UOB Profit Beats Analyst Estimates on Higher Trading and Fees

United Overseas Bank Ltd. (UOB), Southeast Asia’s third-largest lender by total assets, posted a 12 percent gain in first-quarter profit, beating analyst estimates as all its main businesses grew.

Net income advanced to S$688 million ($550 million) from S$612 million a year earlier, the Singapore-based bank said in a statement to the stock exchange yesterday. That exceeded the S$626 million average of seven analyst estimates compiled by Bloomberg. Income from lending, fees and commissions, and trading and investment all rose.

Chief Executive Officer Wee Ee Cheong is seeking to boost profit after declines in the previous two quarters, when the value of investments slumped, trading income fell and the bank set aside more funds for loan defaults. Lending in Singapore, where UOB got 65 percent of pretax profit in 2011, grew by an average 27 percent in the first three months of this year, according to data compiled by Bloomberg.

“Where the results surprised is on income from trading and investment-related gains, always a difficult area to forecast,” said Matthew Smith, a senior analyst at Macquarie Capital Securities Singapore Pte. “Also, loan loss provisions were lower than expected.”

UOB’s net fees and commissions advanced 9.5 percent to S$362 million as earnings from wealth-management and corporate finance activities increased. Other non-interest income climbed 22 percent to S$268 million, driven by dividends, trading and gains from the sale of investments.

Market Rally

Financial markets rallied worldwide, with the MSCI World Index (MXWO) posting its best performance in six quarters in the period as Europe’s debt crisis eased and U.S. unemployment fell, helping boost trading revenue at lenders including Bank of America Corp.

Allowances for credit and other losses were little changed, advancing 1 percent from a year earlier to S$104 million.

UOB’s net interest margin, a measure of lending profitability, widened to 1.98 percent from 1.90 percent a year earlier. Net interest income, the difference between what the bank makes from lending and what it pays on deposits, grew 15 percent from a year earlier to S$998 million.

The loan book grew 21 percent, compared with an average 25 percent growth for Singaporean banks last year.

‘Cost-Conscious’

“They are a cost-conscious company with stable interest margins, and growing their assets in a moderate way in Southeast Asia,” Mark R. Glazener, head of equity investments at Rotterdam-based Robeco Groep NV, which managed 150 billion euros ($194 billion) of assets as of the end of 2011 including UOB shares, said before the announcement. “The main challenge for the bank is to keep on delivering on growth to justify its present price.”

The stock trades at 12.6 times earnings, compared with 8 times for the Bloomberg Asia Pacific Banks Index (BPRBANK) that tracks 56 lenders in the region including UOB.

DBS Group Holdings Ltd. (DBS), Southeast Asia’s largest bank, last month posted first-quarter profit that unexpectedly climbed 16 percent to a record S$933 million. Growth at the lender, which is bidding $7.2 billion for PT Bank Danamon Indonesia, was driven by higher income from interest and trading.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.