Market volatility in the first quarter hit earnings at United Overseas Bank (UOB) but the lender said it is well equipped to weather the uncertainties ahead.

Net profit came in at $766 million for the three months to March 31, down 4.4 per cent from a year earlier and a tad below the $767 million forecast by analysts in a Bloomberg poll. The lower profit came as revenue eked out a 0.7 per cent increase to $1.97 billion.

An 8 per cent drop in non-interest income to $695 million dealt a blow to revenue as wealth management fees and investment income fell amid "softer investors' appetite due to volatile market conditions", UOB said when announcing its results before markets opened yesterday.

Net asset value was $18.22 per share, up 1.9 per cent, while earnings per share was $1.84, down 4.7 per cent year on year.

But there were also positive takeaways. The non-performing loan ratio was 1.4 per cent, up from 1.2 per cent from a year ago but unchanged from the previous quarter. The amount of non-performing assets fell 1.6 per cent from the fourth quarter last year to $3.02 billion.

Total allowances - a key gauge of how much a bank sets aside to cover potential risky loans - dropped 30.7 per cent to $117 million. UOB said it has no plans to raise its credit costs.

"These are all welcome signs of a resilient balance sheet. With plenty of provisions already set aside in the previous quarters, UOB has a pretty good buffer for any incoming default," KGI banking analyst He Yuxuan told The Straits Times.

Local banks' loan book exposure to the struggling oil and gas sector has been a major concern for market watchers. All three banks have stressed that the risk is manageable.

While its balance sheet is broadly in order, UOB's growth outlook is still uncertain, Mr He said, adding: "It remains to be seen whether the market impact on fee income is just a one-off event. Also, with local interbank rates tapering off and weak loans growth, there is now pressure on net interest margin (NIM) and net interest income."

UOB managed to record 6.1 per cent growth in net interest income to $1.28 billion in the first quarter, but the amount was down 0.2 per cent from the fourth quarter last year. NIM was 1.78 per cent, up from 1.76 per cent a year earlier but down from 1.79 per cent in the fourth quarter last year. Net customer loans grew 2.9 per cent year on year to $205.58 billion.

The pressure on margins followed the 20 per cent drop in the Singapore Interbank Offered Rate since mid-March, reflecting the delayed rate hikes in the US.

A slower growth environment in Asia is hurting UOB's performance, but the bank is well placed to ride through the headwinds, chief executive Wee Ee Cheong noted. "Our resilient balance sheet puts us in good stead to support our customers through economic cycles. At the same time we stay focused on building our core franchise for the long term," he said in the results statement. UOB shares closed down three cents at $18.85 yesterday.