United Overseas Bank (UOB) beat expectations in the fourth quarter, thanks to its capacity to limit damage from souring loans to the beleaguered oil and gas sector.
Net profit for the three months to Dec 31 was down 6.2 per cent from a year earlier to $739 million, as revenue eased 2.5 per cent to $2.03 billion in that period. The results were better than the 7.4 per cent profit drop forecast in a Reuters poll.
Net interest income was down 0.1 per cent year on year to $1.28 billion, with net interest margin dropping from 1.79 per cent last year to 1.69 per cent. Non-interest income fell 6.3 per cent to $753 million.
UOB - the last of the three local banks to announce results - had to set aside $428 million of specific allowances in the fourth quarter due to non-performing loans (NPLs) in the oil and gas and shipping industries. This was $313 million more than a year earlier. Its NPL ratio was 1.5 per cent in the fourth quarter, up from 1.4 per cent in the same period the previous year.
But total allowances declined 31.4 per cent to $131 million. This was because the bank had set aside reserves or general allowances in previous years that could be drawn when needed.
AT A GLANCE
NET PROFIT: $739 million (-6.2%)
REVENUE: $2.03 billion (-2.5%)
FINAL DIVIDEND: 35 cents (unchanged)
This was done for the fourth quarter, with some of those reserves partly offsetting the charges on oil and gas NPLs, chief financial officer Lee Wai Fai told a results briefing yesterday.
The bank's total exposure to the oil and gas sector amounted to $17.7 billion, with loan risks coming mainly from the $5.3 billion linked to firms in the upstream segment, such as the offshore services firms.
But Mr Lee said that 80 per cent of this segment was related to "the big names that everyone knows", and their loans have been mostly recognised as non-performing ones. His comments come amid Ezra Holdings' financial troubles.
UOB chief executive Wee Ee Cheong said the recent hikes in specific allowances mainly came from a decline in the collateral value of existing NPLs. This implied that the bad loan issue has not spread to more companies.
"We believe that the rate of formation of new NPLs is likely to ease going forward," Mr Wee said.
However, the overall business outlook is still full of uncertainties, Mr Wee warned, and UOB's profit growth in 2017 will likely be "modest".
There have been several pockets of expansion for UOB. Retail business income grew 9 per cent year on year in 2016, as gross loans volume jumped 7 per cent. Notably, UOB had a 31 per cent market share in new mortgage sales, "the highest in the market", Mr Wee said.
Earnings per share was $1.75 in the fourth quarter, down from $1.90 a year ago. Net asset value was $18.82 at the end of 2016, up from $17.84 a year ago.
A final dividend of 35 cents a share was proposed, unchanged from last year.