UOB eyes the long term as Q2 profit drops

UOB's "hidden jewel" is its extensive network that offers financial connectivity across South-east Asia, says CEO Wee Ee Cheong.
UOB's "hidden jewel" is its extensive network that offers financial connectivity across South-east Asia, says CEO Wee Ee Cheong.PHOTO: BLOOMBERG

Net profit for April-June down 5.7%, first decline since Q4 of 2011

United Overseas Bank (UOB) has suffered its first year-on-year decline in quarterly profit since 2011, as earnings in the second quarter buckled under pressure from money market volatility.

But the bank's core businesses are still healthy, chief executive Wee Ee Cheong emphasised yesterday, adding that it is well positioned to be the dominant bank for growth opportunities as the Asean Economic Community takes shape.

For the three months ended June 30, UOB's net profit slid 5.7 per cent to $762 million. This was the bank's first profit decline since the 21 per cent year-on-year drop in 2011's fourth quarter.

The figure was below the $831.4 million estimate of a Bloomberg analysts' poll and was also the lowest profit reported among the three local banks for the second quarter.

"The decline was mainly due to lower trading and investment income, higher expenses and tax normalisation this year," Mr Wee explained, adding that macroeconomic and market conditions in the first half of this year were choppy.

LOANS GROWTH NOT TOP CHOICE

If you look at my customer income and other fees I'm generating - frankly I prefer those over loans growth. By growing loans you might be stretching your balance sheet, especially in the current volatile environment.

MR WEE EE CHEONG, UOB chief executive, on the bank's modest loan growth

As a result, trading income dropped 13.5 per cent from a year earlier to $114 million, while investment gains fell 64.5 per cent year-on-year to $42 million.

This offset the improved earnings in other core banking units, including a 13.4 per cent year-on-year growth in fee and commission income to $465 million.

Overall non-interest income was down 6.1 per cent to $714 million, but one-off investment gains recorded last year were also a factor.

Net interest income was firmer, rising 7.9 per cent year-on-year to $1.21 billion.

The bank benefited from a net interest margin of 1.77 per cent - highest in the quarter among all local banks - owing to better yields from loans repriced on the higher interbank offered rates in the second quarter.

The non-performing loan ratio was unchanged at 1.2 per cent.

Total loans grew 4.8 per cent to $202.4 billion, a more modest pace compared with DBS Group Hodlings and OCBC.

But Mr Wee said he is not concerned that loans growth has slowed for UOB.

"If you look at my customer income and other fees I'm generating - frankly I prefer those over loans growth. By growing loans you might be stretching your balance sheet, especially in the current volatile environment."

The real "hidden jewel" of UOB's franchise is its extensive network that offers businesses financial connectivity across South-east Asia, he added.

On this front, UOB's foreign direct investment advisory unit - set up four years ago to offer cross-border financial and consulting services - has acquired close to 600 clients and $20 billion in deposit flows.

The bank will continue to invest to build human resource and technologies for regional connectivity.

A sum of $100 million has been spent in the past few years on digital investments - part of the higher expenses that eroded the second-quarter profit - and another $100 million investment is on the cards, Mr Wee said.

Net asset value for the quarter was $17.71, up 9.5 per cent from a year ago, while earnings per share was $1.84, down 7.1 per cent from a year ago. An interim dividend of 35 cents was declared.

UOB shares yesterday closed 73 cents or 3.18 per cent lower at $22.20

A version of this article appeared in the print edition of The Straits Times on August 01, 2015, with the headline 'UOB eyes the long term as Q2 profit drops'. Print Edition | Subscribe