CORRECTED-UPDATE 2-OCBC caps strong earnings for Singapore banks

Tue Aug 5, 2014 3:53am EDT

Related Topics

(Corrects paragraph 5 to say 12 percent of Singapore assets exposed to China)

* OCBC net profit S$921 mln vs S$796 mln consensus forecast

* Says sees significant opportunities in Greater China

* Analysts play down risk from China trade finance

By Saeed Azhar

SINGAPORE, Aug 5 (Reuters) - Oversea-Chinese Banking Corp Ltd, Singapore's No. 2 lender, posted a 54 percent jump in quarterly profit on Tuesday, capping a strong earnings season for the Asian banking hub as growth in China-related trade finance and wealth services offset a property slowdown.

Singapore's housing market has seen a sharp downturn in response to government cooling measures, with new loan applications falling as much as 40 percent in the second quarter as property sales plunged by half in the first six months of the year.

But a warning by Singapore's third-biggest lender, United Overseas Bank Ltd, that a small number of its property loans had gone sour did not rattle investors as the other banks saw declining bad debt charges.

Instead, investors fretted more about Singapore's rising cross-border lending to China just as the Chinese economy experiences its slowest growth since 1990.

Singapore had 12 percent of its banking assets exposed to China-related assets, according to estimates by rating agency Fitch. The rating agency said Asia-Pacific banks had $1.2 trillion of China-related exposure at the end of 2013.

Lending by Asian banks to Chinese corporates saw growth of 39 percent from 2010 to 2013, helped by Singapore's emergence as an offshore yuan hub.

Mizuho Securities Asia banking analyst James Antos said Singapore lenders - in particular the city-state's biggest bank, DBS Group Holdings Ltd - had been winning regional market share in the China-related trade finance business.

"They have actually grabbed market share for the trade flows between China and Southeast Asia from banks like HSBC and Standard Chartered. Five years ago you never thought anything like this would ever happen," the Hong Kong-based analyst said, adding that fears of a China meltdown were overblown.

"The risk is easily managed - China is not going to blow up, the Singapore banks are extremely well capitalised and Singapore banks are doing sensible banking, not taking excessive risks," Antos said.

OCBC chief executive Samuel Tsien said Chinese companies' financing activities outside the mainland could slow as Chinese interest rates had eased, narrowing the gap between domestic and offshore rates.

"This reduced the incentive of the importers in China to book financing offshore," he told reporters and analysts.

BEATING EXPECTATIONS

OCBC, which last week boosted its China exposure by gaining over 90 percent control of Hong Kong-lender Wing Hang Ltd, said it aimed to take advantage of growing investment and trade flows between Greater China and Southeast Asia.

The bank earned S$921 million ($739 million) in the three months ending in June, compared with S$597 million a year earlier. The profit was above the S$796 million average forecast of six analysts polled by Reuters.

OCBC shares have underperformed DBS and United Overseas Bank on the back of concerns about the China-related risk associated with the Wing Hang deal and a potential rights issue of about S$3 billion ($2.41 billion) to fund the transaction.

OCBC did not say how much it planned to raise, although Tsien said the bank wanted to maintain a capital adequacy ratio comfortably above regulatory requirements.

As of Monday's close, OCBC shares had dropped 3.3 percent so far this year, compared with an almost 6 percent rise for larger rival DBS and an 8.3 percent gain for UOB. OCBC shares were up 1 percent in early trading on Tuesday, after the results came out.

DBS last week reported a 9 percent rise in quarterly profit, beating expectations. UOB said quarterly profit grew 3.2 percent although its bad debt charges doubled.

OCBC's quarterly net interest income - the gap between what a bank makes from loans and pays on deposits - rose 17 percent to S$1.1 billion, on the back of a 12 percent year-on-year rise in customer loans.

Contributions from insurance unit Great Eastern Holdings boosted non-interest income by 40 percent.

Bad debt charges fell just over 20 percent to S$66 million. UOB, in contrast, doubled its bad debt charges in the second quarter on losses on property and other loans. DBS saw a 48 percent decline in similar charges. (1 US dollar = 1.2452 Singapore dollar) (Reporting by Saeed Azhar; Editing by Stephen Coates)

FILED UNDER: