UOB lags behind peers in green banking: Report

Environmental, governance, corruption risks seen as particularly relevant for the bank

United Overseas Bank has some catching up to do on the green banking front, said a Maybank-Kim Eng analyst report, as it lags behind its peers on its environmental, social and governance (ESG) financing portfolio and certain diversity metrics.

As a bank with a wide regional footprint, it is exposed to multiple ESG risks - directly and through its clients, said analyst Thilan Wickramasinghe in a Sept 18 report.

Environmental as well as governance risks, money laundering and corruption risks are particularly relevant for the bank, Mr Wickramasinghe wrote.

This comes as just 14 per cent of the bank's incremental lending in 2019 were for sustainable uses, falling behind peers which averaged 35 per cent. UOB's total sustainability portfolio is around 2 per cent of its total loans.

The bank has established an ESG committee that reports to the management executive committee, which, however, sits one notch below board level.

The group has had several reported mis-selling incidents in the past two years, which raise fair dealing and governance risks, the report said.

Five of its personal bankers were jailed or sanctioned - or both - between 2018 and 2019 in separate cases of mis-selling and cheating.

As a lender to a wide base of small and medium-sized enterprises (SMEs) in Singapore, the bank, Mr Wickramasinghe pointed out, is also "particularly exposed to social risks" in terms of balancing shareholder returns while supporting small business owners, against the backdrop of the Covid-19 pandemic.

About 36 per cent of UOB's corporate loans at the end of last year were made to businesses classified as SMEs.

"This creates notable social risks, given this is among the most impacted segments under the current economic backdrop," he said.

These risks will rise as small business owners emerge from Covid-19 loan moratoriums.

 
 

Some 16 per cent of UOB's loans are now under moratorium, a bulk of which are set to expire between the third and fourth quarter of this year. The situation may increase the risks of non-performing loans in the near term.

From a diversity standpoint, women make up just 10 per cent of UOB's board membership - the lowest among Singapore banks - and 35 per cent of senior management as at end-2019.

Mr Wickramasinghe also noted that compared with its local peers, UOB is "marginally below average" in disclosures in terms of adhering to ESG standards.

The analyst believes that UOB's ESG risks are typical for a systematically important bank with regional presence. "UOB displays no exceptional risks that are not typical for a large, regional D-SIB (domestic systemically important bank) for ESG," Mr Wickramasinghe wrote.

He kept a "hold" recommendation and a target price of $20.79 on the stock.

 
 

Tighter net interest margins and softer growth may further erode earning visibility, he flagged. Still, UOB is offering a dividend yield of 4.1 per cent even after taking into account dividend caps imposed by the authorities, he noted.

UOB shares closed yesterday at $19.20, down $0.01.

THE BUSINESS TIMES

A version of this article appeared in the print edition of The Straits Times on September 22, 2020, with the headline 'UOB lags behind peers in green banking: Report'. Print Edition | Subscribe