OCBC's Q3 Net Profit Rises 22% To $463m

Source : The Business Times, November 7, 2007

Growth achieved despite a $221m securities writedown

OCBC Bank's third-quarter net profit rose 22 per cent to $463 million from a year ago, despite taking a $221 million writedown in debt securities linked to US sub-prime mortgages.

Taking a hit: Compared with Q2, OCBC's net profit for the three months ended Sept 30 fell 13%

Compared with the second quarter, net profit for the three months ended Sept 30 fell 13 per cent, mainly due to the hefty charge made against its portfolio of ABS CDOs, or collateralised debt obligations (CDOs) comprising pools of asset-backed securities (ABS).

The value of the portfolio was slashed by 82 per cent from $270 million to just $48 million, after the bank said it decided to use a third-party valuation model to value them instead of relying on quotes in a market that had become 'illiquid and inactive'.

Chief executive David Conner told reporters that with the large writedown, the bank had 'prepared for the worst and there logically is not going to be any future earnings impact from this portfolio'.

The charge was partly offset by some $183 million worth of net writebacks in past allowances for loans and properties, resulting in an overall net allowance of $39 million for the quarter.

A tax refund of $38 million received in the third quarter also helped cushion the blow to the bank's bottomline.

The Q3 net profit beat the average forecast of $417 million by analysts polled by Reuters, but was lower than the $477 million median estimate of analysts surveyed by Bloomberg.

Annualised basic earnings per share for the quarter was 53.4 cents, up 12 per cent from a year ago.

For the first nine months of the year, the group's net profit rose 10 per cent to $1.64 billion from the previous corresponding period, while net interest income grew 25 per cent to $1.63 billion. Non-interest income for the nine months inched up one per cent over the year to $1.57 billion.

Net customer loans grew 15.7 per cent from a year ago to $66.5 billion at end-September, and 4.5 per cent since the end of June.

Net interest income for the quarter rose 19 per cent over the year to $565 million. Compared to the second quarter, it was up just one per cent.

The year-on-year rise was driven mainly by growth in corporate and small business loans in Singapore, Malaysia, Indonesia and other overseas markets, said the bank.

Its net interest margin (annualised) was 2.07 per cent, up from 2.06 per cent a year ago but lower than the 2.13 per cent in the second quarter.

Non-interest income for the quarter rose 35 per cent from a year ago to $481 million. Compared to the second quarter, it was 2 per cent lower.

Its share price dipped slightly after the earnings release at mid-day, but bounced back to end the day five cents or 0.6 per cent higher at $8.90.

Asked about the broader impact of the recent financial market turmoil on the bank's business, Mr Conner said he was confident of its prospects.

'For banks in Asia-Pacific like OCBC that have plenty of liquidity and excess capital, opportunities abound. We're seeing credit spreads widen and so we would expect that there will be more opportunities to lend money because the demand is strong in the markets that we're operating in.'

The government's withdrawal of the deferred payment scheme for property purchases on Oct 26 to discourage speculative buying is 'probably healthy', he said.

'We see quite a big pick-up in mortgage loan demand over the next 18 to 24 months from that portion that was delayed due to people buying on the deferred payment scheme.'

Already in the third quarter, sales for mortgage loans were up 50 per cent from the second quarter and 'four times what it was in the third quarter last year', he noted.