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(SINGAPORE) United Overseas Bank's (UOB) net profit fell 22 per cent to $470 million in the second quarter from a year earlier, a better result than analysts had expected, as the group signalled renewed optimism in its outlook.
'Maximum fear is behind us,' UOB chief executive Wee Ee Cheong said. 'We are certainly more upbeat about prospects as global sentiments improve.'
However, 'the bottoming out process and economic recovery will be gradual', he added.
As an indication of its conservative stance, the group set aside sharply higher general provisions for possible losses on loans, investment securities and other assets, even though it hopes that better times lie ahead, Mr Wee said.
'I don't see a major spike' in bad loans coming, but 'it's prudent to continue to provide, if we can afford it', Mr Wee said.
His remarks echoed those of OCBC Bank CEO David Conner, who said on Monday that 'there is growing consensus that the worst is over' for the global economy and financial markets, but warned that the pace of recovery could be slow.
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UOB's Q2 net profit of $470 million was 15 per cent higher than the $409 million it earned in Q1 despite the higher provisions for bad loans, as the group used up $100 million in deferred tax reliefs to reduce its tax charge.
Analysts surveyed by Reuters had forecast an average of $441 million in Q2 net profit for UOB, while those polled by Bloomberg had expected $426 million.
UOB's annualised earnings per share for Q2 - or what the group would earn for a whole year if its earnings continued at the same pace - was $1.18, up from $1.01 in the preceding quarter, but less than the $1.57 earned a year earlier.
For the first half of the year, net profit fell 22 per cent to $880 million, compared to a year earlier. UOB said that it would pay an interim dividend of 20 cents a share, unchanged from a year earlier.
Its share price ended 3.9 per cent lower at $16.62 yesterday.
Total impairment charges for bad loans and other assets rose to $465 million in Q2, compared to $378 million in the previous quarter and $180 million a year earlier. That included general provisions, or collective impairments, of $321 million.
Of the $321 million, $100 million was set aside against a portfolio of foreclosed assets in Thailand, UOB said. Its Thai unit has seven more years to sell those assets, 'but we felt that we wanted to be prudent and take the provision' now, chief financial officer Lee Wai Fai said.
At $551 million, the group's non-interest income for the three months to end-June barely grew from the $550 million a year earlier. Compared to the first quarter, however, it was up 27 per cent due to gains on investment securities and higher dividend income.
Net interest income from the bank's main lending business rose just 3.9 per cent from a year earlier to $908 million. Compared to the first quarter, it fell 4.4 per cent, as loan volume shrank and net interest margins narrowed, squeezing the bank's profit on its lending activity.
Net customer loans after deducting allowances for bad loans fell 1.9 per cent over the quarter to $97.8 billion at the end of June, the third consecutive quarterly decline, as the group chose to lend in a 'prudent and selective' manner, UOB said. Over the year to end-June, loans grew just 0.4 per cent.
An increase in housing loans was offset by a fall in lending to financial institutions and the manufacturing and general commerce sectors, UOB said.
Still, demand for loans appears to be picking up. Loan approvals by UOB in Q2 were about 50 per cent higher than in Q1, said Chong Kie Cheong, who heads the bank's corporate, commercial and private banking businesses.
In Singapore, UOB continues to gain market share in housing loans, but the stiff competition is putting pressure on the interest margin, or profit, that the bank can earn on its loans, Mr Wee said.
The proportion of non-performing loans (NPLs) held by UOB rose to 2.4 per cent as at end-June, from 2.1 per cent at end-March and 1.5 per cent a year earlier.
Total NPLs rose 13 per cent over the quarter to $2.48 billion at June 30. 'We can expect to see a continued increase in NPLs, though at a slower pace,' Mr Lee said.
Mr Wee also said that the group would continue to build up its overseas presence. In China, it plans to open two more branches by year-end, he said.
'There is no letting up in the ongoing investment in our regional franchise, which will provide us a platform for future growth.'
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