UOB’s nearly S$1 billion in extra allowances akin to ‘buying insurance’: CEO Wee Ee Cheong

[SINGAPORE] UOB’s decision to increase allowances by almost S$1 billion – which led net profit to tumble by more than two thirds – for the latest quarter is “very positive” because it is akin to “buying insurance”, said deputy chairman and chief executive officer Wee Ee Cheong.

On Thursday (Nov 6), UOB reported that for the three months ended Sep 30, allowances for credit and other losses more than quadrupled to S$1.36 billion, from S$304 million a year earlier.

As a result of the higher allowances, net profit fell 72 per cent to S$443 million, from S$1.61 billion in the same period a year earlier.

The final dividend payment for 2025 – UOB typically pays dividends twice a year on a half-yearly basis, outside of special dividends – will not be affected by the higher pre-emptive general allowance, the lender said.

It also remains committed to its S$2 billion share buyback programme, with almost a quarter of it completed as at September, said Wee.

The allowances included S$615 million in additional general allowances and higher specific allowances on loans, mainly to the commercial real estate sector in the US and Greater China.

As an organisation, UOB takes a “long-term view” and does not just focus on the profit and loss line, Wee said.

While he declined to name the specific borrowers tied to the higher allowances, he noted that increasing the allowances allows UOB to be in a “position of strength” and avoid forcing property sales of potentially distressed borrowers.

“Otherwise, when you have a crisis situation, the tendency is: everyone will overreact,” said Wee. “Do you want to do that? You have a property, I overreact; I (force you to) sell? No – we want to set aside (allowances), we want to be calm, we want to be measured.”

Specific allowances on loans stood at S$479 million in the third quarter, up from S$296 million the year before.

Together with general allowances of S$687 million, this brought the bank’s total allowances to S$1.17 billion, more than four times or S$885 million higher than the S$281 million set aside in the same period the previous year.

The ratio of general allowance on loans to performing loans for customer borrowing in Greater China stood at 2.3 per cent in Q3, from 0.8 per cent in the same quarter a year earlier, on customer loans of S$48 billion.

In the US, the ratio was 2.2 per cent, up from 0.4 per cent, on S$17 billion in customer loans.

The non-performing loan (NPL) ratio for loans in Greater China rose to 3.1 per cent in Q3, from 2 per cent a year earlier, while the figure for the US increased to 4 per cent, from 2.4 per cent.

At the group level, NPL stood at 1.6 per cent, compared with 1.5 per cent a year earlier.

Without the additional one-off allowances, UOB’s net profit for Q3 would have stood at or exceeded S$1 billion, group chief financial officer Leong Yung Chee estimated.

Wee and Leong were speaking to reporters at the lender’s earnings briefing for the quarter.

The S$1 billion in net profit – assuming no additional general allowances – is still a ways from the S$1.34 billion consensus forecast in a Bloomberg poll of five analysts.

Thursday’s Q3 results came as net interest income fell 8 per cent to S$2.3 billion, as net interest margin (NIM) declined 23 basis points (bps) to 1.82 per cent, from 2.05 per cent the previous year.

Non-interest income stood at S$1.13 billion, down from S$1.37 billion earlier, on higher card rewards expenses and lower trading and investment income.

Exit NIM for Q3 stood at 1.82 per cent, slightly lower than 1.84 per cent in the previous quarter.

“In terms of the steepness of the decline in NIMs resulting from rate movements, you would have seen that this has significantly slowed,” said Leong.

On Thursday, the lender also provided its 2026 outlook, projecting “low single-digit” loan growth and a full-year NIM of between 1.75 and 1.8 per cent.

It expects “high single to double-digit” fee income growth, alongside “low single-digit” operating cost increases.

Credit costs, which surged to 134 bps in Q3 from 36 bps a year earlier, are expected to “normalise” in the fourth quarter and into 2026, Leong added.

Shares of UOB traded 3.2 per cent or S$1.13 lower at S$33.74 as at 10.45 am on Thursday, after the earnings announcement.