OCBC Profits Plunge in Q2

The bank recorded a decline that was steeper than predicted by analysts, owing to soaring provisions for loan losses and shrinking lending income during the Covid-19 pandemic.

OCBC’s net profit for the second quarter of 2020 was S$730 million ($533 million), up 5 percent from the previous quarter and 40 percent lower compared to a year ago, the bank said in its quarterly earnings report published on Friday.

Provisions for credit losses stood at $750 million in Q2, higher than the previous quarter’s $657 million, and $111 million a year ago.

Net interest income fell 9 percent to S$1.48 billion, which the bank said was largely from a 16 basis points decline in NIM as asset pricing adjusted to the significant cuts in interest rates faster than the reduction in customer deposit funding costs

The bank recommended an interim dividend of 15.9 cents per share for the first half of 2020. This represents half of the maximum 31.8 cents dividend per share that OCBC can declare in FY20, as MAS has recommended locally incorporated banks headquartered in Singapore to cap dividends at 60 percent of FY19. A scrimp dividend is also offered, which gives shareholders the option to receive the dividend in the form of shares, with the issue price of the shares set at a 10 percent discount.

This decline is steeper than expected – a Refinitiv poll among analysts expected net income to fall 31.7 percent to S$835 million during the quarter, with earnings per share to fall 24.1 percent year-on-year to S$0.218 per share.

OCBC group CEO Samuel Tsien said the bank has been defensively shoring up its balance sheet and preparing for a slow recovery.

We protected our customer franchise, managed our expenses in line with income expectations, increased our allowance coverage, preserved our capital and raised our capital efficiency to position for the future post-pandemic. We will continue to contain all discretionary expenditures, including management compensation,» Tsien said in a statement.

Singapore’s two other listed banks reported their earnings yesterday – DBS reported a 22 percent year-on-year drop in Q2 net profit for the first quarter to S$1.25 billion, while UOB reported a 40 percent decline.