OCBC - 2Q09 Profit S$466m Ahead of Forecast on Lower Provisions

Tuesday, August 25, 2009

2Q profit ahead of Citi 2QE S$400m: Near flat qoq pre-provision profit lifted by sharply lower provisions charges drove a 26%qoq rise in net profit (1Q: S$370m excluding one-time items, reported S$545m). Pre-provision profits saw lower net interest income on a 13bps qoq fall in margins but stronger markets-driven fee income. Provisions charges at an annualized 53bps (1Q: 99bps) of net loans reflecting the bank's view that inflows of new NPLs have slowed. OCBC estimates that it will suffer a negative impact of about S$218m in its 3Q09 result from Great Eastern's decision to redeem S$594m of its "GreatLink Choice" product.

2Q09 profit S$466m, +26%qoq: (1Q recurring: S$370m, less one-time life profit of S$175m net of tax). 2Q09 NII S$710m -4%qoq: Loans -1.5%qoq, NIM 229bps (1Q: 242bps). Loan-to-deposit spread 2.81% (1Q: 2.79%), LDR 82%. Non-II 2Q S$494m (1Q: S$432m excluding one-time profit S$175m) +14%qoq, fees S$194m (+25%qoq), insurance earnings S$157m, other income S$143m (1Q: S$155m) on lower FX/dealing income. Costs S$450m, +9%qoq, on higher insurance-related costs. Provisions S$104m (1Q: S$197m). NPL ratio 2.1%, coverage c97%. Tier-1 ratio 15.4%. 2Q09 annualized EPS S$0.56 (1Q recurring cash EPS S$0.48), BPS S$4.94 (1Q: S$4.75).

2Q09 provisions S$104m: annualized 53bps of loans (1Q: S$197m, 99bps): S$44m specific loan provisions, S$55m other assets impairment, S$5m general. 1Q included S$94m allowances for corporate CDOs.

Total CDO portfolio S$255m (1Q S$305m): ABS CDO portfolio S$95m is 100% provided. The S$160m corporate CDO portfolio has cumulative allowances of S$95m, and including S$65m of cumulative mark-to-market losses previously recognized to the income statement, in effect full provision has been made. Credit rating of total CDO portfolio as of Jun-09: BB: 23%, CCC: 57%, CC:20%.

GreatLink Choice redemption: Great Eastern is making a one-time redemption offer to policyholders of this product. The 5 tranches of this product had invested premiums of S$594m, a Jun-09 NAV of S$217m, and coupons paid of S$48m. Making some assumptions on redemption, GEH will make an estimated S$250m provision (OCBC's share S$218m) to be reflected in 3Q09 results.


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