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UOB Q4 profit flat, limited by bad loans, higher costs

SINGAPORE — United Overseas Bank (UOB), the Republic’s third largest lender, yesterday reported its fourth-quarter net profit was little changed from the corresponding period a year ago, with earnings capped by provisions for bad loans and higher expenses.

SINGAPORE — United Overseas Bank (UOB), the Republic’s third largest lender, yesterday reported its fourth-quarter net profit was little changed from the corresponding period a year ago, with earnings capped by provisions for bad loans and higher expenses.

UOB, the first of Singapore’s three banks to release financial results, earned S$788 million in the fourth quarter ended Dec 31, up a marginal 0.3 per cent from S$786 million previously. For the whole year, net profit slipped 1.2 per cent to S$3.2 billion.

The bank booked S$190 million in the final quarter as allowances for credit and other losses, up 14.6 per cent from the corresponding period a year ago, with higher specific amounts set aside for non-performing loan (NPL) accounts in Singapore, Indonesia and Greater China.

The three areas accounted for the increase in NPLs to S$2.9 billion by the end of last year, representing 1.4 per cent of total loans.

“In Indonesia, there were a few NPLs from the shipping industry … Those in Singapore and Greater China arose mainly from manufacturing and general commerce activities,” said UOB chief financial officer Lee Wai Fai.

Gains for the quarter were also capped by one-off expenses that included S$43 million incurred for its 80th anniversary commemorative events and brand campaign, said the lender.

UOB’s net interest income — the difference between what it makes from loans and what it pays on deposits — rose 9.3 per cent in the three-month period from a year earlier to S$1.3 billion, helped by a 10-basis-point increase in net interest margin to 1.79 per cent.

Non-interest income rose by 17.9 per cent to S$803 million, as earnings from fees and commissions grew 6.7 per cent to S$480 million. Trading and investment income jumped 64.3 per cent to S$263 million.

For the full year, net interest income grew 8.1 per cent to S$4.9 billion, boosted by loan growth and rising interest rates in Singapore, which led to a six-basis-point increase in the net interest margin to 1.77 per cent.

UOB’s board recommended a final one-tier tax-exempt dividend of S$0.35 per ordinary share, bringing the total dividend for the year to S$0.90 after taking into account an interim one-tier tax-exempt dividend of S$0.35 and the one-off 80th anniversary dividend of S$0.20.

For the year ahead, UOB is targeting mid-single-digit growth in its gross loans, said group deputy chairman and chief executive Wee Ee Cheong.

However, he cautioned that if oil prices remain low for a prolonged period, about S$2 billion of the bank’s S$12 billion exposure to the oil and gas sector could “show weakness”.

Mr Lee said this could bring the group’s NPL ratio to 2 per cent, but added this would only happen if all stress-test scenarios happened at the same time.

Mr Wee said financial markets will continue to grapple with volatility and uncertainty arising from concerns over China’s slowdown and falling oil prices.

“Externally, there will be a slowdown, but this is part of the business cycle, not a crisis … Overall, we see the impact as something manageable, it’s more on profitability rather than balance sheet,” he said.

Following the release of the financial results yesterday morning, the bank’s shares fell 0.2 per cent to close at S$17.81, compared with the 1.4 per cent rise in the benchmark Straits Times Index.

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