SINGAPORE – UOB had a muted start to 2024 as its margins from interest rates dropped, even as loans picked up pace and fee income rose.

Net profit for the first quarter fell 2 per cent to $1.49 billion, down from $1.51 billion a year ago, it said on May 8.

Still, UOB’s results were better than expected, beating the mean estimate of $1.43 billion from three analysts polled by LSEG.

Excluding costs from the integration of Citigroup’s consumer units in four Asean markets, net profit stood at $1.57 billion, dipping 1 per cent from a year ago.

Chief executive Wee Ee Cheong said UOB’s retail banking business did well, while wealth management is picking up and bancassurance remains strong, growing by a double-digit percentage year on year across all of its markets.

“We are seeing, increasingly, demand for investment products, mostly in fixed income and structured products. There is potential to do more,” he said.

The bank’s assets under management rose 11 per cent year on year to $179 billion. It saw net new money inflows of $3 billion in the first quarter and hopes that more deposits will be converted to investments in its wealth management products.

Mr Wee told a briefing: “Looking ahead, 2024 so far has been good. While the operating environment ahead may be uncertain, we will stay vigilant and nimble. With Asean’s strong fundamentals, we remain confident of the region’s underlying prospects.”

Net interest income was down 2 per cent to $2.36 billion as the bank’s net interest margin (NIM), an important measure of profitability, fell to 2.02 per cent, a drop from 2.14 per cent a year ago and unchanged from the previous quarter.

This came even as loans gained momentum, growing 3 per cent from a year ago and 1 per cent from the fourth quarter on a constant currency basis largely due to selective good credits and short-term trade loans.

Group chief financial officer Lee Wai Fai said the bank initially forecast challenges for its NIM as US Federal Reserve rate cuts loomed, but it now seems likely that such cuts will be pushed back to the last quarter of the year.

“Our NIM held up stronger than we thought... I personally expect some positive upside in the short term because we have cut rates on deposits. A lot of that will flow through in the second and third quarter,” said Mr Lee.

“I think we can keep it well above 2 per cent... If things go the way they are going, we are comfortable keeping (NIM) at the current level,” he said.

There was also growth in current and savings account deposits for the wholesale banking business, added Mr Lee.

“Strong investment banking activities, coupled with the regional pickup in trade volumes, cushioned the impact of margin compression as the market competes for higher-quality loans,” he said.

“We are quite positive that we will bring (net interest income) to a positive level, from the 2 per cent drop in the first quarter.”

The bank is also keeping a watchful eye on the implications of higher-for-longer rates that have resulted in a stronger US dollar and weaker currencies in the region.

“That being said, will all the money flow back to the US? We don’t think so because we think that there are enough activities in this part of the world,” said Mr Lee, citing supply chain activities and buoyant tourism in Asean.

Hopefully, loan growth will recover further in the second half of the year as customers become more comfortable with interest rates, he added.

UOB kept its guidance for low single-digit loan growth and double-digit fee growth in 2024.

The bank’s net fee income rose 5 per cent year on year to $580 million across loan-related, card and wealth activities, while other non-interest income increased 3 per cent to $581 million.

Trading and investment income surged as customer-related treasury income reached a new record of $219 million. This was due to increased retail bond sales and hedging activities amid investors’ rate cut expectations.

Total core operating expenses increased 2 per cent, largely on staff costs, while total allowances set aside for potential bad loans dropped 4 per cent due to lower specific allowances.

The bank’s non-performing loan ratio stood at 1.5 per cent, improving from 1.6 per cent a year ago and unchanged from the previous quarter.

Compared with the previous quarter, the earnings of Singapore’s third-largest bank rose 6 per cent while its core earnings, which exclude its Citi integration costs, edged up 5 per cent.

On May 2, Singapore’s biggest bank, DBS Bank, reported a 15 per cent jump in first-quarter net profit to a new high of $2.95 billion. OCBC Bank, the second-largest lender, is due to report on May 10.

UOB shares closed 2.19 per cent lower at $29.88 on May 8. DBS dipped 0.61 per cent to $35.71 and OCBC, which was trading ex-dividend, fell 3.58 per cent to $13.75.