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