UOB Q4 profit drops 6%, better than expected, on lower total provisions

Office workers walking past the UOB ATMs at Raffles Place.
Office workers walking past the UOB ATMs at Raffles Place.PHOTO: ST FILE

SINGAPORE - United Overseas Bank, Singapore's No 3 lender, reported on Friday (Feb 17) a 6.2 per cent drop in net profit for the fourth quarter, as it surprised with a fall in total provisions despite surging bad loans to the oil and gas sector.

The results were better than the 7.4 per cent fall in net earninsg to S$730 million that analysts polled by Reuters had expected, and the S$730.2 million forecast in a Bloomberg survey.

UOB's net profit for the three months to Dec 31, 2016, came in at S$739 million from S$788 million a year ago, as revenue slipped 2.5 per cent to S$2.03 billion.

UOB said specific charges on loans in the quarter surged S$313 million to S$428 million due to non-performing loans (NPL) in the oil and gas and shipping industries.

But total allowances fell 31.4 per cent to S$131 million from S$190 million, due to lower specific allowance on other assets and a release in general allowance.

Meanwhile, non-interest income dropped 6.3 per cent year on year to S$753 million, due to lower trading and investment income which offset a 10.6 per cent growth in fee income to S$531 million.

Net interest income was roughly level with a year ago at S$1.28 billion. Net interest margin shrank from 1.79 per cent a year ago to 1.69 per cent, which offset loans growth in the period.

For the full year, UOB's net earnings fell 3.5 per cent to S$3.10 billion. Total income was stable at S$8.06 billion, reflecting "the resilience of the group's core businesses in a slowing economic environment", it said.

Specific allowances on loans jumped S$577 million across 2016 to S$969 million.

For UOB, total NPL reached S$3.33 billion by the end of last year, up from S$2.88 billion by the end of 2015. Of that sum, NPL linked to the transport, storage and communication firms - a segment oil and gas falls under - accounted for S$965 million.

NPL ratio was 1.5 per cent, up slightly from 1.4 per cent from last year.

The board recommended a final dividend of 35 Singapore cents per share, unchanged from a year ago, bringing total dividend for 2016 to 70 cents.

UOB is the last of Singapore's Big Three banks to report results this week. DBS' quarterly profit fell 9 per cent to S$913 million, their lowest in two years, while OCBC's slumped by 18 per cent to to S$789 million, as their bad-debt allowances surged on soured loans to the oil and gas services sector.

DBS has set aside S$1.49 billion in 2016 to cover for bad loans, while OCBC has provided for S$726 million and UOB S$577 million.

UOB deputy chairman and CEO Wee Ee Cheong said global uncertainty and slow growth and rapid digital transformation will continue in 2017.

"However, Asia with its increasing integration and consumer affluence presents opportunities for long-term players such as UOB," he said.

DBS CEO Piyush Gupta said on Thursday the bank may be past the worst of its problems from loans to troubled oil and gas-services companies.

While the sector is "still challenged," the formation of new nonperforming assets and bad-loan charges for the industry are expected to be "significantly lower this year," he told reporters. His comments contrasted with the gloomier outlook offered by OCBC's chief Samuel Tsien on Tuesday.