Falling by 40%, OCBC’s profit rounds up outlook for Singapore banks

Early Friday saw Oversea-Chinese Banking Corp OCBC, the second-largest lender hailing from Singapore reporting a 40% drop in its second quarter net profit. The report came as a surprise as it had been larger than the lending entity’s initial forecast. The bank disclosed that the drop is owed from the loan-loss provisions in a market devitalized by the coronavirus outbreak furthered by slowed customer activity.

The report placed a cautious sector under the microscope as its larger contemporary DBS Group and smaller rival United Overseas Bank (UOB) placed support on allowances and cut costs in order to cushion the blow of low interest rates and weakened growth.

Assessing the report, Sanford C. Bernstein Senior Analyst. Kevin Kwek stated in an interview that the results were not that bad compared to June’s figures being the worst in history.

“If they still can maintain strong capital levels, as they did, remaining profitable despite the high provisions, the view that the Singaporean banks can prevail through this severe crisis is retained,” Kwek added.

In the April-June chart, OCBC’s net profit slid to S$730 million ($533.3 million), a huge plunge from S$1.2 billion the year before. This is way lower than the estimated, S$980 million from 5 analysts.

As bad loans are being expected, going in hand-in-hand with regulators easing billions of dollars in loan moratoriums, banks are fortifying provisions to keep afloat the COVID-19 pandemic. Regarding this, OCBC Group CEO Samuel Tsien had this to say:

“With respect to the moratorium, there is quite a bit of uncertainty…It is important for banks to defensively shore up their balance sheet and prepare for the slow recovery,”

Their shares pummeling in the process, lenders are in the process of capping their dividends as advised by Singapore’s banking regulator.

Thursday saw DBS’s quarterly profit slumped by a fifth. However, it was still above market estimates and had risen on the quarter.

Falling by 40% in quarterly net profit due to lower margins and higher credit costs, UOB had missed estimates made by analysts.