Oct. 31 (Bloomberg) -- United Overseas Bank Ltd., Singapore's second-largest bank by assets, said third-quarter profit fell 5.1 percent as impairment charges for loans and debt securities surged.

Net income fell to S$475 million ($321 million) for the three months ended Sept. 30, from S$501 million a year earlier, the bank said today in a statement to Singapore's stock exchange. That's lower than the S$558.9 million median estimate by six analysts surveyed by Bloomberg News.

The bank said today it expects loan growth to slow as Singapore entered into a recession in the last three months, making it harder for Chief Executive Officer Wee Ee Cheong, 55, to boost income with an expected increase in bad debts.

``The results don't give investors much confidence,'' David Lum, a Singapore-based analyst with Daiwa Institute of Research, said today.

Provisions for loans and the impairment of other securities jumped to S$158 million from S$4 million a year earlier, the bank said, erasing gains in net interest income. The bank had a writeback in provisions last year, it said.

Singapore's economy, which entered a recession last quarter, faces ``further slippage'' as a global slowdown threatens manufacturing, consumer spending and tourism, the city-state's central bank said earlier this week.

`Soured Very Quickly'

``The macro-environment has soured very quickly globally and Singapore can't escape that,'' Brian Hunsaker, a Hong Kong-based analyst at Fox-Pitt Kelton Asia Ltd., said today. ``The major concern in Singapore will be the property sector.''

Housing loans make up 23 percent of United Overseas's total lending at the end of September, today's statement showed. Private home prices in Singapore fell 2.4 percent in the third quarter, the first retreat since the three months ended March 31, 2004, the Urban Redevelopment Authority said on Oct. 24.

The Southeast Asian economy, which is forecast to grow 3 percent in 2008, will probably continue to expand below its ``potential rate'' next year and a recovery in the later part of 2009 will depend on the global outlook, the Monetary Authority of Singapore said.

``The impact of de-leveraging and credit crunch will be increasingly evident in the real economy,'' Wee said in the statement. ``UOB will continue to be vigilant in monitoring and managing risks.''

CDO Exposure

A freezing of the global credit market, deepened by the collapse of New York-based Lehman Brothers Holdings Inc. in September, also led to more ``allowance'' set aside for collateralized debt obligations.

The bank said its ``exposure'' to CDOs was little changed at S$274 million from the second quarter, while the allowance for these investments rose 27 percent to S$199 million from the previous three months. CDOs repackage bonds, loans and credit- default swaps and use the income to pay investors.

The stock fell 62 cents, or 4.6 percent, to S$13.02 at the 5:05 p.m. in Singapore trading, the biggest drop in a week. The stock has fallen 35 percent this year, compared with a 47 percent drop for bigger rival DBS Group Holdings Ltd., and a 41 percent decline by smaller competitor Oversea-Chinese Banking Corp.

United Overseas's net interest income, or interest revenue from borrowers after interest paid to depositors, rose 25 percent to S$893 million from S$714 million, the bank said. Its net interest margin widened to 2.21 percent from 1.93 percent a year earlier. It narrowed from 2.23 percent in the second quarter.

Loans extended by Singapore banks reached S$267.8 billion at the end of August, an increase of 25.3 percent from a year ago, according to figures from the Monetary Authority of Singapore. That's the highest since the central bank started compiling the data in January, 1991.

Non-interest income fell 19 percent to S$319 million from S$393 million, it added. Fee income from credit cards, funds and other financial products dropped by 14 percent to S$274 million from S$319 million.

Oversea-Chinese is scheduled to report its third-quarter results on Nov. 5 while DBS is slated to announce on Nov. 7.

To contact the reporters on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.netJean Chua in Singapore at jchua4@bloomberg.net

Last Updated: October 31, 2008 05:57 EDT