UOB 1Q09 Results - Muted increase in NPL ratio, rebuild tier-1 CAR

Loans were flat qoq but 5.9% higher yoy to S$102.0b. Growth came from housing loans (+7.7% yoy) and loans to private individuals (+12.9% yoy). Net interest margin unchanged at an attractive 2.41% but management indicated there was lower average loan spread for some overseas centres. Net interest income was flat qoq but increased 11.4% yoy to S$949m.

Fees & commissions rebounded 5.0% qoq to S$240m due to huge jump in loan-related activities. UOB also booked gains of S$98m for financial instruments and available-for-sale assets, compared to S$45m for 4Q08.

Staff costs reduced by 5.5% qoq due to lower headcount and cash grants from government's job credit scheme. Other operating expenses was cut 9.7% qoq with reduction in revenue related and IT related expenditure. Cost-to-income ratio improved from 39.4% to 35.5%.

UOB made specific provision of S$169m, similar to last quarter. It also built buffer with general provision of S$174m. NPL ratio increased only marginally from 2.0% in 4Q08 to 2.1% in 1Q09. Management commented that there is no major signs of deterioration. We believe Special Risk-Sharing Initiative from government has helped to reduce NPL formation for SME loans.

Tier-1 CAR improved from 10.9% in 4Q08 to 12.3% in 1Q09, above regulatory requirement of 6%. This was achieved through reduction of risk-weighted assets and retained earnings.

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