UOB Shares Gain as Results Allay Earlier Fears on Asset Quality

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  • Nonperforming loan ratio flat at 1.4 percent from 4th quarter
  • Profit drop in line with slower economic growth, CEO says

Shares in United Overseas Bank Ltd., Southeast Asia’s third-largest bank by assets, rose on Thursday after it reported first-quarter results that calmed fears about how the bank is weathering weaker economic growth.

UOB’s non-performing loans stood at S$2.88 billion ($2.1 billion) at the end of December, accounting for 1.4 percent of total loans. The ratio was broadly flat from the fourth quarter of 2015, but rose from 1.2 percent a year ago, the bank said, reassuring analysts.

“Some market concerns are being allayed as asset quality remains manageable,” Melissa Kuang, an analyst at Goldman Sachs Group Inc. in Singapore, wrote in an e-mailed report. "The focus may now turn towards the top line, which is showing weakness due to weak economic activities and slow capital markets."

UOB shares rose 1 percent at 11:41 a.m. in Singapore, after trading as much as 1.6 percent higher earlier. The benchmark Straits Times index gained 0.2 percent.

UOB is the first Singapore bank to report first-quarter results after the Monetary Authority of Singapore eased its policy stance to combat a slowdown in the economy. The central bank’s decision earlier this month to adopt a policy last used during the 2008 global financial crisis comes at a time when Singapore banks are facing slowing loan growth and a deterioration in asset quality.

‘Bullish Indicator’

UOB’s decision to lower its bad loan provisions to S$117 million in the first quarter, down 31 percent from a year earlier, is another "bullish indicator" on asset quality, Kevin Kwek, an analyst at Sanford C. Bernstein in Singapore, said in a note.

UOB’s net income fell 4.4 percent to S$766 million for the three months ended March 31 from S$801 million a year earlier. That was in line with the average forecast of S$767 million in a Bloomberg survey of five analysts. Gains in net interest income were offset by a dip in earnings from wealth management, trading and investment.

“Even as the region faces macro headwinds in the near term, we believe its economic fundamentals are largely capable of coping with bouts of market volatility,” UOB Chief Executive Officer Wee Ee Cheong said in the earnings statement. The bank’s drop in income was in line with the slower growth environment, he said.

Lower Fees

Wealth management fees declined 26 percent to S$81 million from a year ago, weighing on total fee and commission income, the bank said. Other non-interest income fell 8 percent to S$695 million, mainly because of a lower gain from investment securities. Volatile market conditions during the first quarter curbed investor appetite, the bank said.

Net interest income climbed 6 percent to S$1.28 billion, while fee and commission income dropped 4.5 percent to S$433 million, the bank said. UOB’s first-quarter net interest margin, a measure of lending profitability, rose to 1.78 percent, compared with 1.76 percent a year ago. The margin stood at 1.79 percent in the last three months of 2015.

Loan Rates

The benchmark three-month Singapore interbank offered rate, or Sibor, has fallen back this year after surging in 2015. Because Singapore banks use Sibor to price many of their loans and mortgages, the drop this year could erode profitability, He Yuxuan, an analyst at KGI Fraser Securities in Singapore, said Thursday by phone.

Singapore saw zero growth in its gross domestic product on an annualized basis in the first three months of the year from the previous quarter, the trade ministry said April 14. UOB generated 58 percent of its first-quarter operating income from Singapore. The bank reported a loan growth of 5 percent in constant-currency terms in the first quarter.

UOB stock has lost 2.6 percent this year, after plunging 20 percent in 2015, mainly on investors’ concern about Singapore banks’ exposure to the oil and gas sector. Oversea-Chinese Banking Corp. will report its results on Friday, to be followed by DBS Group Holdings Ltd., Southeast Asia’s largest bank by assets, on May 3.