UOB’s Q3 profit up 34% to S$1.4b on record net interest income

Kelly NgYong Hui Ting
Published Fri, Oct 28, 2022 · 08:16 AM

ASEAN markets will likely slow down but skirt a recession in the coming months, and UOB will benefit from fund flows into the region amid political risks elsewhere, its chief executive officer Wee Ee Cheong said on Friday (Oct 28).

The bank reported a 34 per cent increase in quarterly net profit to S$1.4 billion, driven by record net interest income.

Its earnings for the third quarter ended Sep 30 surpassed consensus estimates of S$1.2 billion, according to Bloomberg’s survey of five analysts. Annualised earnings per share for the quarter stood at S$3.30, up from S$2.46 in Q3 2021.

UOB : U11 0% shares surged after its results announcement. The counter was up 4.7 per cent to S$27.23 at the midday break on Friday. It ended the day at S$27.06, up 4 per cent or S$1.04.

Net interest income for Q3 was up 39 per cent to S$2.2 billion from S$1.6 billion a year ago. Net interest margin (NIM) increased to 1.95 per cent, expanding 40 basis points year on year and up 28 basis points from Q2.

Margins for UOB’s regional markets also saw uplifts. In Malaysia, NIM was up by 21 basis points from the previous quarter, while operating profit grew 34 per cent. NIM in Vietnam expanded by 46 basis points; in Indonesia, it was up 11 basis points; while in Thailand, it went up 10 basis points.

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“If you look at the whole of Asean, generally, (the countries) are fairly strong. If the geopolitical (tension) between US (and China continues), you will see the continued shifting of supply chain activities into this part of the world. For Singapore, you know there has been a fair bit of inflow, partly due to geopolitical risks elsewhere...

“If interest rates (in the US) continue to rise, the US may face a recession. But in our part of the world, it could potentially be just a slowdown. But I don’t see any major hiccup in our economy,” Wee said.

UOB will be completing its acquisition of Citi’s consumer business in Thailand and Malaysia on Tuesday (Nov 1), and will do so for the Vietnam and Indonesia franchises by end 2023.

Ninety per cent of Citi staff have agreed to join UOB, Wee said.

Total allowances fell 36 per cent for the quarter due mainly to lower specific allowances. Wee said the bank had managed to reverse a one-off non-performing loan classified in Q2. He was likely referring to the account of distressed Chinese developer Shimao.

The bank’s non-performing loans ratio stood at 1.5 per cent, unchanged from a year ago.

Lee said the bank is keeping an eye on some S$3 billion in loans to Chinese developers, but that most of this exposure involve completed properties. As at Sep 30, 2022, the bank’s total exposure to mainland China stood at S$23.1 billion, or 5 per cent of its total assets.

The addition of Citi’s unsecured consumer portfolios may raise UOB’s credit costs, but this is likely to be offset by a larger uplift to interest margins, said UOB’s chief financial officer Lee Wai Fai.

UOB’s common equity tier 1 (CET-1) ratio, which measures a bank’s core equity capital compared with its total risk-weighted assets ratio, stood at 12.8 per cent, down from 13.1 per cent a year ago.

Lee acknowledged that cost of funding has increased, with an outflow of funds from current and savings accounts (Casa) to fixed deposits. UOB’s Casa ratio has fallen to 49.8 per cent, down from 55.8 per cent a year ago.

Despite a 5 per cent quarterly growth in total customer deposits, the bank lost S$9 billion in Casa and added S$16 billion in fixed deposits. This trend will probably continue at a slower pace, as the rate of interest rate hikes will likely moderate, Lee said.

Loan-related fees for the quarter moderated from a high base in Q2, while wealth fees remained soft amid subdued market sentiments.

In the future, the bank’s executives believe margins will continue to reap upside momentum from Fed rate hikes until the first half of 2023, before a market correction sets in. The bank is “comfortable” maintaining a margin above 2 per cent, Lee said, and expects credit costs to hover around 20 to 25 basis points next year.

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