Two Singapore banks on Wednesday reported falls in first-quarter net profit as trading activities took a hit from global financial turmoil.
DBS Group, Southeast Asia's biggest bank, said its net profit in the first quarter ended March 31 dipped 2.0 percent to S$603 million (US$446 million) compared with the previous year. Singapore's smallest bank, Oversea-Chinese Banking Corp (OCBC), reported a four percent fall in net profit to S$622 million for the first quarter.
DBS said its revenue totalled S$1.56 billion, up 1.0 percent from the same period last year, but it reported a trading loss of S$161 million, compared with a S$171-million net profit the year before, amid a global credit crunch triggered by a crisis in the US housing market.
Income from fees rose 14 percent over the previous year, but was down 7.0 percent from the preceding quarter "due to weaker capital market activities such as wealth management, investment banking and stockbroking," added DBS, which has operations in 16 Asian markets including Hong Kong.
"The results were not bad," David Lum, an analyst at Daiwa Institute of Research, said of DBS.
OCBC said its net interest income rose by 26 percent to S$638 million, boosted by loan volumes and improved interest margins.
"However, volatile financial markets resulted in overall non-interest income falling by 26 percent" to S$377 million, OCBC said, citing a decline in life assurance profits and losses in securities and derivatives trading along with lower gains on investment securities. "The first quarter 2008 loss included a S$16 million mark-to-market loss on credit default swaps related to the bank's corporate CDO investments," it said, referring to collateralised debt obligations.
Despite the S$16-million loss, the bank's corporate CDO investment portfolio of S$344 million continues to perform, it said.
OCBC added that its asset-backed securities CDO portfolio of S$250 million, written down by 85 percent in 2007, did not require further allowances in the first quarter.
CDOs are securities backed by a range of assets including bonds, loans and their derivatives, including corporate loans, high-grade mortgages, sub-prime mortgages, car loans and credit card debt.
World financial markets have been battered since last August by fallout from a crisis in the US sub-prime, or high-risk, loan sector which forced commercial banks to tighten lending criteria leading to a credit crunch which spread to threaten the global economy.
Banks around the world suffered multi-billion-dollar losses linked to sub-prime loans given to US homebuyers with risky credit histories.
DBS Group chairman Koh Boon Hwee said his bank remains financially strong and well-capitalised.
DBS has a relatively small exposure to the sub-prime sector. It had S$259 million in asset-backed CDOs, and said it has set aside provisions for about 90 percent of that amount.
"We don't expect any further provision charges for CDOs to be significant in the coming quarters," said chief financial officer Jeannette Wong, adding total CDO exposure fell to S$1.44 billion from S$1.5 billion in the fourth quarter.
Both the DBS and OCBC profit figures beat analysts' forecasts but UOB came in below market expectations.
On Tuesday United Overseas Bank Group (UOB) said its net profit in the first quarter rose an annual 2.1 percent to S$529 million, boosted by loan growth.
UOB said its investment in CDOs declined further to S$268 million, including S$82 million in asset-backed securities, while impairment charges increased by 1.8 percent to S$89 million, largely attributed to provision for CDOs.
The bank said it has fully provided for its asset-backed securities CDOs.
Lum said the banks face a scarcity of growth sources given a risk-averse investment environment. - AFP/ac
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