United Overseas Bank, Singapore’s third-biggest lender, posted a 1.7 per cent rise in quarterly profit on the back of strong loan growth, beating analysts’ average forecast.
UOB said net profit for the October-December period came in at S$786 million, above an average forecast of S$759 million from six analysts polled by Reuters. It reported a net profit of S$773 million a year earlier.
The better-than-expected result came despite a nearly 20 per cent increase in provisioning for bad loans to S$166 million, mainly due to higher individual impairment on loans as well as collective impairment set aside for loan growth, it said. Loans grew at a 9.5 per cent pace in 2014.
Mr Wee Ee Cheong, deputy chairman and CEO of United Overseas Bank, said: “NPLs (non-performing loans) increased due to a few isolated accounts in Singapore, Thailand and Indonesia … but you can be rest assured that these NPLs are well secured, mainly by real property with low loan to value.
“The housing loan portfolio continued to perform well. The quality is good; with a low interest rate and a low unemployment situation, I don’t see any surprises.”
Meanwhile, UOB’s bigger rivals, Oversea-Chinese Banking Corp and DBS Group Holdings, both missed analysts’ estimates on higher bad debt provisioning.
However, overall, healthy asset growth helped to prop up earnings for all three local lenders but analysts said that going forward, further deceleration is expected.
On their part, the banks are projecting mid to high single-digit loans growth in 2015, following up to six years of strong performance.
Mr Cyrus Daruwala, managing director for Asia Pacific at IDC Financial Insights, said: “We are experiencing a glut in the market. Home loans are going to be a trickle at best in 2015 unless Singapore revisits these rules.
“These three banks were betting on a continued growth of loans in the private home loan market. That did not happen. So I think home loans are going to be stagnant or have a lull this year.”
Despite the slowdown, analysts expect interest margins to get a lift. Banking analysts said the recent pick-up in Singapore’s benchmark rates will likely be positive for the local banks’ earnings, particularly as Singapore banks are seen as some of the most rate-sensitive compared to the rest of the region.
Mr Kelvin Tay, regional chief investment officer for southern Asia Pacific at UBS Wealth Management, said: “The rise in SIBOR and SOR should be positive for the net interest margins of the banks in Singapore. That is largely because Singapore banks have a very big deposit base they can tap on, so they do not need to increase their deposit rates immediately just to reflect a rise in the interbank rates.
“On a six- to 12-month basis, we think that should result in an increase in net interest margins and that in turn should be healthy for the banks. Singapore banks stand out across this region as it is probably the only country that has a very big deposit base they can immediately tap on. You cannot say the same for the other banks in the region.”
Ahead of the anticipated rise in interest rates, the banks are taking a prudent approach and industry analysts expect asset quality to remain sound. NPL ratios for all three local lenders are currently between 0.6 and 1.2.
Credits: Channel NewsAsia