Oil sector woes cut UOB third-quarter profit by 7.8% to S$791 million
Singapore
THE oil rout has, as expected, hit United Overseas Bank (UOB). The bank posted on Friday a 7.8 per cent lower net profit for the third quarter on higher allowances from the oil & gas segment and weaker non-interest income.
Net profit for the three months ended Sept 30, 2016, stood at S$791 million, compared to S$858 million for the same period a year ago. This translated to an annualised earnings per share of S$1.90, down from S$2.07 a year ago.
The results beat the average forecast of S$747 million from five analysts polled by Reuters.
Shares of UOB closed down 31 cents at S$18.63 on Friday.
Total allowances stood at S$185 million for the third quarter, 15.7 per cent higher than S$160 million a year ago. The boost in specific allowance in loans for the quarter came largely from the oil & gas industry, said the smallest of Singapore's three lenders.
UOB has been highlighted as a major banker to shipping firm Swissco, which is in the midst of restructuring its debt. Much of this in the headlines have to do with restructuring bond issues. Swissco has already defaulted on its last coupon payment due a week ago for its S$100 million notes. It is unclear if Swissco's plan to offer a debt-to-equity swap extends to its lender banks. UOB said it does not comment on specific companies. But it is listed as a principal banker to Swissco, with DBS and OCBC, in its annual report.
Its non-performing loan ratio rose to 1.6 per cent, compared to 1.3 per cent a year ago. Again, the increase was mainly from the oil & gas industry.
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 was flat at 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.
Total expenses was up 1.6 per cent from a year ago at S$918 million due to higher revenue and IT-related expenses. The expense-to-income ratio was 45 per cent.
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 & gas and shipping industries. But total allowance decreased 3.8 per cent to S$463 million for the period.
UOB said the group's loan provisioning methodology was 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."
