Fri, Aug 07, 2020 – 8:23 AM
UPDATED Fri, Aug 07, 2020 – 12:46 PM
OCBC's Q2 net profit fell by a larger-than-expected 40 per cent after it took S$350 million in provisions to write down the carrying value of the existing offshore support vessels (OSVs) that back corresponding impaired loans – a move that has crunched down its exposure to the offshore support sector.
The bank also joined its peers in bumping up overall allowances to buffer against bad loans to emerge amid the pandemic-fuelled crisis.
Net profit for the three months ended June 30, 2020 stood at S$730 million, compared with S$1.22 billion a year ago, underperforming the S$930 million average estimate of eight analysts polled by Bloomberg.
Allowances for the second quarter surged to S$750 million, compared with S$111 million a year go. It was also higher as compared with S$657 million in allowances posted in the previous quarter.
The bank in Q2 "took the opportunity" to write down the carrying value of the existing OSVs that back corresponding non-performing loans by S$350 million – even as the portfolio performed "at the same level" as the previous quarter – amid a grim outlook of the sector, OCBC chief executive officer Samuel Tsien told reporters at a briefing on Friday.
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Consequently, the bank's OSV portfolio, excluding conglomerates, is now down to less than 0.3 per cent of total outstanding loans.
"On a forward-looking basis, we believe that the demand for offshore support vessels will come down quite significantly for a period of time. We don't know when the market is going to pick up, because we don't know when all the markets will open up,' said Mr Tsien.
He noted that the transport sector – hard-hit by travel restrictions – is a "fairly important" source of demand for the oil industry. It was estimated that demand for fuel from the transport sector fell by 35 per cent during lockdowns.
Overall, total allowances for H1 2020 jumped to S$1.4 billion, compared with S$360 million in the year-ago period. Some S$793 million were specific provisions for a Singapore-based corporate customer in the oil trading sector recognised in the first quarter, and further provisions made in the second quarter for the OSV portfolio.
General provisions made up the remaining S$614 million of H1 allowances, which include S$300 million of management overlays and macroeconomic variables adjustments of S$197 million.
The bank declared an interim dividend of 15.9 cents per share, compared with the dividend of 25 cents per share declared in the year-ago period. The scrip dividend scheme will be applicable to the interim dividend, with the issue price of the shares set at a 10 per cent discount.
The payout represents half of the maximum 31.8 cents dividend per share that can be paid out in 2020, representing 60 per cent of 2019s 53 cents per share.
In July, the Monetary Authority of Singapore nudged the Singapore banks to cap total dividends this year at 60 per cent of that for 2019.
The bank factored in a peak NPL ratio of 2.5-3.5 per cent through to 2021 as government relief measures begin to taper off towards the end of this year. NPL ratio for Q2 ticked higher to 1.6 per cent, up from 1.5 per cent in both a year ago, and quarter ago.
OCBC's moratorium relief across the group amounted to S$27 billion, or 10 per cent of its total loan book. About 6.8 per cent of total loans in Singapore are under moratoria; and 59 per cent in Malaysia due to the automatic moratorium scheme.
Mr Tsien said around 88 per cent of total loans under moratoria are fully secured. "Even if the exit from the relief programme will see some challenges because the market may not have fully recovered by that time, we still expect that the primary and secondary source of repayment from collaterals will be able to provide us comfort that repayments will be available."
Total general provisions set aside by OCBC as at June 30, 2020 stood at S$1.67 billion, up from S$1.44 billion in the previous quarter. The regulatory loss allowance reserve (RLAR) set aside by OCBC remained unchanged from a quarter ago at S$874 million.
For perspective, the non-performing asset (NPA) coverage ratio now for OCBC is at 101 per cent. DBS has the highest NPA coverage ratio of the trio at 106 per cent. For UOB, it is at 96 per cent.
To add, both OCBC and UOB cRead More – Source