UOB's O&G exposure under 4%; Q1 profit at 2-year low on impairment surge

UNITED Overseas Bank (UOB) on Wednesday posted a 19 per cent fall in Q1 net profit on declining margins and a surge in impairment charges, bringing its earnings to the lowest level in just over two years.

Still, the bank's Q1 net profit of S$855 million - down from S$1.05 billion a year ago - had beaten analysts' estimates of around S$739.3 million, according to Refinitiv data. 

Jefferies analyst Krishna Guha said that while credit costs were much lower than guidance at 36 basis points, the bank built pre-emptive buffers on balance sheet for worsening asset quality. "Margins were weaker than expected. The key bright spot was fees which grew sequentially, and on the year," he said in an early note.

UOB said that as at end-March 2020, outstanding oil-and-gas (O&G) loans stood at S$10.2 billion, representing 3.6 per cent of total loans as compared with 4.7 per cent as at end-June of 2018. Three-quarters of the O&G exposure are to downstream players and traders, of which 70 per cent are national oil companies (NOCs) and global firms. The remaining exposure is mainly short-term structured exposure.

There was no mention of Hin Leong, the oil trader widely reported to have collapsed amid staggering debt. Most banks in Singapore, including the local trio, have an exposure to the Singapore oil trading giant.

It was reported according to unnamed sources that UOB had let Hin Leong draw down more than US$100 million as at early April. Singapore's Big Three banks have a total exposure to Hin Leong that reportedly tops US$600 million.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

As for its remaining 25 per cent exposure to O&G upstream segment, UOB's exposure is mainly to NOCs and international oil companies.

The bank said vulnerable accounts in the O&G segments were already classified, with their collateral values marked down by as much as 90 per cent by end-2017.

UOB disclosed that its 15 per cent exposure to small and medium-sized enterprises in Q1 2020 held steady over the quarter. Incremental lending in Q1 2020 from a quarter ago was driven by large corporates and top-tier customers in developed markets, with half of its loan book made up of large corporates. The remaining loans are to individuals. 

The bank said on Tuesday it has approved S$4 billion in loans under Enterprise Singapore's temporary bridging loan programme since the government increased its risk-share of such loans to 90 per cent a month ago.

The loans were extended to the bank's mid-sized enterprise clients in sectors that have been hard hit by the Covid-19 pandemic. These include construction, consumer staples, retail and hospitality segments. 

UOB had earlier announced S$3 billion in relief assistance for those affected by Covid-19. This is separate from the S$4 billion in government-assisted loans that the bank said this week it has offered to its customers.

Q1 net interest income was flat at S$1.59 billion year-on-year as asset growth was offset by margin compression, said the lender in a statement. Net interest margin (NIM) stood at 1.71 per cent, down 5 basis points (bps) a quarter ago and 8 bps a year ago. 

Total credit costs rose 12 bps to 36bps from the previous quarter due to "a few significant non-performing accounts", said UOB. On a year-on-year basis, total credit costs rose 17 bps. Non-performing loan ratio was higher at 1.6 per cent, up 0.1 percentage points from a year ago.

This comes as the bank's impairment charges jumped to S$286 million in Q1, from S$93 million a year earlier. An additional S$260 million of allowance was also set aside through the regulatory loss allowance reserve to strengthen coverage amid weak macro conditions, said UOB. 

Non-interest income for the first quarter slipped one per cent to S$813 million, down from S$819 million a year ago. 

Net fee income grew 8 per cent to S$515 million largely from wealth management, while trading and investment income fell 17 per cent to S$224 million amid increased market volatility, said UOB. 

Total income for first quarter stood at S$2.41 billion, unchanged from a year ago. 

As at noon, shares of UOB were trading at S$19.93, up S$0.03.