United Overseas Bank (UOB) posted better-than-expected first-quarter results, thanks to higher fee income and loans growth.
The impact of oil and gas sector non-performing loans (NPL) also showed some signs of easing, a trend management expects to continue for the rest of the year.
Investors cheered the positive figures, pushing UOB shares up 1.54 per cent to $21.80 yesterday.
Net profit for the three months to March 31 rose 5.4 per cent to $807 million, compared with a year earlier, as total revenue grew 7.8 per cent year on year to $2.12 billion.
This bright showing was above some analysts' forecasts. CIMB's net profit estimate was markedly lower at $765 million.
UOB was able to reap the rewards from the more bullish investment market in the first quarter of this year. As a result, its trading and investment income jumped 20.5 per cent to $243 million, while fee and commission income grew 17.5 per cent to $508 million.
These added up to $819 million of non-interest income, up 18 per cent year on year.
AT A GLANCE
REVENUE: $2.12 billion (+7.8%)
NET PROFIT: $807 million (+5.4%)
NPL RATIO: 1.5% (1.4% in Q1, 2016)
In the interest income segment, UOB's gross loans grew 9.4 per cent to $229.12 billion. Net interest margin was 1.73 per cent, down from 1.78 per cent a year ago, but up from last quarter's 1.69 per cent.
Total net interest income rose 2.3 per cent to $1.3 billion, with an NPL ratio of 1.5 per cent - unchanged from last quarter and only slightly up from 1.4 per cent a year ago.
UOB was the first of the three local banks to report first-quarter earnings. NPL exposure among local banks to the oil and gas industry has been a top concern among market watchers.
Banks typically have to set aside money as allowances for bad loans.
These provisions take their toll on the bottom line.
For the first quarter, UOB still had to fork out specific allowances of $277 million - $145 million more than a year ago but $151 million less than in the period from September to December.
UOB chief financial officer Lee Wai Fai said the oil and gas provision level had peaked last year and is expected to normalise this year.
Maybank Kim Eng analyst Ng Li Hiang believes the first-quarter results are evidence of that trend.
"UOB has the lowest exposure to oil and gas support services among Singapore banks and its provisions have factored in declines in collateral values," Ms Ng told The Straits Times. "We expect specific provisions to come down from oil and gas exposure for this year."
Collateral values are the values of assets used as loan collateral. In the case of the oil and gas industry, the collaterals are usually vessels.
Quarterly earnings per share was $1.92, up from $1.84 a year earlier.
Net asset value was $19.35 per share, up from $18.82 as at the end of last year.