UOB sounds optimistic note; Q4 profit falls 32%

UOB, a strong player in the small and medium-sized enterprises space, does not see concentrated risks in its loan book, estimating credit costs for the year at 30-40 basis points. 

This is a "significantly lower" forecast than previously guided, the bank's chief financial officer Lee Wai Fai said in its full-year results briefing on Thursday.

Gradual reopening of economies is expected to help cushion the formation of non-performing assets (NPA).

Chief executive and deputy chairman Wee Ee Cheong wrapped up the local banks' results season on an optimistic note, setting upbeat expectations on growth in loans and wealth fees, as well as lower credit costs and a stable cost-income ratio. (see amendment note)

"Some credit migration is inevitable, but we have made sufficient provisioning and expect to stay profitable and resilient," Mr Wee said on Thursday. 

Potential new NPA for the year is estimated at S$2 billion, or 0.7 per cent of the bank's portfolio.

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As at 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.

Mr Lee stressed that most of these comprise loans that have resumed repayment, rather than loans that have turned bad. 

He also noted that NPA formation rose in the fourth quarter from "a few secured weak corporate customers" but the bank does not see widespread weakness nor concentrated risk.

As at January, the bank's S$18 billion loan book under relief also comprises S$10 billion in loans under the bank's own relief measures, as well as S$5 billion in ESG loan schemes. 

Total allowance on loans in FY2020 stood at S$1.55 billion, with total credit costs at 57 basis points (bps), compared to 18 bps in 2019. Mr Lee said this was due to pre-emptive provisioning to further strengthen the bank's balance sheet. 

UOB's net profit for its fourth quarter fell 32 per cent as net interest income declined and allowance for credit and other losses swelled.

Net profit for the three months ended Dec 31, 2020, stood at S$688 million, compared with S$1.01 billion for the year-ago period, the bank announced on Thursday. 

Annualised earnings per share stood at S$1.59 for the quarter, down 32.3 per cent from S$2.35 a year ago.

The earnings were in line with an average estimate of S$696.3 million of four analysts, according to data from Refinitiv.

The lender has proposed a final dividend of 39 Singapore cents per share with an option for scrip dividend for the period, down from the final dividend of 55 Singapore cents and special dividend of 20 cents for the year-ago period. 

This is in line with guidance from the Singapore authorities to cap dividends for FY2020.

Mr Lee said there is no indication from the Monetary Authority of Singapore on whether this requirement will extend beyond March 2021.

The dividend is subject to shareholders' approval at an annual general meeting scheduled for April 30. Together with the interim dividend of 39 Singapore cents, the total dividend for FY2020 will be 78 cents, representing a payout ratio of about 45 per cent. 

Net interest income for the quarter fell 8 per cent to S$1.51 billion from lower interest rates. Net interest margin (NIM) was down 19 bps to 1.57 per cent for the quarter, from 1.76 per cent a year ago.

Allowance for credit and other losses more than doubled to S$396 million for the quarter, from S$146 million for the year-ago period. The bank said the total allowance was higher due to the increase in allowance on non-impaired assets.

Other non-interest income declined 33 per cent to S$214 million, from S$321 million a year ago, mainly from lower net trading income.

The bank's non-performing loans ratio was 1.6 per cent, up from 1.5 per cent the same period a year ago.

Analysts from S&P Global Ratings said UOB is "well placed for a rebound in business" and expects the bank to maintain healthy capital and liquidity positions over the next 18 to 24 months. 

The analysts, Ivan Tan and Rujun Duan, forecast loan growth to recovery to about mid to high single digits this year, from 5 per cent in 2020.

Citi analyst Robert Kong noted that the bank has a "healthy" common equity tier-one (CET 1) ratio of 14 per cent, up 0.4 percentage points from end-2019. Mr Kong also highlighted improvements in the bank's control of operating expenses, stable core fees, but that trading profit has gone down.

UOB's chief executive Mr Wee said the bank has "ample provisions and capital" to continue to support its customers and remain resilient.

"In the next 12 to 18 months, we will stay vigilant while targeting growth. Low NIM is expected to stay. However, drivers of growth exist," he said.

With strong growth in operating profit from the region amid the pandemic, Mr Wee expressed optimism about regional markets like Vietnam and North Asia. 

He also highlighted the growing catchment of digital-only customers via UOB's digital bank TMRW. 

Launched in Indonesia last August and in Thailand in 2019, TMRW has seen customers increase three-fold, with a current base of 300,000. Some 70 per cent of TMRW's customers are new to the UOB group. 

Asked about the bank's exposure to Myanmar, Mr Wee said its operations there are "extremely small" and the bank is currently not taking any action as perceived risks are low. Still, it remains "one of the more promising countries (in the region) with a high customer base", he said. 

The bank is also rebalancing its business with an emphasis on wealth and connectivity-related products and services that can drive higher fee income.

Assets under management hit a new high of S$134 billion in FY2020, up 6 per cent year on year, of which 60 per cent are attributed to regional customers outside Singapore. 

UOB shares closed 3.2 per cent or S$0.77 higher, at S$24.65 on Thursday.

Amendment note: The article has been amended to reflect the correct spelling of Mr Wee's name as Ee Cheong instead of Ee Chong.  

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