SINGAPORE, Feb 27 (Reuters) - United Overseas Bank (UOB) <UOBH.SI>, Singapore's second-largest lender, reported a bigger-than-expected 34 percent drop in fourth-quarter profit as writedowns for bad debts trebled and fees from capital markets fell.
The results, UOB's worst since the second quarter of 2003, reflect the growing risks for Singapore banks' earnings as weakening Asian economies threaten to hurt asset quality, slow loan growth and boost credit costs.
UOB, controlled by chairman Wee Cho Yaw and his family, is considered the leader in Singapore's loan market for small- and medium-sized businesses, which have been hit hardest by a global economic slowdown and a downturn in the property market. Singapore's biggest bank is DBS Group <DBSM.SI>
"That was a bit of shocker," said David Lum, an analyst at Daiwa Institute of Research, referring to the S$381 million in writedowns for bad debts. "Clearly impairments are based on an outlook that conditions will continue to deteriorate."
UOB Chief Executive Wee Ee Cheong, also the son of the chairman, said the bank is not immune from the impact of the global financial crisis and will be prudent in managing its business.
"UOB will inevitably be affected but will not be paralysed by uncertainties," said Wee. "The current capital level is able to withstand near-term potential shocks and portfolio deterioration."
The bank said it was confident on its capital in the next three to six months and comfortable with its current Tier 1 ratio of 10.9 percent, which compares to local rival DBS Group's 12.2 percent and Oversea-Chinese Banking Corp's (OCBC) <OCBC.SI> 14.9 percent.
Net profit for October-December fell to S$332 million ($216 million) from S$506 million a year ago. Analysts had estimated, on average, a net profit of S$468 million, according to six forecasts compiled by Reuters.
Its shares ended down 3.6 percent, underperforming a 1.4 percent fall in the broader Singapore index <.FTSTI>.
BAD DEBT
UOB wrote down S$381 million in the fourth quarter in bad debt, up from S$128 million a year earlier, mainly due to loans that turned sour and on losses on investment securities.
The market had begun to pare down their expectations after DBS, Southeast Asia's biggest bank, earlier this month reported a bigger-than-expected 40 percent drop in quarterly profit, its worst result in three years. [ID:nSIN431227]
Third-ranked OCBC last week posted a 30 percent drop in quarterly net profit. [ID:nSIN358018]
UOB said net lending grew 7.7 percent from a year earlier, slowing from an 18 percent expansion in the third quarter.
Net interest income rose 29 percent to S$957 million from a year earlier, helped by a jump in net interest margins to 2.45 percent in the fourth quarter as the global credit crisis jacked up borrowing costs. The margin was 2.21 percent in the third quarter and 1.94 percent a year ago.
Non-interest earnings, such as commissions and fees on investment products, fell 27 percent to S$391 million as capital markets tumbled.
UOB's shares have underperformed its Singapore rivals this year, falling around 23 percent, more than the 9.5 percent decline in the benchmark Straits Times Index.
