February 27, 2009, 2.31 pm (Singapore time)

Update: UOB Q4 profit falls 34% as bad debt charges rise

* Worst quarterly results since Q2 2003
* Q4 bad debt charges almost trebled to $381m
* Shares down 1%, reversing earlier gains

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SINGAPORE - United Overseas Bank (UOB), Singapore's second-ranked lender, reported a bigger-than-expected 34 per cent drop in fourth-quarter profit as writedowns for bad debts trebled and fees from capital markets fell.

UOB's net interest income rose 29 per cent to $957 million from a year earlier, helped by a jump in net interest margins to 2.45 per cent in the fourth quarter as the global credit crisis jacked up borrowing costs

The results, UOB's worst since the second quarter of 2003, reflect the growing risks for Singapore banks' earnings as weakening Asian economies threaten to hurt asset quality, slow loan growth and boost credit costs.

UOB, controlled by chairman Wee Cho Yaw and his family, is considered the leader in Singapore's loan market for small- and medium-sized businesses, which have been hit hardest by a global economic slowdown and a downturn in the property market.

'That was a bit of shocker,' said David Lum, an analyst at Daiwa Institute of Research, referring to the $381 million in writedowns for bad debts. 'Clearly impairments are based on outlook that conditions will continue to deteriorate.'

Related articles: Click here for UOB's news release Click here for Group financial report

UOB chief executive Wee Ee Cheong, the son of the chairman, said the bank is not immune from the impact of the global financial crisis and will be prudent in managing its business.

Net profit for October-December fell to $332 million (US$216 million) from $506 million a year ago. Analysts had estimated, on average, a net profit of $468 million, according to six forecasts compiled by Reuters.

UOB wrote down $381 million in the fourth quarter in bad debt, up from $128 million a year earlier, mainly due to loans that turned sour and on losses on investment securities.

The market had begun to pare down their expectations after DBS Group, Southeast Asia's biggest bank, earlier this month reported a bigger-than-expected 40 per cent drop in quarterly profit, its worst result in three years.

Third-ranked Oversea-Chinese Banking Corp (OCBC) last week posted a 30 per cent drop in quarterly net profit.

UOB said net lending grew 7.7 per cent from a year earlier, slowing from an 18 per cent expansion in the third quarter.

Net interest income rose 29 per cent to $957 million from a year earlier, helped by a jump in net interest margins to 2.45 per cent in the fourth quarter as the global credit crisis jacked up borrowing costs. The margin was 2.21 per cent in the third quarter and 1.94 per cent a year ago.

Non-interest earnings, such as commissions and fees on investment products, fell 27 per cent to $391 million as capital markets tumbled.

UOB shares fell 1 per cent to US$10.26 in afternoon trade after the results, erasing gains of 1.5 per cent at the midday break.

The shares have underperformed its Singapore rivals this year, falling around 20 per cent, more than the 8 per cent decline in the benchmark Straits Times Index. -- REUTERS