UOB posts 67% rise in Q1 profit to S$1.5 billion

UOB on Thursday (Apr 27) reported a net profit of S$1.5 billion for its first quarter ended Mar 31, up 67 per cent from S$906 million a year earlier, and in line with the S$1.5 billion average estimate from three analysts polled by Bloomberg.

Excluding one-off expenses – specifically integration costs incurred in the acquisition of Citigroup’s consumer banking businesses – UOB’s net profit for the quarter was a record S$1.6 billion, up 74 per cent on year.

In a results briefing on Thursday, UOB chief executive officer and deputy chairman Wee Ee Cheong noted that the bank’s diversified franchise – particularly its wholesale and retail businesses – contributed to the strong results.

Q1 operating profit for UOB’s retail business more than doubled from the previous year to S$795 million, on an enlarged revenue base from the inclusion of its Citi consumer portfolio.

Operating profit for its wholesale banking business also grew 38 per cent on year to S$1.4 billion on margin expansion and treasury customer flows.

Meanwhile, its global markets segment benefited from market volatility, but this was moderated by a rising cost of funding.

Total income for the quarter rose 49 per cent on year to S$3.5 billion, buoyed by higher net interest income (NII) and other non-interest income.

Net fee income for Q1 was S$552 million, down 4 per cent on year but up 14 per cent on quarter, led by a recovery in wealth management fees and loan-related fees.

The lender’s assets under management rose 14 per cent to S$160 billion, largely from net new money inflows as well as a flight to quality.

Wee noted that UOB booked around S$6 billion in net new money in the quarter, and expects wealth management to be a bright spot.

Net credit card fees rose on year, supported by the integration of the Citi portfolio as well as an increase in customer spending. Other non-interest income rose to S$563 million from S$101 million the previous year, lifted by record-high trading and investment income.

NII was up 43 per cent on year to S$2.4 billion. The bank attributed this to a 56-basis-point (bp) uplift in net interest margin (NIM) to 2.14 per cent.

Quarter on quarter, NII fell 6 per cent due to a shorter quarter and a lower NIM. NIM moderated 8 bps due to an increase in funding costs, as well as liquidity surplus placed into high-quality assets.

Wee noted that the bank had given up some of its margin gains to shore up its liquidity, given the volatile market conditions.

He said: “We cannot sit here and believe that everything is rosy: we have to anticipate, so liquidity is key ... We’re happy to make sure that the balance sheet is strong, and we’d rather sacrifice a bit of NIM – it’s okay.”

The lender’s Common Equity Tier 1 (CET1) ratio was up 70 bps from the previous quarter to 14 per cent.

UOB chief financial officer Lee Wai Fai said the bank will keep its CET1 ratio above 13 per cent, which should result in a prudent mix between growth, dividend and liquidity coverage.

Total allowance on loans fell 5 per cent on year, attributed to more pre-emptive provisions taken the previous year.

But the bank also added general allowances in Q1 to strengthen its coverage amid near-term market uncertainty.

This led to total credit costs of 25 bps for the quarter – up 6 bps from a year earlier, but within the bank’s 2023 target of between 20 and 25 bps.

The bank’s non-performing loan ratio as at end-March was 1.6 per cent, unchanged from the previous quarter, as well as the period a year earlier.

Non-performing assets coverage stood at 96 per cent, or 212 per cent after taking collateral into account.

The latest set of results translates to earnings per share of S$3.54 for the quarter, up from S$3.14 in Q1 2023 and S$2.13 in the previous quarter.

Return on equity, excluding one-off expenses, stood at 14.9 per cent. This was up 6.1 percentage points on year, and 1.1 percentage points on quarter.

UOB lowered its 2023 guidance for loan growth to a low to mid-single digit, from a mid-single digit target in Q4 last year.

Wee noted that the bank’s customers have been repaying loans, which shows the strong liquidity position of its customer portfolio.

“We are generating (loan growth), but the repayments coming in is something that we cannot control,” he said.

On its Citi portfolio, Wee said the integration is progressing well as the bank remains on track to complete the integration of Citi in Indonesia by end-2023.

Lee added that the bank’s newly acquired Citi portfolio was performing better than expected. UOB was initially expecting an attrition among existing customers post-acquisition, but instead there has been a rise in customer numbers since the integration.

Wee said: “Asia is poised to register growth this year, and we are well-positioned to ride on the region’s economic recovery with our strong balance sheet, backed by healthy capital and liquidity positions.”

Shares of UOB closed at S$29.11 on Thursday, down 0.5 per cent.