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 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 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 JPMorgan Chase & Co., said before the announcement.

 

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

 

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

 

Great Eastern Holdings, the insurer partly owned by Oversea-Chinese, last week posted a 24% decline in second-quarter profit to $74.4 million, citing a drop in worldwide equity and corporate bond prices.

 

DBS, Southeast Asia’s biggest lender, last week reported an unexpected second-quarter loss of S$300 million as it booked a one-time goodwill impairment charge at its Hong Kong unit because of pressure on interest margins.

 

Oversea-Chinese’ shares slipped 0.6% to $8.98 at 2:25 p.m. in Singapore. The shares have fallen 1.1% this year, while the benchmark Straits Times Index has risen 3.9%.

 

Oversea-Chinese’ cost-to-income ratio rose to 45.2% in the quarter, compared to 37.4% a year ago, as staff costs rose 40% to $327 million and it paid to integrate its acquisition of ING Groep NV’s private-banking assets in Asia.

 

The bank in October agreed to buy the ING Assets for $1.46 billion to tap the growing number of wealthy people in the region. It said the deal will more than triple its private- banking assets, to US$23 billion ($31.3 billion).

 

Non-interest income in the quarter rose 5% to $516 million, helped by a 30% increase in fee and commission income. Its wealth management fees more than doubled in the second quarter to $48 million, mainly because of earnings from the Bank of Singapore private bank unit, the subsidiary’s first full quarter of contribution to the bank’s results.

 

The number of individuals with at least US$1 million of investable assets in Asia-Pacific rose 26% to 3 million in 2009, matching Europe and almost overhauling North America’s 3.1 million, according to a report by Capgemini SA and Merrill Lynch & Co. in June.

 

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% to $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.