By Rthvika Suvarna
(Bloomberg) – United Overseas Bank Ltd. shares slumped after the lender set aside its biggest provision of S$615 million ($470 million) citing commercial real estate risks in the US and Greater China.
The “troublesome” area is in Hong Kong and the US where the bank is working through a “few accounts” that make up a small portion of its total loans, Chief Executive Officer Wee Ee Cheong said at a results briefing.
The Singapore-based bank said it took the “proactive steps” amid ongoing macroeconomic uncertainties, as well as to have a stronger cushion for potential valuation adjustments. Its shares fell as much as 4.7%, the most since April.
Across the markets UOB operates in, China is still struggling with a real estate slump while troubled property assets continue to roil the market in the US. Beyond worries over property, lenders are also grappling with a lower interest rate environment and bracing for repercussions if the economy takes a turn for the worse amid higher tariffs.
“We conducted a thorough review of our portfolio,” Wee said, adding the bank took advantage of its strong capital position to build up buffers so as to cushion against any further headwinds.
He said the bank’s share buyback and dividend commitments remain intact, and the move to set aside the allowance will not impact this year’s final dividend.
“We are here to make sure that our balance sheet continues to be strong.” Wee said.
Due to its action, UOB’s net income for the three months ended Sept. 30 tumbled 72% to S$443 million from a year earlier, far below the S$2.27 billion average estimate of analysts.
Performance in its key businesses was lacklustre, as net interest income fell 8% and net fee income also slipped 2%.
When asked if the worst is over on the bad loans front, Wee said: “If I know everything, I will not be a banker today.”
UOB’s move stands out compared to larger rival DBS Group Holdings Ltd., which also reported results on Thursday. DBS posted higher-than-expected profit supported by sustained momentum in its wealth management business.
At DBS, its wealth fees surged more than 30% to S$796 million, while assets under management hit a record to S$474 billion. Its CEO Tan Su Shan was more focused on the challenges of navigating interest rates declines, and said the lender mitigated these pressures through proactive balance sheet hedging.
DBS shares rose as much as 3% in Singapore to a record high.
(Updates throughout with more details, comments from briefing)
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