Singapore banks brace for slowdown after strong second-quarter results

By Anshuman Daga

SINGAPORE (Reuters) - Singapore's Oversea-Chinese Banking Corp Ltd reported steady earnings and profit jumped at United Overseas Bank in the second quarter, with improved margins and loan growth providing support in a slowing economy.

Analysts however expect Singapore banks' performance to weaken as a decline in interest rates and the faltering economy put pressure on the sector's profit and revenue growth after three strong years.

"While economic growth in our key markets is slowing, our healthy capital, funding and liquidity position will allow us to comfortably navigate the challenging operating environment and pursue our long-term growth strategy," OCBC CEO Samuel Tsien said in a statement on Friday.

Singapore's economy grew at its slowest annual pace in a decade in the second quarter due to a drop in manufacturing output and exports.

OCBC's results came after Singapore's biggest bank, DBS Group Holdings Ltd, beat market estimates earlier this week as it benefited from rising interest rates, although a subsequent reversal in rate moves has clouded its outlook.

Net profit at OCBC, the city-state's second-biggest listed lender, came in at S$1.22 billion ($886 million) in the three months ended June, versus S$1.21 billion a year ago.

This compared with an average profit estimate of S$1.29 billion from two analysts, according to data from Refinitiv. OCBC's net interest income grew 10 percent to a new high of S$1.59 billion and net interest margin rose 12 basis points to 1.79 percent.

The results were impacted by a 26% fall in life insurance profit from its insurance subsidiary attributed to a decline in the discount rate used to value long-term insurance contract liabilities, OCBC said.

It said loan growth was sustained and fee income rose quarter-on-quarter, led by higher wealth-management fees, with its private banking assets under management growing to a record.

Smaller peer United Overseas Bank's net profit advanced 8% to S$1.17 billion, supported by an improvement in both interest and non-interest income, the bank said.

UOB and OCBC reported strong loan growth for the first half.

($1 = 1.3769 Singapore dollars)

(Reporting by Anshuman Daga; Editing by Stephen Coates)