UNITED Overseas Bank (UOB) has put United States sub-prime fears to rest, but warned of 'challenging times' ahead as the demand for loans slows.
The bank, which reported a moderate rise in first-quarter profits yesterday, said 'market volatilities' were having an effect on its business.
But chief executive Wee Ee Cheong said there are 'always opportunities' for sustainable growth.The bank enjoyed double-digit loans growth in the three months ended March 31, but warned that loan expansion could be dampened this year.
Its 2.1 per cent rise in first-quarter net profit to $529 million was close to the average forecast of $522 million from six analysts polled by Reuters.
Earnings per share at the end of the first quarter were $1.38, up from $1.31 three months ago. Net asset value per share was $10.73, a 1.6 per cent drop from $10.91 at the end of December last year.
The bank also appeared to have put US sub-prime related issues behind it. It took $43 million of fresh provisions for credit instruments, in view of the 'continued weakness' in the market for investments linked to dodgy mortgages in the US.
This provision, together with others UOB made earlier, would provide fully for its exposure to such investments, known as collateralised debt obligations (CDOs).
Some of UOB's CDO investments have matured, so its total investment in such debt has been pared to $268 million.
The bank's net interest income continued to grow strongly, rising 11.8 per cent to $852 million from a year earlier, and up 14.6 per cent from the fourth quarter.
UOB posted a 19.4 per cent expansion in loans to $94.4 billion from a year ago. This lagged behind the local bank industry's average loans growth of 24 per cent in the first quarter.
But analysts said the 19 per cent loans growth showed that UOB was still benefiting from its strong market position in lending to small and medium-sized enterprises, construction and infrastructure firms.
Banks in Singapore have been raising interest rates in response to the continuing tightening of liquidity and conditions in credit markets.
UOB pushed up its interest margin by 0.26 of a percentage point to 2.2 per cent, from 1.94 per cent in the fourth quarter.
Its fee income dropped amid volatile market conditions, which analysts expect to continue into the second half of this year.
This partly accounted for non-interest income, which includes commissions and fees, dropping 4.1 per cent to $414 million.
UOB blamed the decline mainly on losses on the market value of its investment portfolio, as well as lower fee income from fund management and investment-related activities. This was partially offset by higher fees from loan-related activities, 'reflecting the strong performance of the regional economies'.
UOB shares yesterday closed four cents higher at $21.40. It has gained 39 per cent since hitting a low of $15.38 on Jan 22.
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