UOB Falls Most Since May on Surprise Lending Margin Squeeze

(Bloomberg) -- United Overseas Bank Ltd. fell the most in almost five months after a key gauge of loan profitability fell, overshadowing higher third-quarter net income at the Singaporean lender.

The stock slid as much as 3.8 percent Friday, the biggest intraday decline since May 30. The 2 basis-point drop in net interest margin in the three months ended September from the previous quarter was “the biggest disappointment” in the results, said Marcus Chua, an analyst at Nomura Holdings Inc.

UOB is the first Singapore bank to report earnings for the period, and the results may indicate a softer patch during the second half of the year, dominated by Asia’s slower economic expansion and volatile financial markets.

“Overall a weaker quarter” than the preceding three months, Kevin Kwek, an analyst at Sanford C. Bernstein, wrote in a report. “Investors will feel reassured that loan growth was still there, only very slightly softer than Q2 despite elevated trade war concerns."

Deposit Buildup

UOB attributed the slip in net interest margin to a buildup in deposits, suggesting it doesn’t represent wider pressures on the Singapore banking sector, which has been benefiting from rising interest rates.

The margin decline “is only temporary as the bank accumulates low-cost funding ahead of a potential rise in deposit costs in Singapore,” Bloomberg Intelligence analyst Diksha Gera wrote. She expects year-on-year gains to continue.

Net income climbed 17 percent from a year earlier to S$1.04 billion ($753 million), thanks to higher lending income and lower provisions for bad loans.

The results were also tarnished slightly by a drop in net gains from investment securities, and lower wealth management fees. Costs rose, in part due to investment in information technology -- an area where UOB has been seen as lagging behind its Singapore peers.

Oversea-Chinese Banking Corp. will report its quarterly results on Nov. 1, followed by DBS Group Holdings Ltd. in the following week.

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