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Singapore's UOB Profit Up, Loan Growth May Slow

United Overseas Bank, Singapore's second-biggest lender by assets, posted a 2.1 percent rise in quarterly profit, broadly in line with market forecasts, but the bank warned that loan growth could slow this year.

The first quarter saw double-digit loan growth that helped offset a drop in fee income from volatile global markets, but analysts warned the second half would be challenging amid a possible slowdown in the Asian economies.

"Amidst current market volatilities we expect loan growth to moderate this year," said Chief Executive Wee Ee Cheong in a statement on Tuesday.

Analysts said that the result was a good omen for Singapore's other two lenders, DBS and Oversea-Chinese Banking Corp, who will announce earnings on Wednesday.

"It's not a bad start to the season," said David Lum, an analyst at Daiwa Institute of Research. "I think the most bullish aspect is the net interest income was very strong on loan growth as well as margin expansion."

Singapore bank loans grew at 24 percent in the first quarter from a year earlier, accelerating from 20 percent growth in 2007.

UOB's January-March net profit rose to S$529 million ($389.5 million) from S$518 million a year ago. Analysts had predicted net profit of S$522 million, according to an average forecast from six analysts polled by Reuters.

UOB took S$43 million worth of fresh provisions for credit derivatives, which it said fully provided for its exposure to asset-backed collateralised debt obligations -- complex instruments that pool loans or bonds and that were badly hit by the U.S. subprime crisis.

UOB, controlled by chairman Wee Cho Yaw and his family, is considered the market leader in Singapore's loan market for small- and medium-sized businesses, and has benefited from demand for construction projects.

"While Singapore banks are not insulated from the global slowdown, the infrastructure projects that have been committed in the domestic economy should, in our view, provide a cushion against recession," said Jaj Singh, an analyst at UBS, before the results.

UOB's net lending grew 19.4 percent in the first quarter from a year earlier, slowing slightly from 20.5 percent in the fourth quarter.

Net interest income rose 11.8 percent to S$852 million from a year earlier and 14.6 percent from the fourth quarter, while non-interest income, which includes commissions and fees, fell 4.1 percent from a year earlier to S$414 million.

UOB shares dropped 3.8 percent in January-March, better than a 13 percent fall in shares of sector leader DBS but underperforming third-ranked Oversea-Chinese Banking Corp's 2.3 percent fall. UOB shares have gained almost 41 percent since hitting a low of S$15.38 on Jan 22.