UOB: Weakness in non-interest income

UOB reported 3Q08 net profit of S$475m, down 5.1% YoY and 20.9% QoQ.
Net interest margin widened 28bps YoY. Net interest income performed well, expanding 25.1%
YoY to S$893m, though the QoQ growth was a milder 2.3%. This was driven by 1) a 9.7% YoY rise
in average interest bearing assets to S$160.8b, and 2) net interest margin widening 28bps YoY to
2.21%, due to improved asset mix and lower funding costs.


Non-interest income performed badly, recording a 18.6% YoY decline and and a 41.9% QoQ
contraction to S$319m. Fee & commission recorded a 14.1% YoY decline, and accounted for
85.9% share of non-interest income. The weakness was due to fund management and investment
related income. The sequential collapse in non-interest income was mainly due to a net loss of
S$49m from non-trading activities versus 2Q08’s S$193m gain.
Asset quality remained high, with a 3Q08 NPL ratio of 1.5%, similar to 2Q08’s 1.5% and lower
than 3Q07’s 2.3%. However, UOB’s 3Q08 impairment charges of S$158m is significantly higher
than 3Q07’s S$4m (though close to 2Q08’s S$180m), due to collective impairment provisions.
Loans still expanding. Gross global loans expanded 17.6% YoY and 3.2% QoQ to S$102.5b.
Manufacturing loans expanded 8.4% QoQ to S$11b whilst general commerce loans was up 7.7%
QoQ to S$14.7b.
Capital adequacy ratio remains strong at 11.2% for Tier 1 and 15.5% for Total CAR. This
remains much higher than regulatory requirement of 6% and 10% respectively. The high capital
ratios are a positive in the current environment of slowing economic growth.

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