The fallout from the pandemic remains “very uncertain” with a strong recovery unlikely until next year at the earliest, said OCBC Bank chief executive Samuel Tsien yesterday.

Mr Tsien told a results briefing that cost management will be further tightened in line with revenue expectations for the year, although he reiterated that there is no plan on retrenchments. He expects that the next few quarters will be very difficult for individuals and businesses.

OCBC expects to extend moratorium relief and government-assisted loans of $42 billion to more than 165,000 individuals, small and medium-sized enterprises and corporate customers across Singapore, Malaysia, Hong Kong, Macau and Indonesia. About $4 billion of loan moratorium to individuals has been approved in Singapore so far, mostly for mortgages.

Signs of the tougher times ahead came with the bank’s first-quarter numbers. Net profit plunged 43 per cent to $698 million for the three months to March 31, dragged down by non-operating losses in its insurance unit, and a surge in provisions due to its oil and gas exposure and the deteriorating macroeconomic environment from the Covid-19 pandemic.

This fell well short of the average estimate of $941 million from four analysts, noted Refinitiv.

Total allowances rose from $249 million to $657 million over the same period last year, in large part due to specific allowances for the oil trading sector.

Singapore banks have a total exposure of about US$600 million (S$848 million) to local oil trading giant Hin Leong, which has collapsed amid a pile of debt. OCBC’s exposure was reported at around US$220 million.

Mr Tsien said OCBC’s oil and gas sector comprises 5 per cent of its loan book. He added that the bank does not intend to reduce its exposure “just because oil prices are going down”. Without naming names, Mr Tsien noted that there have been certain allegations of irregular activities in certain companies, but he believes that this is not widespread. “We do not believe that what is seen in isolated cases is a prevailing practice in this sector.”

The non-performing loan ratio went up two basis points to 1.52 per cent in the first quarter, compared with a year earlier, and was up seven basis points from the previous quarter. OCBC expects the ratio to lie between 2.5 per cent and 3.5 per cent, taking into account the projected effect of government relief measures.

Aside from specific provisions, general allowances soared to $382 million from $17 million previously, which includes adjustments to buffer for stresses expected against the recessionary market outlook.

Even with allowances stripped out, OCBC’s operating profit still fell 12 per cent to $1.55 billion as insurance contributions dived 94 per cent owing to unrealised mark-to-market losses.

Net interest income went up 6 per cent to $1.63 billion, driven by a growth in customer loans.

Net interest margins (NIM) remained at 1.76 per cent from a year ago. NIM is a key gauge of profitability for banks, measuring the difference between income earned from loans and the interest paid to depositors.

Non-interest income fell 24 per cent to $864 million, weighed down by lower net trading income on the back of unrealised mark-to-market losses in Great Eastern’s investment portfolio.

THE BUSINESS TIMES

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