(Bloomberg) -- United Overseas Bank Ltd. first-quarter profit came in above estimates even as its outlook was overshadowed by stronger projections at larger rival DBS Group Holdings Ltd.

Lending margins shrank from a year earlier, Southeast Asia’s third-largest lender said Wednesday. Gains in wealth and card fees helped to cushion a drop in lending income. Unlike DBS, which lifted its 2024 projections, UOB kept its outlook largely the same. The lender’s shares fell as much as 3.1% in Singapore, outpacing declines in the city-state’s benchmark stock index.

The result underscores the challenges that remain as a tailwind from rising interest rates slows. While both banks delivered above-forecast earnings, the extent of UOB’s beat and its on-year trends are softer than DBS, said Nick Lord, a Morgan Stanley analyst.

Net income, excluding one-off costs, fell 0.7% to S$1.57 billion ($1.2 billion) from a year earlier in the three months ended March 31. That compares with the S$1.49 billion average estimate of four analysts surveyed by Bloomberg. The bank maintained its outlook for lending and fee growth, though net interest margin will likely rise above levels in the first quarter, Chief Financial Officer Lee Wai Fai said at a briefing after the earnings were announced.

UOB, controlled by Singapore’s billionaire Wee family, is among lenders that stand to benefit as expectations turn to a higher-for-longer global rates environment. While that might prolong a tailwind in lending fees, depositors are catching up and putting their money in higher-interest bearing products. 

Slower Growth

Singapore’s economy is also expanding slower than forecast and confronting a softening property market. UOB, like its rivals, has received a lift from better fees from transactions by wealthy clients as stock markets pick up. Chief Executive Officer Wee Ee Cheong said demand for commercial real estate in Singapore remains firm.

The lender is Singapore’s second major bank to report earnings. Oversea-Chinese Banking Corp. reports results Friday.

Read More: Singapore Economy Expands Slower Than Expected in First Quarter

Net interest income slipped 2% to S$2.36 billion, as net interest margin, a lending profitability gauge, shrank. The decline dulled the 5% fee income gains that were fueled by wealth and credit-card operations.

Other highlights from UOB’s first quarter earnings:

  • Net interest margin of 2.02% compared with 2.14% a year ago
  • Allowance for credit and other losses dropped 4% to S$163 million from a year ago
  • Cost to income ratio stood at 41.9% vs 40.9% a year ago
  • Net new flows in wealth totaled S$3 billion in the first quarter, Wee said

--With assistance from Natalie Choy and Joyce Koh.

(Updates share price in second paragraph)

©2024 Bloomberg L.P.