Rising charges for bad debts linked to the struggling oil and gas sector took their toll on United Overseas Bank in the third quarter.
The bank reported yesterday that it set aside $185 million in the quarter to cover bad loans, compared with $160 million in the same quarter a year earlier - largely owing to the oil and gas industries.
Investor relations head Jimmy Koh told The Straits Times: "What we are seeing is the result of the collapse in oil prices and issues pertaining to the oil and gas industry. We are seeing that being reflected in the books of banks now, due to the lag time."
UOB said the broader loan portfolio remains sound.
It had a total exposure of $13.2 billion to the oil and gas industry in the third quarter, including $9.2 billion of outstanding loans making up 4 per cent of its total loan book.
UOB noted that the bulk of its energy sector exposure is to traders and downstream players such as refiners, marketers and distributors, which have been much less affected by the industry downturn than upstream players, which are mainly involved in exploration and production.
AT A GLANCE
TOTAL INCOME $2.04 billion (-2.1%)
NET PROFIT $791 million (-7.8%)
The energy sector woes contributed to earnings slipping 7.8 per cent to $791 million for the three months ended Sept 30, compared with the same period last year.
Part of the decline was due to the absence of a one-off gain that helped boost numbers in the third quarter in 2015.
UOB's earnings still beat the average forecast of $771 million from five analysts polled by Bloomberg, mainly as loans grew at a 7 per cent pace. Loans at rival bank OCBC, by comparison, fell 2 per cent in the third quarter.
Net interest income dipped 0.4 per cent to $1.23 billion. The fall in net interest margins by eight basis points to 1.68 per cent was offset by year-on-year loans growth of 7 per cent.
Non-interest income fell 4.7 per cent to $810 million, while fee and commission income inched up 1.6 per cent to $492 million, thanks to higher fund management and credit card fees.
The third-quarter non-performing loans ratio was 1.6 per cent, higher than last year's 1.3 per cent and a tad above 1.4 in the second quarter.
"The increase was mainly from the oil and gas industry," said the bank.
Quarterly earnings per share was $1.90, from $2.07 in the same period a year ago, while net asset value per share was $18.54 as at Sept 30, up from $17.49 a year ago.
Mr Koh added that the bank has been preparing for the down cycle by setting aside a generous level of general provisions - a cash pile that it can use as a buffer against soured loans - since 2010.
Even after the increased allowances this quarter, its buffer stands at 1.4 per cent of its total loan book.
"With a total loan book of about $217 billion, our general provisions stand at about 1.4 per cent of gross loans - that's a $3 billion cushion against potential asset quality issues that we can work with," he said.
UOB shares closed 31 cents down at $18.63 yesterday.
• Additional reporting by Yasmine Yahya