The two Singaporean banks have both taken a hard hit to their bottom lines despite a soar of net gains from investment securities as they set aside a significant amount of allowances triggered by Covid-19.
United Overseas Bank (UOB)
UOB’s net profit fell 30% to SG$1.56 billion in the first half of 2020 compared with a year ago, due to lower margins, higher credit loss and more allowance for non-impaired assets driven by Covid-19.
By quarter, SG$703m of the net profit was generated in Q2, down 17.78% from Q1.
Allowance rose to SG$682m from SG$144m a year ago as the Singaporean bank set aside additional funding for non-impaired assets, which brought total credit costs for the half year to 52 basis points, 39 basis points higher year-on-year (YoY).
Total income was 6.45% lower at SG$4.67 billion YoY while expenses dropped 3.5% to SG$2.13 billion mainly prompted by lower staff cost.
Net interest income was down 5.92% to SG$3.05 billion YoY, while net fee income was 4.48% lower at SG$960m because of ‘reduced consumer spending on credit cards and slower loan disbursement fees’.
In addition, other non-interest income fell 11.57% to SG$657m as net trading income posted a 24% slump at SG$373m, which was partially offset by net gain from investment securities at SG$145m, a 52% increase YoY.
On the consolidated balance sheet, both derivatives receivables and payables doubled to SG$11.91 billion from a year ago. Off the balance sheet, derivatives were up 7.92% to SG$1.01 trillion YoY.
SRP database covers 58 live non-flow products distributed by UOB, which feature capped call and shark fin as payoffs and use the shares of OCBC Bank, DBS, CapitaLand, Singtel most as underlyings.
By segment
Group wholesale banking remained the largest pre-tax profit contributor with SG$1.3 billion as of the end of June, making up 68.51% of the total.
This figure was 11.68% below a year ago as the segment’s net interest income grew 2.77% to SG$1.52 billion from ‘franchise volume growth, partly negated by margin compression following the reduction in benchmark rates’ globally.
The pre-tax profit for group retail fell by SG$64m to SG$906m YoY while its net interest income decreased two percent to SG$1.44 billion largely from ‘deposit margin compression amid significant easing in benchmark rates, partly moderated by healthy volume growth’.
Meanwhile, global markets recorded a growth in 1H 20 with a pre-tax profit of SG$288m, up 75.61% YoY, and an income of SG$417m, up 47.35% YoY. The hike benefitted from the sharp downward movement in interest rates while expenses grew seven percent to SG$131m from technology investments.
Click here to view the 2020 interim report.
OCBC Bank
Net profit slumped 41.81% to SG$1.43 billion in H1 from a year ago despite a stable income of SG$4.56 billion as the oldest bank in Singapore rose allowances by nearly three-fold.
By quarter, SG$730m of the profit was achieve in Q2, up SG$32m from the first three months.
Of the total allowance at SG$1.4 billion, 43% was for non-impaired assets while the rest, or SG$793m, was largely for a Singapore-based corporate customer in the oil trading sector and to ‘write down the carrying value of the existing offshore support vessels non-performing loans in view of the poor outlook for the sector,’ the bank says without naming the company.
Compared to a year earlier, net interest income of SG$3.05 billion was slightly below last year’s SG$3.07 billion, mainly due to a sharp decline in net interest margin particularly in Q2. The margin fell 10 basis points to 1.68%.
Like UOB, OCBC saw a three percent decline YoY for its net fee income of SG$986m due to reduced consumer spending on credit cards. These more than offset a rise in fees ‘from wealth management earned especially in early 1Q and brokerage from higher online trading activities’.
The bank recorded a net trading income of S$343 million in 1H 20, down 28.24% YoY, as its subsidiary Great Eastern Holdings posted a five percent decrease, or SG$439m for life and general insurance income. A bright spot was the net gains from investment securities, which doubled to SG$160m.
When it comes to liabilities, structured notes grew 36.31% to SG$2.04 billion YoY, making up 8.62% of the debt issued. Derivatives doubled to SG$14.13 billion. On assets, derivatives doubled to SG$14.14 billion. Off the balance sheet, the instruments surged 59.91% to SG$1.1 trillion.
Two six-year Sibor-linked callable products distributed by the bank matured in Q2, as SRP data shows. They offered a guaranteed 1.4%, 1.5%, 1.6%, 1.7%, 1.9%, 2.1% pa coupon for the first, second, third, fourth, fifth and sixth year respectively. At maturity, full principal is returned.
By division
Global consumer/private banking, which includes structured deposits service, contributed to 42% of the whole pre-tax profit with a volume of SG$604m, a 17% decline YoY. Its lower net interest income and a rise in allowances and expenses more than offset the higher wealth management fee income.
Global wholesale banking, which covers structured equity-linked financing, recorded a pre-tax profit of SG$30m, a 97% plunge from SG$877m a year ago, due to ‘a substantial rise in allowances’.
Meanwhile, global treasury and markets, which provides fixed income and derivatives trading and structured treasury products, reported a pre-tax profit of SG$378m, up 36% YoY. The result was driven by ‘higher net trading income, net interest income and realized gains from its fixed income portfolio, partly offset by an increase in expenses’.
Click here to view the 2020 interim report.