from general allowances to offset the impact of higher provisions in the sector. As as result, OCBC’s total allowances fell 41 percent, and UOB’s rose 7 percent.

‘Clean Slate’

OCBC’s sharp increase in specific provisions should help the bank to “clean up the books,” said Kevin Kwek, an analyst at Sanford C. Bernstein in Singapore. Managing its portfolio of oil and gas and shipping issues “should see UOB start 2018 on a clean slate,” Goldman Sachs Group Inc. analyst Melissa Kuang wrote.

OCBC’s net income climbed 31 percent to S$1.03 billion in the three months and UOB’s profit rose 16 percent to S$855 million. They followed DBS in reporting higher income from lending as Singapore banks benefit from rising interest rates and an economic expansion that has boosted credit demand. Wealth management fees contributed to the gains.

Still, UOB’s profit missed the S$876 million average forecast in a Bloomberg survey of seven analysts, as expenses swelled. OCBC’s results beat the S$956 million average estimate. UOB’s board recommended a special dividend of 20 Singapore cents, while OCBC only offered a regular payout. DBS announced a special dividend last week.

Shares Fall

“Where OCBC deviated from DBS was in perhaps the lack of a special dividend,” said Justin Tang, head of Asian research at United First Partners, a special situations investment and advisory group in Singapore. “Following DBS’s declaration, investors were perhaps expecting one from OCBC as well.”

Shares of UOB slid 1.5 percent at 10:57 a.m. in Singapore trading, and OCBC lost 1.2 percent. DBS gained 1.7 percent.

Other key figures from UOB’s results:

  • Net interest income jumped 15 percent, driven by a higher net interest margin 
  • Fees and commissions grew 10 percent, thanks to growth in wealth and fund management and credit card businesses
  • Expenses grew 15 percent on costs for staffing, information technology

Other key figures from OCBC’s results:

  • Lending income grew 14 percent because of loan growth and a better net interest margin
  • Non-interest income climbed 30 percent, mainly driven by a jump in wealth management fees

©2018 Bloomberg L.P.

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