More bad loans looming for UOB

NPL ratio to rise to 2.0% by end-2017.

Whilst UOB’s 3Q16 net profit was above expectations due to lower-than expected provisions, asset quality continued to deteriorate. RHB analyst Leng Seng Choon forecast the bank's non-performing loan ratio to rise to 2.0% by end-2017, from current 1.6%, on weakness in Oil & Gas sector and the general economy.

"Consequently, we forecast 2017 provisions to be 21% higher YoY. A widening 2017 NIM would help to counter the effects of higher provisions," the analyst noted.

With cumulative general allowances lower QoQ, and loan loss coverage down to 111%, the analyst believes provisions in subsequent quarters could rise from 3Q16’s level, although UOB’s 1.4% GP ratio provides some cushioning effect. Following the lower 3Q16 provisioning, we cut provisioning expectations and raise our 2016 net profit forecast by 6% to $3.06b.

"New oil & gas NPLs led ratio rise. We note 3Q16 NPL ratio of 1.6% was higher than 2Q16’s 1.4%, due to new oil & gas NPLs. Nevertheless, 3Q16 provisions rose 15% QoQ – lower than we expected – as UOB made specific allowances of $288m (+138% QoQ), but wrote back $113m of general allowances, which helped cap overall provisions," Leng noted.

He furthered, "While we expect 2016 NIM to remain narrow at 1.71% (9M16: 1.72%), it should expand in 2017 along with the anticipated Fed Funds rate hike."

To recall, UOB registered net earnings of $791 million, 1.2% lower than the second quarter of 2016. It was 7.8% lower than the third quarter of 2015 as the prior year’s results included one-off gains from sale of investment securities.

Reaching the people who run Asia's businesses is harder than it used to be.

Inboxes are crowded. Attention is short. The executives you most want to reach — the founders, CFOs, and operators who actually move budgets — are the hardest to find through the usual channels. If you're building a company, a category, or a reputation, you already know this.

We've spent twenty years building the room they read. Singapore Business Review is where senior decision makers in Singapore and across Southeast Asia come for business coverage they can't get elsewhere — in print, online, and in person at the summits and roundtables we host across seven markets.

If you have something these readers should know about — a point of view worth publishing, a product worth their attention, an event worth their time — we'd like to hear what you're trying to do.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia