UOB's Bad Loans Take Shine Off Better-Than-Estimated Profit

Updated on
  • Bank added most new nonperforming assets in more than a year
  • Largely due to one ‘large account’ in oil and gas, CFO says

Pedestrians walk past the entrance to a United Overseas Bank Ltd. (UOB) branch in the central business district of Singapore.

Photographer: Sanjit Das/Bloomberg

Troubles in the oil and gas services industry took the gloss off United Overseas Bank Ltd.’s results, with bad loans increasing the most in more than a year.

The Singaporean lender declared S$799 million ($588 million) of new nonperforming assets in the three months to September, overshadowing a better-than-expected profit figure that was driven by higher interest income and wealth-management fees. UOB shares were little changed on Friday morning.

The new bad loans were largely due to one “large account” in the oil and gas sector, Chief Financial Officer Lee Wai Fai said in a slide presentation, without naming the company. Exposures to that industry “remained under stress,” though the bank had set aside “adequate levels of allowances,” Lee said.

While rising domestic interest rates have allowed Singaporean banks to charge more for loans, the energy services industry’s continuing struggles have dragged on their exposures to the sector. UOB’s larger competitor Oversea-Chinese Banking Corp. last week reported a 12 percent profit gain amid higher interest and wealth income.

UOB’s third-quarter net income rose by the same percentage to S$883 million, the bank reported on Friday. That beat the S$841 million average forecast in a Bloomberg survey of six analysts, as net interest income gained 15 percent.

Like its peers, the bank has been able to price its loans higher in part because of gains in the Singapore interbank offered rate. The three-month Sibor, which reached a more than one-year high in July, rose by 0.13 percentage point in the third quarter.

Fee income from UOB’s wealth-management operations rose 40 percent to S$143 million during the third quarter. The bank has been growing its own wealth business rather than relying on acquisitions like OCBC and DBS Group Holdings Ltd., its two larger competitors.

Still, those gains were offset by lower trading income, higher operating expenses and allowances for loans. The new nonperforming assets drove the bank’s total NPAs to S$3.92 billion in the period.

Several local companies in the energy services sector have either defaulted on loan repayments or sought debt restructuring after a prolonged weakness in oil prices. The problems have been exacerbated by falling collateral values for oil vessels.

Shares of UOB have risen 21 percent this year, the least among the three major Singapore banks. The stock lost 0.1 percent to S$24.76 as of 9:28 a.m. local time.

Here are key figures from UOB’s results:

  • Fee and commission income gained 12% to S$551 million from year earlier
  • Net customer loans rose 8% to S$230.1 billion
  • Net interest margin expanded to 1.79% from 1.75% in June
  • Nonperforming loans ratio was at 1.6% from 1.5% in June
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