Singapore's Oversea-Chinese Banking Corp (OCBC) added S$938.2 million (about HK$4.21 billion) to its provisions in 1998 and warned bad debts will escalate this year. Winston Tan, OCBC head of corporate services, said yesterday: 'We expect non-performing loans to peak in the second half of this year, but we are managing it as best we can.' Alex Au Siu-kee, OCBC's new chief executive, has taken the unorthodox step of hiring the Australian arm of international accountants KPMG to help manage the bank's substantial bad debt portfolio. OCBC's provisions accumulated over the years for non-performing loans and doubtful assets amount to S$2.26 billion, representing 56 per cent of the bank's non-performing loans. Mr Au, former chief executive at Hong Kong's Hang Seng Bank, said: 'We have been very conservative in terms of provisioning and think the losses are adequately covered.' The S$938.2 million provision for the bank's 1998 accounts came on top of S$569.32 million in 1997. Non-performing loans (NPLs) rose to S$4.06 billion from S$1.85 billion, OCBC said. OCBC's operating profit rose 7.2 per cent last year, but provisions once again wiped out all the hard work for a second successive year. Attributable profit after provisioning and tax slumped 26.8 per cent from S$581 million to S$425.3 million. Classified loans - defined as debts unserviced for more than three months - now represent 8.1 per cent of the group's total loan book. However, Mr Au said the bank remained 'sound' given its high capital adequacy ratio of 20.1 per cent, which was well above standards recommended by the Bank of International Settlements. He said: 'Despite all the problems brought about by the Asian economic turmoil, the bank's underlying business is in sound shape.' While accepting the likelihood of further NPLs, Mr Au said he was now gearing OCBC up to capitalise on Singapore's expected economic recovery. He said: 'My sense is the worst is behind us. With a recovery in place in the second half, we can look forward to better times.' However, Mr Au warned any significant fall in the Dow Jones Index 'could send shivers around the world', as could any significant slowing down of the United States and European economies. The bulk of OCBC's classified loans are in Malaysia, Indonesia, South Korea, the Philippines and Thailand. The bank has also reported rising NPLs in Singapore. OCBC's Malaysian subsidiary increased provisioning by 233 per cent to M$437 million (about HK$890.8 million) last year, which caused its 1998 profit to fall by 75 per cent to just M$51 million. Disclosing loan figures to Greater China for the first time, Mr Au said OCBC had S$1.15 billion worth of non-bank loans in the mainland of which just 2.9 per cent was non-performing. It had just S$34 million worth of loans to government-linked investments trusts, of which none had defaulted. Its non-bank loan exposure to Hong Kong was S$1.45 billion, of which 5 per cent were NPLs. Mr Tan said OCBC's prospects for this year would once again depend on NPLs. In January, Mr Au unveiled what he has dubbed OCBC 3.0, a blueprint for putting the bank back on a road to better profitability in the next three years.