Singapore's United Overseas Bank Group (UOB) said Tuesday its net profit in the first quarter rose an annual 2.1 percent, boosted by loan growth.
Net profit rose to S$529 million from S$518 million in the first quarter of last year, it said.
"The Group's core banking business remained strong," UOB said in a statement. Net interest income grew 11.8 percent to S$852 million as loan growth helped to offset a 4.1 percent drop in non-interest income, which fell to S$414 million, the bank said.
Analysts expect this to continue into the coming quarters, and they also expect other weaknesses to reveal themselves on the balance sheet making for a tougher time ahead.
Ritesh Maheshwari, Senior Director, Asia, Standard & Poor's Ratings Services, said: "The same trend of trading income decline, wealth management will continue. Maybe in second quarter we'll a see more pronounced effect. Also expecting pressure on interest margin, more visible in second quarter in line with decline in SIBOR. That should exert some pressure."
Lower trading and investment income was partially offset by higher fee and commission income, reflecting strong performance of the regional economies, it said.
Investment in collateralised debt obligations (CDOs) declined further to S$268 million, including S$82 million in asset-backed securities.
CDOs are securities backed by a range of assets including bonds, loans and their derivatives, including corporate loans, high-grade mortgages, sub-prime mortgages, car loans and credit card debt.
World financial markets have been battered since last August by fallout from a crisis in the US sub-prime, or high-risk, loan sector which forced commercial banks to tighten lending criteria leading to a credit crunch which spread to threaten the global economy.
Banks around the world suffered multi-billion-dollar losses linked to sub-prime loans given to US homebuyers with risky credit histories.
UOB said impairment charges increased by 1.8 percent to S$89 million, largely attributed to provision for CDOs. It said it has fully provided for its asset-backed securities and CDOs.
"Amidst current market volatilities, we expect loans growth to moderate this year. But there are always opportunities during challenging times," said Wee Ee Cheong, UOB Group's deputy chairman and chief executive officer.
According to some analysts, UOB's focus on loans may pose some limitations to earnings growth.
Mr Ritesh Maheswari continued: "The difference is that UOB, unlike DBS doesn't have that high low-cost deposits. And as compared to OCBC, it doesn't have non-banking business as much as OCBC has in terms of insurance. This will limit options that UOB has and it will have only strength as loan-related business."
UOB subsidiaries operate in Singapore, Malaysia, Indonesia, Thailand and China. - AFP/CNA/ir/vm
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