Business

Next one to two years 'very tough' for banks


United Overseas Bank's (UOB's) head honcho believes the bank has likely seen the worst of its woes over oil and gas loans, although it will continue to face volatility this year.

Chief executive Wee Ee Cheong was speaking at UOB's annual general meeting yesterday, where some shareholders raised questions over issues related to non-performing loans (NPL) and provisions.

"We expect that new NPL inflows have peaked for this year, and hopefully everything should normalise downward," he told about 500 shareholders at the AGM.

Mr Wee said UOB's oil and gas exposure is just 5 per cent of its total loan book, and stress tests have indicated that provisions will be "on a declining trend" this year.

All three local banks grappled with oil and gas NPLs throughout last year.

To cover for the potentially soured loans, the banks have to provide money as allowances, which will eat into earnings.

UOB's full-year net profit dropped 3.5 per cent year-on-year to $3.1 billion last year. In the fourth quarter, it forked out $428 million of specific allowances.

Dr Wee Cho Yaw, UOB's chairman emeritus and Mr Wee's father, noted that none of the Singapore banks did well last year.

"Banking is very tough, particularly in the United States, Europe and China. I'm not pessimistic (but the) next one to two years will be very tough," said the 88-year-old.

"That's why I tell the management that we have to be very conservative. Don't be too aggressive."

Meanwhile, another shareholder who was worried about a potential war in North Korea asked: "Should military tensions erupt, have you done a stress test on how that will affect your balance sheet?"

Mr Wee said UOB has insignificant exposure in North Asia. There has not been a specific test for a war scenario, but chief risk officer Chan Kok Seong said UOB can still break even when asset prices plunge 30 per cent during crises.

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