Singapore's UOB Q2 profit rises 12 pct, beats forecast

SINGAPORE, May 6 (Reuters) - United Overseas Bank , Southeast Asia's third largest lender, posted a 13 percent fall in first quarter net profit due to low interest rate margins and one-off gains in the year-ago period, but it said its core markets remained buoyant.

  Singapore banks have seen strong loans growth over the past year, helped by robust economic growth in the city-state and across Asia. But this has not translated into higher earnings due to interest rates hovering near all-time lows.

  Interest rate margins have begun to bottom, however, with UOB reporting a 0.8 percent rise in net interest income in January-March from the preceding three months ago after four consecutive quarters of decline.

  " Most Asian economies are in a tightening cycle, Singapore included. The offshoot of this is that the operating environment would be more beneficial for banks as rates go up," said Tey Tze Ming, a market strategist at Saxo Capital Markets.

  UOB earned S$612 million ($493.2 million) in the three months ended March, down from S$700 million in the year-earlier period.

  After stripping off one-off items, UOB's core earnings rose 11 percent from the last quarter but declined 1 percent from a year ago.

  Its results were slightly below the average estimate of S$625 million of six analysts polled by Reuters, and lagged the S$807 million in quarterly net profit posted by rival DBS Group last week. [ID:nL3E7FQ1BP] [ID:nL3E7FS0ZF]

  UOB's net interest income fell 3.2 percent from a year ago to S$871 million despite a 20 percent rise in customer loans to S$120.2 billion, while fees and commission income rose 16 percent to S$330 million.

  The bank's net interest margin -- the difference between the interest rate the bank charges and what it pays depositors -- declined slightly to 1.90 percentage points compared with 1.91 in the fourth quarter and 2.25 a year ago.

  " Whilst the global economy continues to grapple with various shocks, our core markets remain buoyant, reflecting the strong regional economic fundamentals and rising affluence in Asia," UOB CEO Wee Ee Cheong said in a statement, adding the bank was pleased with the increase in loans and fee growth.

  MARGINS TO GROW

  UOB's management had previously flagged it hopes to grow loans by aound 15 percent this year and that net interest margins should begin rising in the second half, Deutsche Bank said in a note last week.

  According to data from the Monetary Authority of Singapore, the three-month interbank bank has been hovering around 0.44 percent since October last year, down from 0.69 percent at the start of January 2010.

  UOB shares have risen about 4 percent so far this year, bucking the 3 percent fall in Singapore's blue chip Straits Times Index .

  Shares of DBS, the city-state's biggest bank, have risen around 2 percent since the start of the year, while those of Overseas Chinese Banking Corp , the second-largest, have fallen around 7 percent.

  OCBC will announce its first quarter earnings next week. ($1 = 1.241 Singapore Dollars) (Reporting by Kevin Lim additional reporting by Eveline Danubrata)