Net income in the three months ended Sept. 30 rose to S$730 million ($588 million) from S$707 million a year earlier, the Singapore-based lender said in a statement to the city’s stock exchange today. That beat the S$707 million average of nine analysts’ estimates compiled by Bloomberg.
UOB joins Singapore competitors DBS Group Holdings Ltd. (DBS) and Oversea-Chinese Banking Corp., which last week reported earnings that surpassed analysts’ estimates. Investors in UOB have focused less on Singapore’s operating environment, where banks have the lowest average net interest margins in Southeast Asia, and more on the strength of the bank’s balance sheet and management, said Macquarie Capital Securities Singapore Pte.
“It’s a kind of bank that investors can hold on to for a longer period of time as they tend to be more circumspect rather than aggressive when things are going good,” Matthew Smith, an analyst at Macquarie, said by phone today. He had estimated profit of S$741 million for the lender.
The bank’s loan book grew 16 percent in the quarter to S$173.5 billion from a year earlier, driven by a 31 percent jump in lending for manufacturing and a 20 percent increase each to the construction industry and general commerce. Net interest income, the difference between what UOB makes from loans and pays on deposits, gained 7.7 percent from a year earlier to S$1.05 billion.
Shares of the bank have risen 5 percent this year, compared with a 1.2 percent advance for Singapore’s Straits Times Index. UOB trades for 1.4 times its book value, the same as the benchmark stock gauge, data compiled by Bloomberg show.
UOB is majority-owned by Singapore’s Wee family, which controls companies in industries from property to health care. Wee Ee Cheong, a grandson of the bank’s founder, is its deputy chairman and chief executive officer.
UOB’s net interest margin was 1.71 percent at the end of the quarter. While that was lower than 1.84 percent a year earlier, the figure was the same as the previous quarter. DBS and OCBC reported margins for the period of 1.6 percent and 1.63 percent respectively.
“Although they’re not going up, they’re not going down,” said Smith. “You’ll have to look at that as a positive.”
Singaporean banks are mulling overseas expansion plans to offset declining lending margins. OCBC is considering a bid for Hong Kong’s Wing Hang Bank Ltd. (302), people familiar with the matter said on Oct. 24. UOB made an initial offer for Wing Hang, though the companies aren’t currently in talks, people with knowledge of the matter have said.
“They don’t tend to engage in overpriced mergers and acquisitions,” Macquarie’s Smith said before the results. “I can’t find an example of where they have done that.”
Banks in Hong Kong have an average net interest margin of 1.73 percent, lower than Singapore’s 1.78 percent, according to data compiled by Bloomberg. While Singaporean margins are higher, the Chinese city is seen by lenders as a gateway to the mainland and a way to benefit from the country’s efforts to increase the global use of the yuan.
UOB’s revenue from fees and commissions derived from services including credit cards and fund management advanced 9.2 percent in the third quarter to S$407 million from a year earlier. Other non-interest income contracted 34.2 percent to S$211 million due to lower gains from the sale of securities.
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