United Overseas Bank's (UOB's) head honcho believes the bank has likely seen the worst of its woes over oil and gas loans, although it will continue to face volatility this year.
Chief executive Wee Ee Cheong was speaking yesterday at UOB's annual general meeting, where some shareholders raised questions over issues related to non-performing loans (NPL) and provisions.
"We expect that new NPL inflows have peaked for this year, and hopefully everything should normalise downwards," he told about 500 shareholders at the AGM.
Mr Wee said UOB's oil and gas exposure makes up just 5 per cent of its total loan book, and stress tests have indicated that provisions will be "on a declining trend" this year.
All three local banks grappled with oil and gas NPLs throughout last year.
To cover for the potentially soured loans, they have to provide money as allowances, which will eat into earnings.
TOUGH ROAD AHEAD
Banking is very tough, particularly in the United States, Europe and China. I'm not pessimistic (but the) next one to two years will be very tough.
MR WEE CHO YAW, UOB's chairman emeritus, on his outlook for the future.
UOB's full-year net profit dropped 3.5 per cent year on year to $3.1 billion last year. In the fourth quarter of last year, it forked out $428 million for specific allowances.
Mr Wee Cho Yaw, UOB's chairman emeritus and Mr Wee's father, noted that none of the Singapore banks did well last year.
"Banking is very tough, particularly in the United States, Europe and China. I'm not pessimistic (but the) next one to two years will be very tough," said the 88-year-old, who was asked by one shareholder to share his views on the outlook.
"That's why I tell the management that we have to be very conservative. Don't be too aggressive."
Meanwhile, another shareholder who was worried about potential war in North Korea asked: "Should military tensions erupt, have you done a stress test on how that will affect your balance sheet?"
UOB's chief Wee said UOB has insignificant exposure in North Asia. There hasn't been a specific test for a war scenario, but chief risk officer Chan Kok Seong said UOB can still break even when asset prices plunge 30 per cent during crises.
The quality of mortgage loans is also stable, as 75 per cent of UOB's housing loans are for owner-occupied properties. This part of the loan book should be secure, given nearly full employment in Singapore, said Mr Wee.
UOB will remain resilient despite the volatility ahead, he concluded, pointing to the bank's robust balance sheet and South-east Asia's growth potential as key reasons to be confident.
All 10 resolutions before the meting were passed in less than two hours.
This year's AGM was held at the Sands Expo and Convention Centre to accommodate what was expected to be a larger turnout, but the actual attendance of around 500 shareholders was fewer than last year's turnout of 700 people.
Board director Wong Meng Meng, who stepped down after 17 years, noted that the banking business model is being challenged to transform and adapt in the digital age. But he is confident that the "forward looking" board can guide the bank through these challenges.