Update: UOB's Q3 profit falls 7.8%, as oil rout lifts bad loan charges

UNITED Overseas Bank on Friday posted 7.8 per cent lower net profit for the third quarter on higher allowances from the oil-and-gas segment, and weaker non-interest income.

Net profit for the three months ended September 30, 2016 stood at S$791 million, compared to S$858 million for the same period a year ago. This beat the average forecast of S$747 million from five analysts polled by Reuters.

Total allowances stood at S$185 million in the third quarter, 15.7 per cent higher than S$160 million a year ago. The increase in specific allowance in loans in the quarter came largely from the oil-and-gas industry, said Singapore's smallest lender of the trio.

Non-interest income decreased 4.7 per cent to S$810 million, reflecting the absence of a one-off gain from the sale of investment securities a year ago.

Fee and commission income grew 1.6 per cent to S$492 million on higher contributions from credit card and fund management income. But trading and investment income fell 19.3 per cent to S$251 million, as the year-ago third quarter included one-off gains from sale of investment securities, partly offset by higher net trading income.

Net interest income dipped 0.4 per cent to S$1.23 billion. Net interest margin, which measures the profitability of loans, fell to 1.69 per cent from 1.77 per cent a year ago.

Non-performing loan ratio rose to 1.6 per cent, compared to 1.3 per cent a year ago. The increase was mainly from the oil-and-gas industry.

For the nine months, net profit fell 2.6 per cent to S$2.36 billion. Specific allowance for loans increased S$265 million to S$542 million mainly from non-performing accounts in the oil and gas and shipping industries. But total allowance decreased 3.8 per cent to $463 million for the period. UOB said the group's loan provisioning methodology is countercyclical and builds reserves during periods when specific allowance is low. With a loan coverage of 1.5 per cent, the group had released some general allowance to offset the increase in specific allowance.

"We expect subdued global economic growth and volatile market conditions in the months ahead," said chief executive officer Wee Ee Cheong in a media statement. "But Asean's fundamentals remain sound, with fiscal flexibility to support domestic growth."