UOB Fourth-Quarter Profit Drops 21% on Trading Decline, Impairment Costs
United Overseas Bank Ltd. (UOB), Southeast Asia’s third-largest lender, posted a 21 percent drop in fourth- quarter profit after a one-time gain boosted year-earlier earnings and it set aside more funds for defaults.
Net income fell to S$558 million ($445 million) for the three months ended Dec. 31, from S$706 million a year earlier, the Singapore-based lender said in a statement to the stock exchange today. That was lower than the S$593.8 million average of seven analysts’ estimates compiled by Bloomberg.
Bigger rivals DBS Group Holdings Ltd. and Oversea-Chinese Banking Corp. this month reported higher profit on credit growth. Earnings may falter this year as a weakening economy damps demand for loans and prompts banks to set aside more cash in case borrowers can’t repay debts, said analyst Trevor Kalcic.
“The Singapore economy is clearly slowing and that may slow loan growth for UOB, as it will for the other Singapore banks,” Kalcic, who works for Royal Bank of Scotland Group Plc in the city-state, said before the results. “Asset quality may deteriorate and provisions may go up in the next few quarters.”
Shares of UOB were unchanged at S$18.40 at the close of trading before the earnings were released. They have gained 21 percent this year. Profit climbed 0.8 percent after excluding a S$152 million gain from the sale of two companies a year earlier, the statement showed.
UOB’s net interest income, or the difference between what a bank makes from lending and what it pays on deposits, rose 13 percent from a year earlier to S$978 million.
Trading Income Drops
Fees and commissions rose 5.4 percent to S$327 million. Other non-interest income dropped 19 percent to S$173 million, led by a decline in trading and investment income to S$89 million. Impairment charges increased 25 percent.
Loan books of Singapore banks expanded more than 30 percent in the last two months of 2011, fueling earnings growth. DBS said on Feb. 10 that its quarterly profit gained 7.8 percent from a year earlier to S$731 million. OCBC (OCBC) said this week that net income grew 18 percent to S$594 million.
For the full year, UOB’s net income fell 14 percent to S$2.3 billion, led by increased provisions for bad debts, today’s report showed. The bank’s loan books grew 26 percent in 2011 to S$141 billion.
Chief Executive Officer Wee Ee Cheong said the increase in lending will ease this year. “Given the resilience of Asian economies, we’d like to see loan growth in the low teens,” Wee said at a news conference in Singapore today.
Singapore’s economic growth will slow to between 1 percent and 3 percent in 2012 from last year’s 4.9 percent, according to trade ministry forecasts.
Government measures to cool the mortgage market may also suppress loans. Prime Minister Lee Hsien Loong’s administration on Dec. 7 imposed extra taxes on residential property purchases by foreigners and existing homeowners.
To contact the reporter on this story: Sanat Vallikappen in Singapore at vallikappen@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
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