UOB seeks to maintain dividend policy despite Covid-19 woes

Singapore

UNITED Overseas Bank (UOB) is targeting to maintain its 50 per cent dividend payout ratio this year amid the challenging business climate.

This will be subject to Common Equity Tier 1 (CET1) ratio staying above 13.5 per cent, as the bank looks to strike a balance between long-term growth opportunities and capital management, UOB chairman Wong Kan Seng told shareholders and observers at the bank's virtual annual general meeting (AGM) on Friday.

While UOB started from "a position of strength" with a CET1 ratio of 14.1 per cent in Q1, Jefferies analyst Krishna Guha expects the lender to lower its special dividend in FY20, in line with weaker earnings.

UOB's Q1 net profit fell 19 per cent to S$855 million - from S$1.05 billion a year ago - on declining margins and a surge in impairment charges.

"Dividend for the year will be guided by the desire to retain a strong credit rating; opportunistically grow the balance sheet; adjust for potential risk-weighted asset inflation from credit migration; and sustain the dividend," said Mr Guha in a recent note, adding that scrip dividend is also an option.

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In light of current uncertainties, the bank will continue to review and communicate its dividend view later in the year when there is "more clarity", said UOB chief executive officer Wee Ee Cheong at the AGM.

The bank's total dividend for the financial year ended Dec 31, 2019 (FY19) amounted to S$1.30 per share, representing a payout ratio of around 50 per cent.

The final dividend of 55 Singapore cents per share and special dividend of 20 cents per share have been approved by shareholders and will be paid out on June 29, 2020.

In response to shareholder queries on its business outlook, UOB expects net interest margin to face downward pressure due to interest rate cuts around the region.

Mr Wee further guided for credit costs to rise to 50 to 60 basis points through to FY21, given the "severe economic contraction".

Against this backdrop, the bank has set aside sufficient provisions to strengthen coverage, said Mr Wee. UOB's unsecured non-performing assets coverage ratio stood at 206 per cent in Q1.

Amid the economic fallout, concerns on asset quality and liquidity position were also raised at the AGM.

While the impact of the pandemic is yet to be fully felt, Mr Wee told shareholders that the bank's loan portfolio is currently "healthy and well diversified".

About half of UOB's loan book is made up of large corporates, while small and medium-sized enterprises (SMEs) make up around 15 per cent. The remaining 35 per cent are to individuals.

Mr Wee noted that most of the SME exposure is in Singapore and Malaysia, with over 80 per cent of the SME loan book secured by tangible assets.

Industries directly impacted by Covid-19 - such as aviation, retail and hospitality - make up 12 per cent of total loans. The majority are large corporates with strong sponsors in Singapore and Hong Kong, said Mr Wee.

"We will continue to monitor our portfolio closely and conduct stress tests for various scenarios," he added.

UOB also covered a wide range of other questions at the AGM, ranging from its digital strategy to succession planning.

Shareholders asked how the bank's "unique DNA" will be persevered after Mr Wee leaves the bank, with no other family member directly involved in management.

Mr Wee's second son left UOB a few months ago after six years at the bank, a LinkedIn update showed.

Mr Wee, who is open to a non-family member taking over from him, told shareholders: "My leadership team and I have put in place processes and programmes to ensure our core values are instilled in our people. I have personally spent much time and effort in growing our people, as part of building the bank's legacy and shaping it for the future."

UOB shares closed trading at S$22.00 on Friday, up 1.7 per cent.