4Q21: Building Scale And Deepening Regional Franchise.
UOB reported net profit of S$1,017m for 4Q21 (+47% yoy, -3% qoq). Net interest income increased 11.1% yoy due to loan growth of 10.5% yoy and NIM expansion of 1bp qoq to 1.56%. Fees and trading & investment income were seasonally softer. NPL formation was elevated at S$670m, coming mainly from several secured corporate loans. For 2022, management guided mid-to-high single-digit loan growth, double-digit growth in non-interest income, and normalisation of credit costs higher to 20-25bp.
RESULTS
• United Overseas Bank (UOB) reported net profit of S$1,017m for 4Q21, up 47% yoy but down 3% qoq. The results were in line with consensus’ estimates of S$998m.
• Loans grew 10.5% yoy in 4Q21, driven by large corporate and institutional clients. By industry, transport & communications, building & construction and financial institutions & holding companies grew 16%, 16% and 30% yoy respectively. Singapore, Greater China and Others (mainly Australia, the UK and the US) grew 10%, 10% and 32% yoy respectively. UOB rolled out several sustainable financing solutions. Total sustainable financing reached S$17b in 2021, surpassing its 2023 target of S$15b. Management has set
a new sustainable financing target of S$30b by 2025.
• Benefitting from stable NIM. NIM receded 1bp qoq but expanded 1bp qoq to 1.56% in 4Q21. Thus, net interest income grew 11.1% yoy.
• Non-interest income seasonally softer. Fees & commissions grew 12.8% yoy but remained flat qoq at S$589m in 4Q21. Growth from credit cards (+2% qoq) and loans related (+4% qoq) fees were offset by a seasonal decline in wealth management (-8% qoq). Assets under management (AUM) from high affluent customers grew 4% yoy and reached a new record of S$139b. Total card billings in Singapore increased 17% in 2021. Trading and investment income dropped 31% qoq due to lower customer flows and seasonally weaker transaction volume.
• Disciplined in controlling expenses. Cost-to-income ratio improved 1.3ppt yoy to 44.3% in 4Q21. Operating expenses increased 4.4% yoy. UOB will prioritise strategic investments in people and technology to scale up its digital offering in Singapore and the ASEAN region.
• Sequential up-tick in NPLs. Non-performing loans (NPL) balance increased 6.4% qoq. NPL formation was higher at S$670m due to several secured corporate accounts. A property company in Singapore accounted for one third, or about S$220m, of the increase in NPLs. The loan is secured by an asset, which has already been put up for auction. NPL ratio deteriorated 0.1ppt qoq to 1.6%. NPLs for buildings & construction and financial institutions & holding companies increased by S$292m and S$196m yoy respectively.
• Lower credit costs helped by write-back in general provisions. Total provisions dropped 31% qoq in 4Q21. UOB set aside specific provisions of S$170m (3Q21: S$155m). It wrote back general provisions of S$76m due to more clarity and increased confidence in an improved outlook. Thus, total credit costs dropped from 20bp in 3Q21 to 12bp in 4Q21.
• The board has recommended final dividend of 60 S cents.
ESSENTIALS – HIGHLIGHTS FROM RESULTS BRIEFING
• Guided positive outlook for 2022. Management guided mid-to-high single-digit loan growth for 2022, driven by cross-border transactions and recovery in ASEAN countries. Non-interest income is expected to grow at a double-digit rate. Fees are expected to increase 10-15%, supported by cross-border transactions and sector solutions for wholesale banking. Management also expects contribution from credit cards and wealth management to be strong. UOB will continue to exercise discipline to control expenses so as to keep cost-to-income ratio stable (excluding Citi-related integration costs).
• Normalisation of credit costs. Management guided credit costs at 20-25bp for 2022 (2021: 20bp).
• Sensitivity to interest rate hikes. Management guided that every 25bp hike in the US Fed Funds Rate will lead to a 4-5bp NIM expansion for UOB, which translates to additional net interest income of S$150m-200m per year.
• The worst could be behind us. The operating environment is stabilising. Management sees improvement in consumer sentiment in Singapore. There are green shots of recovery and significant upside in the ASEAN region, although the pace of recovery may vary by country. There is sizeable flow of foreign direct investments (FDI) into ASEAN.
• Acquisition of Citigroup’s consumer banking businesses. Citigroup’s consumer banking businesses in Indonesia, Malaysia, Thailand and Vietnam have the right strategic fit for UOB. The acquisition doubles UOB’s retail customer base across the four markets. The acquisition accelerates growth and deepens UOB’s regional franchise. It is expected to reduce UOB’s CET-1 CAR by 0.7ppt to 12.8%.
• Building scale and deepening engagement. UOB has acquired 800,000 customers regionally across its core markets through its unified digital platform UOB TMRW during 2018-21. The bank will serve these new customers through an omni-channel approach as their needs evolve. Its UOB TMRW will help UOB build scale and reduce cost to serve. UOB has set up a private wealth group, encompassing UOB Private Bank and UOB Privilege Banking to sharpen its focus on serving high net worth clients.