UPDATE 3-OCBC caps strong earnings for Singapore banks, China exposure growing

Tue Aug 5, 2014 4:31am EDT

Related Topics

* 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 (Adds data to show rise in Singapore banks China exposure)

By Saeed Azhar

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

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

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 from banks like HSBC and Standard Chartered.

But some investors are starting to fret about Singapore's rising cross-border lending to China as the Chinese economy experiences its slowest growth since 1990.

"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.

Singapore had 12 percent of its banking assets exposed to China-related assets at the end of 2013, up from 4 percent at the end of 2009, 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.

"We expect growth (in assets) to accelerate further in line with banks' regional expansion strategies and in particular given OCBC's acquisition of Wing Hang Bank," Sabine Bauer, senior director at Fitch Ratings told Reuters.

The growth in China-related trade finance and wealth services has offset a property slowdown in Singapore.

Singapore's housing market has seen a sharp downturn due to government cooling measures. New loan applications fell as much as 40 percent in the second quarter while property sales plunged by half in the first six months of the year.

Singapore's third-biggest lender, United Overseas Bank Ltd , warned that a small number of its property loans had gone sour.

BEATING EXPECTATIONS

OCBC 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 some 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 and Ryan Woo)

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