UOB says keen to review Citi assets; Q1 profit up 18% on record fees, smaller impairment

U11 : U11 0% said it will look at assets that Citi is putting up for sale in Asia Pacific, joining its Singapore peers in hunting down acquisitions for growth.

Its chief executive officer Wee Ee Cheong said this on Thursday, as the bank posted an 18 per cent rise in net profit for the first quarter that beat estimates.

“We are always open to acquisition opportunities. As long as it’s a strategic fit, is at the right price and makes sense for the long term, we will look at it,” Mr Wee told reporters at a media briefing.

UOB would be able to provide a “better answer” on their acquisition plans after Citi releases more details later this month, its chief financial officer Lee Wai Fai added. In general, if any assets up for sale are “incremental to our franchise”, the bank will “definitely be keen” to look at good deals, he said. 

UOB's net profit for the first three months ended March 31, 2021 stood at S$1.01 billion, compared with S$855 million in the year-ago period. The rebound was driven by record fee income and smaller impairment charges.

The earnings beat the S$891 million estimates by Refinitiv. Annualised earnings per share for the quarter stood at S$2.36, up from S$2 a year ago.

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Impairment charges fell 29 per cent from a year ago to S$201 million. Non-performing loan (NPL) ratio stood at 1.5 per cent, down from 1.6 per cent a year ago.

Still, despite a steady start to 2021, Mr Lee cautioned that it is “a little bit too premature” to write back provisions at this point. While NPL emergence remains low, the various relief measures still in place may have a “lagging impact” on NPLs.

“If you look at the uncertainty that we have, I don’t think that we have fully recovered. We wanted to be more cautious,” he said.

That said, the bank will look to “slow down” the addition of provisions, with credit costs expected to come in below 30 basis points for the year. This was previously at 30-40bps, with that in 2020 at 57bps.

Its stance differs from DBS, which made a general allowance write-back of S$190 million in its first quarter results.

UOB’s loans under moratorium have remained unchanged from January.

About 6 per cent, or S$18 billion, of the bank’s total loan book was under relief. Of these, loans under government relief programmes have come down from S$11 billion in December, to S$3 billion in January, after most of the moratoriums across the bank’s markets expired, making up less than 1 per cent of total loans under relief.

Amid the pandemic, the lender also joins its peers globally in reviewing office space requirements. “We are looking at it. With digitalisation and flexible working hours, we are definitely more flexible in terms of space,” said Mr Wee.

But a reduction in space, if any, may not be much. As it is, the bank’s office space is around 1.2 metres per employee, which is quite tight relatively to other organisations that may have 1.7 metres of space or more per employee, he noted.

Net interest income for the quarter fell 4 per cent from a year ago to S$1.53 billion, reflecting weaker interest rates. Net interest margin stood at 1.57 per cent, down from 1.71 from the year-ago quarter. It was unchanged from the prior quarter. 

Net fee income was up 24 per cent compared with the year-ago quarter to S$638 million. Other non-interest income rose 7 per cent over the year to S$319 million.

Retail assets under management grew 10 per cent year on year to a record S$136 billion in the first quarter, of which 60 per cent came from overseas customers. UOB’s digital banking unit, TMRW, in Thailand and Indonesia saw a 24 per cent growth in customer deposits from the previous quarter. Total customers across both countries stood at 314,000 as at end-March. 

“The customers we are acquiring for TMRW will serve as an important pipeline for our future franchise growth across the globe,” said Mr Lee. 

Meanwhile, UOB’s interest in Citi assets comes as the Wall Street giant had said it would exit 13 consumer markets. Citi cited reasons as the lack of scale needed to compete in those markets, and broader plans to scale up on wealth management.

Many of these are key markets for Singapore and Asia-focused banks. The 13 consumer markets Citi will exit are: Australia, Bahrain, Indonesia, South Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand, Vietnam, India and China.

DBS and OCBC are reportedly keen to review the Citi assets up for sale as well.

Mr Wee said the bank achieved a strong start to 2021, and is seeing “robust credit demand” from large corporate and institutional clients in its key markets. “We expect this momentum to continue as economic and business activity picks up and market sentiment improves across the region, starting with Singapore and Greater China.”

UOB guided for profit to rebound in 2021, driven by high single-digit loan growth, stable margins, double-digit growth in non-interest income, and lower credit costs. It also expects a 50 per cent dividend payout ratio to resume once the dividend cap is relaxed by the regulator.

Jefferies kept a "buy" call on UOB, citing the reflation theme. "The loan growth guidance is a bit out of sync despite strong Q1 numbers and the reflation narrative, but we are hopeful of a back-ended spurt," said its banking analyst Krishna Guha in a report on Thursday evening. It has a price target of S$29.50 on the stock. 

The bank joined its Singapore peer in shrugging off some of their Covid-19 pains.

D05 : D05 0% last Friday posted a 72 per cent year-on-year rise in Q1 net profit to hit a record S$2.01 billion, beating estimates.

As for O39, which will report its results on Friday, the bank is likely to report stronger earnings on the back of its insurer arm. Great Eastern posted a net profit of S$437.6 million for its first quarter ended March 31, 2021, nearly 13 times the S$33.9 million it reported for the year-ago quarter. 

Eugene Tarzimanov, vice president, senior credit officer, Moody’s Investors Service said: "We expect that Singapore banks’ profitability will continue to recover in 2021 amid receding asset risks and improving operating conditions."

Shares of UOB closed down 27 cents, or 1 per cent, to S$26.03 on Thursday. 

READ MORE: 

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• Earnings wrap: Singapore banks make handsome beat on estimates in Q1