UOB, Singapore’s second largest bank, has reported a record operating profit of $3.33 billion for 2009.

Total operating income rose 3% to $5,405 million, supported by higher net interest income and higher trading and investment income. Net interest income rose 2.7% to $3,674 million, mainly due to higher net interest margin, which increased 9 basis points to 2.36%, coupled with better gapping profit. Non-interest income grew 3.4% to $1,732 million, contributed largely by higher trading and investment income.

Total operating expenses increased 1.2% to $2,074 million. This was due to higher staff costs, which rose 3.1% to $1,116 million from higher bonus accruals. The overhead income ratio remains well managed at 38.4% for the year.

But UOB says its strong operating performance was negated by higher impairment charges, which increased 38.9% to $1,121 million, including a collective impairment of $506 million that was proactively set aside. As at end 2009, UOB has one of the highest collective impairment coverage over performing loans of 1.6%. And while individual impairment charges rose, UOB says the level of increase was lower than anticipated.

The group’s net profit after tax in the fourth quarter also rose 57.2% to $522 million when compared to the same quarter in 2008, largely on reduced impairment charges.

The directors has recommended a final one-tier tax-exempt dividend of 40 cents, giving a total net dividend of 60 cents for the year and is proposing a scrip dividend scheme.

Loans
Net customer loans of $99.2 billion as at 31 December 2009 was 0.9% higher than the previous quarter. This was mainly driven by housing loans and loans to the general commerce sector. Against 31 December 2008, net customer loans declined 0.6% as a result of seeking quality loans and growing selectively in the overseas markets. The group says it continued to grow in Singapore, expanding its Singapore-dollar loans by 7.0% in 2009. As at year end, UOB maintained its market leadership with the largest Singapore-dollar loan book at $60 billion.

Deposits
The group says it also grew its customer deposits to $121.5 billion, up 4.3% from the last quarter across product groups and countries. Compared to a year ago, customer deposits increased 2.8%. The enlarged customer deposits base provides the group with a stable source of funding.

Asset Quality
Compared to a year ago, non-performing loans (NPLs) increased 9.6% to $2.3 billion as at 31 December 2009. The higher NPLs were largely from Singapore, Indonesia and OECD countries. However, UOB says it is seeing signs of asset quality stabilising. Against last quarter, NPLs declined 9.0% across most territories and industries as economic conditions improve. Consequently, NPL ratio improved 0.2% point quarter on quarter to 2.2% as at 31 December 2009.

Shareholders’ Equity
The group’s shareholders’ equity increased 4.2% over 30 September 2009 to S$19.0 billion as at 31 December 2009. The increase was largely contributed by higher retained earnings and improved valuation of the investment portfolio. Against 31 December 2008, shareholders’ equity grew 21.9% largely attributed to higher valuation of the investment portfolio.

Capital Adequacy
UOB says the grou[‘s capital position continued to improve with Tier 1 and total capital adequacy ratios reaching 14.0% and 19.0% respectively as at 31 December 2009. Core Tier 1 capital adequacy ratio also strengthened to 11.9%. The increase was due primarily to higher retained earnings coupled with lower risk-weighted assets. This improvement in risk-weighted assets is a result of the group rebalancing its overall balance sheet by shifting to better rated loans and reducing its investment portfolio.