UOB Reports Smaller-Than-Estimated Drop in Quarterly Profit

  • Profit boosted by sale of investment securities, bank says
  • Firm to pay dividend, interest margin rises from year earlier

United Overseas Bank Ltd., Southeast Asia’s third-largest bank by assets, reported a smaller-than-estimated decline in quarterly profit as interest income and the sale of investment securities offset lower trading income.

Net income retreated 1 percent to S$858 million ($612 million) for the three months ended Sept. 30, the Singapore-based bank reported Friday, beating the S$812 million average of seven analysts’ estimates compiled by Bloomberg. The lender will pay a one-off dividend of 20 Singapore cents per share to commemorate the 80th anniversary of its founding.

Singaporean banks are benefiting from higher domestic rates that are helping offset slower loan growth amid a regional economic slowdown and slumping commodity prices. UOB rival Oversea-Chinese Bank Corp. this week forecast full-year loan growth in the “low-single digit” percentage range as it reported a higher nonperforming loan ratio. UOB’s bad-loan ratio rose to 1.3 percent from 1.2 percent in June.

“UOB is able to hold on to their net interest margin better than its peers as a large portion of customer loans are in Singapore,” said He Yuxuan, a KGI Fraser Securities analyst who’s based in that city. The dividend “was a pleasant surprise, which shareholders should welcome.”

Interest Margins

UOB shares lost 0.1 percent to S$20.03 as of 9:10 a.m. local time, less than the benchmark Straits Times Index’s 0.7 percent decline, or OCBC’s 1.1 percent drop. UOB slumped 18 percent in 2015 through yesterday, the most among Singapore’s three banks.

Net interest income in the quarter grew 6.9 percent to S$1.24 billion, UOB said. Its average net interest margin, a measure of lending profitability, increased six basis points for the three months ended Sept. 30 to 1.77 percent from a year ago. The figure was unchanged from June.

A climb in the three-month Singapore interbank offered rate, or Sibor, this year has helped support interest margins. While the rate has dropped from its Sept. 17 peak of 1.14 to 1.07 percent as of yesterday, it’s still more than double its level from a year earlier, amid expectations the U.S. Federal Reserve will soon move to increase interest rates.

“Further upside should come from the U.S. interest rate hike, though the effect should only be visible in 2016,” KGI’s He said.

Non-interest income rose 4.2 percent to S$850 million, boosted by a 21 percent increase from credit card income and a S$148 million gain from selling investment securities, UOB said. That offset a 27 percent decline in net trading income.

OCBC, the second-largest bank in Southeast Asia, said core net profit for September quarter rose 7 percent as interest income offset a decline at its insurance business. DBS Group Holdings Ltd. reports its quarterly income Nov. 2.

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