United Overseas Bank Limited (UOB)
Headquartered in Singapore, UOB holds a global banking network of over 500 branches and offices across Asia-Pacific, Europe and the US. UOB offers a wide range of financial services through three core business segments – Group Retail, Group Wholesale Banking and Global Markets.
FY 2018 Financial Highlights:
Source: UOB FY 2018 Annual Report
- UOB recognized a record net profit after tax of SGD 4.01 billion for FY 2018, representing a year-on-year improvement of 18%.
- Total income increased 6% to SGD 9.12 billion, on the back of robust growth in net interest, as well as net fee and commission income.
- Further, gross loans rose 11% year-on-year to SGD 262 billion, while deposits grew 7% to SGD 293 billion. UOB also registered a healthy loan-to-deposit ratio of 88.2% as at 31 December 2018.
- Meanwhile, total expenses increased by 7% mainly due to higher performance-related staff costs and IT expenses.
- In addition, total allowances dropped by 46% to SGD 393 million, and credit costs on impaired loans moderated to 15 basis points. This was attributed to the comparatively benign credit environment for most of 2018, as well as lower residual risks from the oil and gas and shipping sectors from preceding years.
Source: UOB FY 2018 Annual Report
UOB’s FY 2018 performance can be analyzed via income type and business segment. The bank holds three types of income: Net Interest Income, Net Fee and Commission Income, and Other Income. The first two experienced a positive growth while Other Income suffered a drop. Looking at business segments, UOB’s Group Retail, Group Wholesale Banking and Global Markets segments all performed well, while its Others segment saw a decline. The report will also take a brief look at the quarter-on-quarter performance for UOB’s Q4 2018 results.
Performance Drivers (Positive Factors)
- Net interest income
UOB’s FY 2018 net interest income increased 13% to SGD 6.22 billion as a result of broad-based loan growth and higher net interest margin. Net interest margin rose five basis points to 1.82%, in line with the rising interest rate environment.
- Net fee and commission income
Net fee and commission income grew by 5% to SGD 1.97 billion – attributable to the strong performance in loan-related, credit card, trade-related and fund management fees.
- Group Retail Segment
Profit before tax for UOB’s Group Retail segment grew 4% to SGD 1.83 billion in FY 2018, while total income rose 4% to SGD 3.95 billion. This was mainly driven by net interest income which increased 7% on the back of healthy volume growth and deposit margin improvement. On the flip side, non-interest income was maintained at about the same level, while expenses went up by 7% as a result of higher staff costs and investments in digital capabilities.
- Group Wholesale Banking Segment
UOB’s Group Retail segment saw profit before tax surged 96% to SGD 2.82 billion as credit costs eased in a benign credit environment. Meanwhile total income grew 11% to SGD 3.94 billion. This was attributed to a double-digit growth in volume and margin improvement for net interest income – as a result of rising interest rates. In addition, non-interest income rose 5% to SGD 1.11 billion from loan-related fees, trade and investment banking. Similar to Group Retail, expenses for this segment increased 16% due to higher staff costs and investments in digital capabilities.
- Global Markets Segment
Profit before tax for Global Markets jumped 16% to SGD 218 million and total income rose 6% to SGD 465 million. This was largely driven by favorable movements in foreign exchange and rates. Meanwhile, expenses dropped by 3% to SGD 245 million.
Performance Drivers (Negative Factors)
- Other non-interest income
UOB’s FY 2018 other non-interest income decreased 20% to SGD 930 million as a result of unrealized mark-to-market on investment securities, as well as lower gains from sale of investment securities.
- Others Segment
UOB’s Others business segment comprised non-banking activities and corporate functions. This segment recorded a loss of SGD 42 million in FY 2018 – compared to the net profit of SGD 819 million in FY 2017. This wide gap was chiefly due to the gain from sale of equity investments and reversal of allowances for non-impaired assets made last year.
- Weaker Q4 2018 earnings
Although the focus is on full-year financial results, it should be noted that UOB experienced a quarter-on-quarter drop in its Q4 2018 earnings. The bank registered lower net fee income due to lower wealth management and loan-related fees on subdued market sentiments. Higher allowances also had to be made for impaired assets principally in Singapore and Indonesia. Nevertheless, UOB’s weakness in its Q4 2018 earnings was widely expected by analysts – in view of the strong headwinds created from heightened geopolitical risks and volatile financial markets.
Source: UOB Annual Report 2018