SINGAPORE -- United Overseas Bank lifted net profit for the April-June quarter by 5.5% on the year to 845 million Singapore dollars ($621 million), boosted by strong growth in loan and fee income.
Bad loan allowance for the quarter was 11.9% higher than a year ago, as non-performing assets increased 13% on the year to S$3.5 billion, the bank said Friday.
Singapore banks including UOB have been suffering from weakness in the offshore service and marine engineering industry. The fall in oil prices has hit demand for the industry, damaging some companies' ability to pay back debt.
The situation seems to be stabilizing, as UOB's non-performing loan ratio, the percentage of bad loans against total loans, has been flat for three quarters in a row at 1.5%. The amount of UOB's loans and securities that were newly classified as non-performing within the quarter was S$537 million, 33% less than a year ago.
"Most of the vulnerable oil and gas accounts have been classified, and provisions set aside. There may be a few more [non-performing loans] amid ongoing challenges in the sector," said Wee Ee Cheong, UOB's deputy chairman and chief executive.. "The [non-performing loan] ratio may inch up but we don't expect a spike," he told a Friday press conference..
UOB's interest income for the June quarter jumped 12% on the year, on the back of a 7% increase in loan volume from a year ago. Lending grew across most territories and industries, the bank said. Net interest margin -- the difference between the interest the bank gets and the interest it pays -- rose to 1.75% for the quarter, from 1.68% a year ago. Fee income increased 9%, with strong organic growth in wealth management as well as credit card businesses.
Wee said he was mindful of more uncertainty stemming from the U.S. interest rate outlook.
The smallest of Singapore's three biggest lenders, UOB is looking for growth opportunities in regional emerging countries, such as Vietnam and Myanmar. On July 19, UOB received an in-principle license from Vietnam's central bank, and is preparing to set up a locally incorporated subsidiary to penetrate the market.
In Myanmar, UOB has been operating a branch in Yangon since 2015. "Growth potential is huge" in Southeast Asia and it will get bigger as China invests into infrastructure projects in member countries of the Association of Southeast Asian Nations, under Beijing's Belt and Road Initiative, Wee said. UOB's cross-border business accounted for 21% of total wholesale banking business for the June quarter.