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Singapore’s third-biggest bank UOB (UOBH.SI) posted its best quarterly profit since June 2008 as the city-state’s lenders recovered from the depths of the global financial crisis, and are poised for more growth in 2010.
Singapore’s three banks grew earnings by an average of 64% in the October-December period, their best-ever profit rise since they started reporting quarterly results, lifted by strong fees and a decline in bad assets except for DBS Group.
DBS was hit by higher bad-debt charges in the last quarter due to its exposure to Dubai World, but United Overseas Bank (UOB) and Oversea-Chinese Banking Corp (OCBC.SI) both saw writedowns for soured loans slump.
“Things probably have improved if you look back at the uncertainty a year ago,” said Peter Elston, a strategist at Aberdeen Asset Management Asia, which owns UOB shares.
“We are going from having been in a very difficult position to sort of more stability.”
UOB chief executive Wee Ee Cheong said in a statement the bank was positive about growth though he cautioned that 2010 could be volatile as the deleveraging process takes time to work through.
“Asia is well positioned for the post-crisis era, barring any major shocks in the global system,” he said.
The bank said its capital position improved in the last quarter due to higher retained earnings and rebalancing of its balance sheet, as it shifted to better-priced loans and reduced its investment portfolio. Impairment charges decreased 81.1% from a year earlier.
UOB’s core Tier 1 capital adequacy ratio stood at 11.9%, a relatively higher ratio than its Asian peers in a sign that Singapore banks could weather any potential tightening of capital rules.
UOB posted a net profit of $522 million in October-December, compared with $332 million a year earlier.
This was the best profit figure since the second quarter of 2008 when it posted a net profit of $601 million.
The consensus was for a net profit of S$489 million, according to the average forecast of five analysts surveyed by Reuters.
MACRO RISKS
Aberdeen’s Elston said Singapore banks could show low-single-digit earnings growth in 2010 and could still face risks from the global economy.
“The main risks are on the macro front relating to the possibility of a double-dip. We're certainly not out of the woods yet.”
OCBC, Singapore’s No. 2 lender, said it posted its best profit in six quarters, helped by stronger trading profit and gains from its insurance unit.
Earlier this month, DBS Group, Southeast Asia’s biggest bank, posted a forecast-beating 67% rise in quarterly profit, as strong fee income and a tax writeback helped offset an about 40% jump in bad-debt charges.
UBS expects Singapore banks could see loan growth of 5% and may benefit from a rise in interest rates.
“With the recession behind us, we expect investor focus to return to growth,” Jaj Singh, an analyst at UBS, said in a note ahead of the results. He added growth could come from either more loans or higher interest rates.
UBS, which has a “buy” on Singapore banks, estimates the sector is trading at 12 times 2010 earnings, below the 14.1 times average valuation for banking stocks for the past 10 years.
Singapore banking shares have weakened this year after a big rally last year when global markets surged following a market meltdown in 2008.
UOB’s shares, which were down 0.4% on Friday before the results were announced, have fallen about 5% this year, broadly in line with the benchmark Singapore stocks (.FTSTI). But the shares have declined less than its two rivals.
