Oversea-Chinese Banking Corp., the parent of Singapore’s biggest life insurer, said second-quarter profit rose 8%, less than analysts’ estimates, as trading earnings slumped and lending margins narrowed.

Net income climbed to $503 million in the three months to June 30, from $466 million a year earlier, helped by an 82% drop in bad-loan costs, the Singapore- based company bank said in a statement today. That was less than the $546.4 million average of eight estimates from analysts surveyed by Bloomberg.

 

Swings in stock and bond markets and signs of economic headwinds in the U.S., Europe and China have deterred client transactions, crimping trading income by 36% last quarter. Singapore’s three-month interbank lending rate has averaged 0.6% this year, shrinking lending profit at Oversea-Chinese and rivals DBS Group Holdings and United Overseas Bank.

 

“The downside risks are if margins contract more than expected, as well as trading volatility and insurance revenue,” Harsh Modi, a Singapore-based analyst at JP Morgan Securities, said before the announcement.

 

Net trading income fell to $39 million from $61 million in the quarter, Overseas-Chinese said. Net interest margin, a measure of loan profitability, narrowed to 1.96% from 2.29% a year earlier, it said.

 

Economic growth in Singapore spurred a lending increase of 21% to $95.5 billion at Overseas-Chinese and boosted net interest income, or the difference between what the bank makes from lending and what it pays on deposits, by 1.4% toS$720 million in the quarter, the lender said.

 

Total loans in Singapore rose to $292.5 billion in May from $288.1 billion a month earlier, data from the Monetary Authority of Singapore showed. The Singapore government expects the Southeast Asian island’s economy to expand 13% to 15% in 2010. Growth accelerated to 18.1% in the first half, the fastest pace since records began in 1975.

 

Oversea-Chinese’ allowances for bad loans last quarter fell to $18 million in the quarter from $104 million a year ago.