UOB chalks up industry record of $2.57b gain

UNITED Overseas Bank (UOB) ended the earnings season of the three local banks on a spectacular note, with a 50 per cent surge in full-year profit to $2.57 billion - an industry record.

The results, which beat market expectations, were achieved 'despite the intense (regional) competition', said UOB deputy chairman and president Wee Ee Cheong.

Breaking with tradition, he chaired the results briefing instead of his father Wee Cho Yaw, UOB's chief executive and chairman, who is 78 this year but has not made public any retirement plans.

Hefty one-time gains were a key factor that catapulted the three banks' combined profits up a dazzling 78.6 per cent to a record $6.84 billion, from $3.83 billion in 2005.

UOB recorded a one-time gain of $689 million from a special dividend received from Overseas Union Enterprise (OUE) and the divestment gains of OUE and Hotel Negara in the second quarter of last year.

OCBC Bank's divestment gains of $559 million propelled it past the $2 billion mark, while DBS Bank recorded gains of $94 million from the sale of buildings, which helped to lift its net profit to $2.27 billion.

Excluding one-time gains, UOB's bottom line would have risen 10 per cent to $1.88 billion. Its fourth-quarter net profit rose 24 per cent to $537 million. Earnings per share rose 54 cents to $1.65. Net asset value per share rose 14.3 per cent to $10.48.

With the stars well aligned last year - a robust economy, recovering loans growth and exuberant stock markets lifting fee income - the banks would have been 'remiss to turn in anything less than record profits and dividends', said an analyst.

UOB's eye-catching net profits, which trumped the $2.44 billion average forecast by analysts in a Reuters poll, reflected its strong broad-based growth, said some analysts. Others felt DBS had the 'most solid operational performance', with record high interest and fee income.

UOB proposed the most handsome dividends, with a final dividend of 50 cents and a special dividend of 10 cents. This takes the total dividend for the year to $1.

But the free fall in stock markets yesterday battered the stock, which closed 60 cents lower at $20.40. Still, it narrowed the gap with DBS' share price which plummeted $1.20 to close at $21.30.

The younger Mr Wee also hinted at the prospect of bumper payouts in the future as the bank plans to 'continue with a high dividend policy' and is mulling over ways to manage excess capital such as share buy-backs and hold more Tier 2 capital, which is cheaper than Tier 1.

UOB's total capital adequacy ratio - amount of capital banks must set aside against their credit exposure - is the highest of the three banks at 16.3 per cent, while its Tier 1 is currently at 11 per cent.

Its net interest income rose 15.5 per cent to $2.71 million last year.

It grew gross customer loans by 13.7 per cent to $79.4 billion last year, thanks to its focus on the two hot segments - small and medium-sized enterprises and higher-end private homes, said one analyst. OCBC posted a 7 per cent rise in loans, while DBS had 10 per cent.

The three banks may post stronger interest income growth this year, riding on sustained loans growth momentum across the region. Macquarie Securities analyst Tay Chin Seng expects 'a more meaningful recovery in the property market in the second half of 2007' to boost loans.

DBS' net interest margins of 2.2 per cent far outstripped those of its rivals, riding on its regional corporate loans book. UOB's margins were flat year-on-year at 1.99 per cent and OCBC's was at 2 per cent.

Mr Wee said UOB's investments in building up its non-interest income business and its regional push are paying off.

Non-interest income rose 7 per cent to $1.5 billion excluding gains, thanks to strong fee and commission income, which crossed the $1 billion mark. Meanwhile, UOB's offshore profit contributions rose to 32.5 per cent, from 22.4 per cent.

Mr Wee said UOB has applied for approval for local incorporation in China. The other two banks have already gotten the green light to open retail banking branches there.

graceng@sph.com.sg

deepa@sph.com.sg