UOB expects 5% revenue at risk after new digital banks enter the fray

UNITED Overseas Bank U11 expects "limited" impact in the near term from competition from new digital banks - with about 5 per cent of its revenue at risk - as it believes the Singapore banking market is highly penetrated and incumbent banks are "well trusted" by consumers.

The bank, founded in 1935, was responding to questions from shareholders and investor watchdog, the Securities Investors Association (Singapore), prior to its Apr 21 annual general meeting, with the responses filed on Saturday (Apr 9) with the bourse.

Singapore has issued the consortium made up of mainboard-listed Singtel and Nasdaq-listed Grab Holdings, and NYSE-listed consumer Internet company Sea each a full digital bank licence, allowing them to take deposits from and provide banking services to retail and non-retail customer segments.

Two digital wholesale bank licences went to an Ant Group unit and a consortium comprising Greenland Financial Holdings Group Co, Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management Co, for them to take deposits from and provide banking services to small and medium enterprises and other non-retail customer segments.

These digital banking players could be beginning their operations in 2022, and a recent study by the Institute of Service Excellence (ISE) at the Singapore Management University showed that 40 per cent of bank customers were willing to try out the digital banks. The take-up rate was noted to be pretty consistent among the different age groups, from those in their twenties to those in their sixties.

Head of research and consulting at the ISE, Chen Yongchang, said digital banks will give traditional banks a run for their money in the credit card, current and savings account, and investment spaces.

Apart from the upcoming competition, UOB - Singapore's third-largest bank by market capitalisation - said in the responses that it is confident in the long-term prospects of Asia, especially Asean, with the gradual reopening of economies.

"Our average growth forecast for Asean is about 5 per cent for 2022, compared to 4.2 per cent in 2021. Orderly normalisation of interest rate curves globally augurs well for the bank, given our current asset and liability profile. We do not expect any material impact on our resilient and well-collateralised loan portfolio," wrote UOB.

The bank added that despite there being high climate risks in South-east Asia, there are opportunities in green technologies and business models, sustainable cities and infrastructure. The sector, the bank noted, is projected to be valued at about US$1 trillion annually, and climate risk is an integral component of the bank's sustainability strategy.

As a South-east Asian regional bank, the focus for UOB is on intra-Asia and Asean trade, it added. "Therefore, we are less directly impacted by the Russia-Ukraine conflict. We are monitoring closely any indirect impact and are working with the industry to ensure compliance with sanctions."

Meanwhile, UOB has decided against stock splitting, because investors today have the opportunity to invest in smaller lot sizes.

"With the rise of digital brokers who do not impose a minimum fee per trade, the benefit for a share split is less apparent," UOB said.

Shares of UOB closed 0.3 per cent or S$0.08 lower at S$31.50 on Monday (Apr 11).


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