By Anshuman Daga
SINGAPORE (Reuters) – Singapore’s second-largest lender Oversea-Chinese Banking Corp <OCBC.SI> more than doubled its loan loss provisions due to the coronavirus and warned of a “very uncertain” economic outlook, as it posted a 43% plunge in first-quarter net profit on Friday.
The worse-than-expected performance pushed OCBC’s profit to the lowest in seven years, as it joined larger Singapore peer DBS Group <DBSM.SI> and global banks in building defences against credit losses amid the pandemic.
“We paid close watch on our credit portfolio against the market uncertainty, and significantly shored up our allowances on a forward-looking basis,” OCBC CEO Samuel Tsien said in a statement.
The bank’s net profit fell to S$698 million ($494 million) in January-March from S$1.23 billion a year earlier – well below an average estimate of S$941 million from four analysts, according to Refinitiv data.
OCBC’s provisions for credit losses swelled to S$657 million from S$249 million a year earlier, as it built up a buffer for “stresses expected against the recessionary market outlook” and factored in allowances for a Singapore oil trader.
Singapore’s trade-reliant economy is set to record the worst recession in its history, as economic and consumer activity slumps due to government restrictions on travel.
Kevin Kwek, a senior analyst at research firm Sanford C. Bernstein in Singapore said OCBC earnings were always more volatile versus other local lenders especially in times of market volatility – because of its insurance subsidiary.
Profit contribution from OCBC’s insurance unit plunged 94% to S$18 million in the latest quarter from a year earlier, OCBC said.
Last year, Singapore banks had forecast muted earnings growth for 2020 as interest rates soften and lending moderates following a strong performance in the past few years.
Singapore has reported nearly 21,000 confirmed coronavirus infections, one of the highest in Asia, due to outbreaks in cramped migrant-worker dormitories.
(Reporting by Anshuman Daga; Editing by Muralikumar Anantharaman and Stephen Coates)