Singapore’s OCBC Bank has seen its second-quarter net profit slump 40% after it took SGD 350m ($255m) in provisions related to impaired loans for offshore support vessels.

Net profit for the three months ended 30 June was SGD 730m versus SGD 1.2bn a year ago, and below consensus estimates of SGD 930m.

OCBC said its OSV portfolio, excluding conglomerates, is now down to less than 0.3% of total outstanding loans.

“We believe that the demand for OSVs will come down quite significantly for a period of time,” said chief executive Samuel Tsien.

“We don’t know when the market is going to pick up, because we don’t know when all the markets will open up.”

Total provisions for the first half jumped to SGD 1.4bn, compared with SGD 360m a year ago.

Some SGD 793m was largely allowances made for an unnamed Singapore-based corporate customer in the oil trading sector first recognised in the first quarter.

Additional allowances made in the second quarter were to conservatively write down the carrying value of the existing OSV non-performing loans in view of the poor outlook for the sector.

Provisions for shipping

OCBC, which is the second-largest Singapore bank by assets and has operations in Malaysia, Indonesia and Greater China, also made specific provisions for its shipping exposure in the second quarter.

“The decline in OSV employment was further aggravated by significantly reduced oil demand as a result of the prolonged Covid-19 pandemic,” it said.

Maybank Kim Eng banking analyst Thilan Wickramasinghe said in a note to investors: “OCBC has had a number of negative surprises on its offshore and marine exposure in the past and it manifested in the current quarter too.”

Citi banking analyst Robert Kong said OCBC was “taking care of the past and cautioning on the future”, noting that the bank has “completely provided for its legacy OSV book”.

OCBC said with the pandemic and rising geopolitical risks, the near-term market outlook is “very uncertain”.

“Despite the unprecedented size of government and central bank relief programmes extended across the world, business and consumer sentiments continued to be weak. The emergence of economies towards the road to recovery will be slow and challenging,” it added.

“It is important for banks to defensively shore up their balance sheet and prepare for the slow recovery. This is exactly what we have done since the start of the pandemic crisis.”