UOB's Q1 net profit down 23 pct, OCBC's net falls 12 pct
* Both banks say outlook tough
* Analysts say asset quality not very bad, interest income up
* UOB shrs erase losses, up 0.2 pct after results, OCBC flat (Repeats without changes to additional subscribers)
By Saeed Azhar
SINGAPORE, May 6 (Reuters) - UOB <UOBH.SI> and OCBC <OCBC.SI>, Singapore's second and third-biggest banks, posted smaller-than-expected falls in net profits on Wednesday as they made more loans at higher rates which partially offset jumps in bad-debt charges.
Asia's economic slump is gradually showing up in soured loans and lower investment gains for banks, but analysts said the outlook would improve after the city-state suffered from its worst ever GDP contraction in the first quarter.
"The economy was very weak in the first quarter and the results were fairly resilient. If this is as bad as it gets, going forward results should be better," said David Lum, a banking analyst at Daiwa Institute of Research.
"The asset quality is not as alarming and the year-on-year loans and margins have improved."
Both United Overseas Bank (UOB) and Oversea-Chinese Banking Corp (OCBC) sounded cautiously optimistic.
"The journey ahead remains tough, but we are confident that we will come out of the crisis stronger," UOB CEO Wee Ee Cheong said in a statement.
OCBC's chief executive David Conner said the economic outlook remains difficult and uncertain.
UOB's Jan-March net profit fell to S$409 million ($278 million) from S$529 million a year ago, against an average forecast of S$387 million by four analysts.
Bad-debt charges rose more than four-fold to S$378 million for the quarter from S$89 million in the year-ago quarter, largely due to losses on loans and investments due to the global economic downturn, the bank said.
OCBC's first-quarter net profit fell to S$545 million from S$622 million a year ago. Analysts had predicted a net profit of S$293 million, according to the average of five forecasts compiled by Reuters against a comparable figure of S$460 million a year ago that excluded exceptional items.
The bank benefited from higher insurance income from its subsidiary Great Eastern <GELA.SI>.
However, bad-debt charges rose to S$197 million compared with a writeback of S$8 million a year ago.
DBS Group <DBSM.SI>, Southeast Asia's biggest bank, will report earnings on Friday.
Despite the optimism in the market that has boosted Singapore's financial index <.FTFSTAS8000> by half since March 10, not everyone is bullish on banks.
"We expect asset quality to show real deterioration in second half of 2009 as the NPL cycle lags," Morgan Stanley's Matthew Wilson wrote in a note about non-performing loans.
UOB chairman Wee Cho Yaw, whose family controls the lender, said earlier this month the financial crisis may last another 1-2 years and he is pessimistic about the outlook.
UOB said net lending grew 5.6 percent from a year earlier, against a 7.7 percent growth in the fourth quarter, while OCBC saw a loan growth of 7 percent in the first quarter.
The one consolation for both banks was a rise in net interest margin, as Singapore banks were able to charge higher prices on loans as foreign players scaled back from Asian markets.
Net interest margin for UOB rose to 2.41 percent from 2.20 percent a year ago and OCBC's net interest margin moved up to 2.42 percent from 2.17 percent a year ago.
Till Wednesday's midday break, shares of UOB were up 0.9 percent from the start of the year, underperforming DBS, whose shares were up by around 28 percent and OCBC which had gained 26 percent. The benchmark Straits Times Index <.FTSTI> is up 18 percent in 2009. ($1=1.473 Singapore Dollar)
