UOB's net profit drops 3.5%
Bank getting a handle on its exposure to oil and gas industry
TOMOMI KIKUCHI, Nikkei staff writer
SINGAPORE -- United Overseas Bank posted a net profit of 3.09 billion Singapore dollars ($2.18 billion) for 2016, a 3.5% drop from the previous year, mainly due to a decline in non-interest income arising from lower gains from the sale of investment securities.
The bank's quarterly profit for the October-December quarter was better than market expectations at S$739 million, thanks to a surprise decrease in total allowances for bad loans.
UOB's shares rose 1.7% on Friday, following the bank's earnings announcement. The share price closed at S$21.18.
Like domestic peers DBS Group Holdings and Oversea-Chinese Banking Corp., UOB was hit by its exposure to the oil and gas industry, now suffering from excess capacity and lower crude prices. UOB booked a total of S$969 million in specific allowances for 2016, more than double the S$392 million booked in 2015. The surge was mainly attributable to the fact that the oil and gas industry's collateral is now worth a lot less.
The bank reported a nonperforming loan ratio of 1.5%, up from 1.4% in 2015.
While UOB's specific allowances went way up, it was able to release S$398 million in general allowances. As a result, it had to account for total allowances of S$594 million in 2016, down 11.6% from 2015.
UOB said it has absorbed "most of the shock" for its nonperforming loans related to the oil and gas industry, and that it can better manage this specific allowance this year.
Although some volatility is expected to linger in the oil and gas industry, "we have stress-tested our portfolio," said Wee Ee Cheong, UOB's deputy chairman and chief executive. "And we are quite clear that our exposure is quite limited."
Wee, who was speaking Friday at a press conference, added that apart from UOB's exposure to the oil and gas industry, the asset quality of the bank's broader portfolio is stable. The rate at which loans fall into the nonperforming category has been dropping for the past two quarters and will "likely ease going forward," Wee said.
Meanwhile, UOB's net interest income for 2016 grew 1.3% to S$4.99 billion, as loans expanded 9%, offsetting a narrower net interest margin. Fee and commission income increased 2.5% to S$1.93 billion, driven by higher credit card and fund management fees.
UOB was less pessimistic about its oil and gas exposure than DBS and OCBC, which also released their 2016 results this week. OCBC's total bad-loan provisions rose 49% on the year, while the figure at DBS surged 93%.