Published October 31, 2009

UOB's Q3 profit up 5.3% at $500m

Bigger gains from investment activities, growth in lending income boost results

By CONRAD TAN

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UNITED Overseas Bank's net profit rose 5.3 per cent to $500 million for the third quarter from a year ago, surpassing analysts' estimates, as the group signalled growing optimism in its outlook.

MR WEE 'Three months back, we indicated that maximum fear is behind us. Now, it appears that the worst for the economy is behind us as well'

UOB benefited from a sharp rise in net gains from investment activities, as well as growth in net interest income from its lending activities, which more than offset a steep increase in charges for bad loans, compared to the same period last year.

'Three months back, we indicated that maximum fear is behind us. Now, it appears that the worst for the economy is behind us as well,' said chief executive Wee Ee Cheong.

'It was remarkable that the damage on Asian economies was relatively muted. Besides swift policy responses, one crucial factor is the strong balance sheet of Asian corporates and individuals as we entered the crisis.

'Essentially, we had an economic shock but not a banking crisis in this part of the world.'

Related links: Click here for UOB's news release Financial statements

Compared to the previous quarter, UOB's Q3 net profit of $500 million was 6.3 per cent higher - despite a steep drop in income from trading and investment gains - as impairment charges for loans, investment securities and other assets halved to $235 million.

Six analysts surveyed by Reuters had forecast an average of $463 million in Q3 net profit for UOB, while the median estimate of nine analysts polled by Bloomberg was $440 million.

'Generally, it's a good set of results indicating that the group is on the way to recovery,' said Pauline Lee, a banking analyst at Kim Eng Securities. 'The net interest income is improving, there's margin expansion, and general provisions are coming down, indicating that the bank is more comfortable with the outlook.'

Non-interest income for the quarter came to $396 million, up 24.1 per cent from a year ago, mainly due to mark-to-market gains on investments as financial markets recovered. Compared to Q2, however, non-interest income fell 28 per cent, due to a sharp drop in trading and investment income, though that was partly offset by higher fees and commissions from fund management, and investment and loan-related activities.

UOB's annualised earnings per share for Q3 - or what the group would earn for a whole year if its earnings continued at the same pace - came to $1.26, up from $1.18 for Q2 and $1.23 a year ago.

For the first nine months of the year, net profit fell 14 per cent to $1.38 billion, compared to a year ago.

Its share price ended 2.2 per cent higher at $17.08 yesterday, outpacing a 0.7 per cent rise in the Straits Times Index.

Net interest income for the three months to end-September rose 3.6 per cent from a year ago to $925 million. Compared to the second quarter, it increased 2 per cent, mainly due to a longer calendar quarter and higher contributions from interbank lending, UOB said.

The bank's customer loan book - less allowances for bad loans - expanded just 0.6 per cent for the third quarter to $98.3 billion at the end of September, driven mainly by Singapore housing loans, it said. UOB's overall housing loan portfolio grew 4.8 per cent during the quarter to $26.5 billion.

Over the year to end-September, net customer loans shrank 2.1 per cent.

UOB's net interest margin - a measure of the interest earned on loans to customers, interbank lending, and securities such as bonds after deducting funding costs - widened to 2.39 per cent for the third quarter, compared to 2.35 per cent for Q2 and 2.21 per cent a year ago, boosting the bank's profit on its lending activities.

The proportion of non-performing loans (NPLs) held by UOB at end-September was the same as three months earlier, at 2.4 per cent, as NPLs in its three biggest markets - Singapore, Malaysia and Thailand - fell slightly, offsetting a rise in NPLs in Indonesia, Greater China and elsewhere. Total NPLs were almost unchanged from at the end of June, $2.48 billion, but higher than the $1.63 billion recorded a year ago, when the proportion of NPLs was 1.5 per cent.

As the economy recovers and business and consumer sentiment improves, overall bank lending is picking up again, rising 1.4 per cent in the third quarter to $275.89 billion - including a 0.5 per cent increase in September - the latest estimates from the Monetary Authority of Singapore yesterday show.

That's just shy of the all-time high of $275.94 billion recorded at the end of October last year. But the $3.69 billion increase over the three months to end-September was due almost entirely to a rise in consumer housing and bridging loans, which grew by $4.2 billion, or 5.1 per cent, to $87.07 billion, even as loans to businesses declined by $197 million, or 0.1 per cent, to $153.29 billion.