Local banks are in better shape but bad loans will increase, he says
By SIOW LI SEN
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VETERAN banker Wee Cho Yaw yesterday said that he remained pessimistic over the banking industry and that recovery may take another one to two years. But he also ruled out a rights issue for United Overseas Bank (UOB) as the bank is well capitalised.
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| Mr Wee: Ruled out a rights issue for United Overseas Bank as it is well capitalised |
While the local banks are in better shape than foreign banks and should be able to enlarge their market share, he warned that their bad loans will increase.
Mr Wee, UOB chairman, was answering questions at the bank's 67th annual meeting with shareholders.
Vincent Chen asked Mr Wee for his views on the prospects for the banking industry given that he was very pessimistic at last year's annual shareholders' meeting.
'Even up to now, I am still pessimistic. We are not out of the woods yet, maybe another one to two years,' said Mr Wee.
He felt that banks in the US and the developed Organisation for Economic Cooperation & Development (OECD) countries will continue to have more bad loans and will have to set aside more provisions. Foreign banks operating here will be constrained in extending loans, he said.
He noted that the government has put in place measures to help the small and medium-sized enterprises (SMEs). 'You help SMEs, you help local banks,' said Mr Wee.
UOB and its local rivals DBS Group Holdings and OCBC Bank have the bulk of their loans to SMEs.
One Mr Lim pointed out that UOB in 2006 said that it wanted to have 40 per cent of its income from outside Singapore and wondered what has happened to that target.
'I really have my doubts, we still depend very much on Singapore,' said Mr Wee.
Chief executive Wee Ee Cheong said it is a target that the bank still wants to achieve. He also said that of UOB's non-performing loan (NPL) ratio of 2 per cent, the NPL for its Singapore loans is one per cent.
Another shareholder complained about the higher NPL at UOB and cutting its final 2008 dividend and wanted to know if the bank was planning a rights issue.
UOB ended 2008 with NPL at 2 per cent, versus 1.5 per cent at DBS and OCBC. Unlike its rivals, UOB cut its final dividend to 40 cents from 45 cents.
'Yes, UOB NPL is higher. More important is profitability,' Mr Wee said, explaining that if the bank can make more money, that can cover NPLs. He also said there will be more bad loans.
As for a rights issue, Mr Wee said that the bank does not need a rights issue as it is comfortable with its current capital and it is being careful with loan growth. 'If the economy recovers, if we decide to raise capital to acquire business, we may have a rights issue, but not at the moment.'
When one shareholder complained that UOB was giving zero per cent for US dollar deposits, and another said that other banks too do the same, Mr Wee was indignant. 'Zero interest . . . something wrong,' he said to much laughter from shareholders. 'Not necessarily other banks do it, we have to follow,' he said. 'I think management should look into it,' he added.
UOB's chief financial officer Lee Wai Fai said that the bank, when pricing the interest rates for the deposits, follows the market and that short-term US dollar interest rates are very low.
Mr Wee assured shareholders that he is chairman of the bank's executive committee and monitors the situation closely. As for the lower dividend, he noted that the bank's profit had fallen to $1.9 billion from $2.1 billion.
'Second, I see the economy is getting worse. We must preserve our capital - as Vincent said - I'm pessimistic. I may be wrong, but we must take a view,' he said. He also said that UOB takes a long-term view, unlike foreign banks. 'I've been here 51 years.'
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