04 May 18 The Business Times by SIOW LI SEN
UNITED Overseas Bank on Thursday announced robust first-quarter earnings which surged 21 per cent to a record S$978 million on the back of higher net interest margin and strong wealth management income growth and a substantial drop in bad debt charges.
The second local bank to report Q1 results, UOB beat expectations. Bloomberg had an average estimate of S$965.7 million from three analysts.
On Monday, DBS Group too reported stellar Q1 earnings, up 21 per cent to S$1.5 billion. OCBC Bank will announced its Q1 on May 7.
UOB said total income in Q1 reached S$2.23 billion, led by strong growth in both net interest income and net fee and commission income. Total expected credit loss or bad debt charges fell substantially due to a benign credit environment and reduced residual risks from the oil and gas and shipping sectors.
A higher net interest margin (NIM) coupled with loan growth of 5 per cent lifted the net interest income to a new high of S$1.47 billion, up 13 per cent from a year ago.
Loan growth was broad-based across most territories and industries on the back of the improved operating environment over the year before. NIM - defined as the difference between interest income generated and the amount of interest paid to lenders - increased 11 basis points to 1.84 per cent, mainly due to higher loan margin and interbank yields amid a rising interest rate environment and the group's proactive balance sheet management.
NIM was up 3 basis points on quarter.
"We expect a gradual upward trend, driven by rising interest rates and stronger liquidity deployment," said Lee Wai Fai, UOB chief financial officer, in response to Business Times queries.
UOB did not hold a media briefing for its Q1 results.
As at 31 March 2018, loans stood at S$241 billion, up 5 per cent year on year and 2 per cent quarter on quarter. Singapore loans rose 3 per cent to S$129 billion year on year, while regional countries registered strong loan growth of 10 per cent. Malaysia, Thailand and Greater China posted double-digit loans growth while Indonesia loans fell 8 per cent.
Malaysia and Greater China led the loan growth this quarter, driven mainly by the manufacturing and trade-related sectors (USD loans), said Mr Lee.
On the bank's Singapore housing loans, he said it had mid single-digit year-on-year growth in 1Q18.
"With the rebound in the property market sentiment, we have a strong pipeline with the loan growth to be reflected in our financials upon disbursement," he said.
"We have also maintained our market share in new home loans, especially in the building under construction segment."
"We expect to see high single-digit (loans) growth for the year supported by an improved macroeconomic environment in the region in 2018," Mr Lee said.
Net fee and commission income gained 18 per cent to S$517 million. Strong momentum in wealth management and fund management continued to support the uplift in fee income. Loan-related fee income increased 24 per cent while credit card fees rose 11 per cent year on year. Other non-interest income fell 22 per cent to S$244 million, mainly from lower net trading income due to fair value changes on hedges of structural positions.
UOB said all business segments performed well.
Retail income rose 6 per cent to S$963 million mainly from wealth management and fee based products. Wholesale banking income was up 4 per cent to S$928 million supported by higher cash management, trade and investment banking activities. Global markets posted double digit income growth of 20 per cent to S$142 million, largely driven by favourable foreign exchange movements.
Total costs were up 11 per cent over the same quarter last year, due to higher staff and IT-related expenses, as the bank continued to invest in people, technology and infrastructure to boost its connectivity, digitalisation, product capabilities and services. The expense-to-income ratio increased one percentage point year on year to 44.2 per cent.
Total expected credit loss and other allowances more than halved to S$80 million, due to a benign credit environment and reduced residual risks from the oil and gas and shipping sectors. Specifically, credit costs on non-performing loans (NPL) reduced substantially from 49 basis points to 12 basis points.
NPL ratio eased to 1.7 per cent from 1.8 per cent at end-2017 but is still higher than the NPL ratio of 1.5 per cent at Q12017.
UOB closed down 41 cents to S$29.58 on Thursday.