UOB CEO softens loan growth forecast as Q1 profit leaps 67% to $1.5 billion

SINGAPORE – UOB has reported strong earnings in the first quarter as high interest rates boosted its profit margins, even as its chief executive flagged rising concerns over global growth following banking crises in the United States and Europe.

The core net profit of Singapore’s third-largest bank hit a record $1.6 billion in the January-to-March quarter, up 74 per cent from a year ago. This excluded one-off expenses related to its acquisition of Citigroup’s Malaysia, Thailand and Vietnam consumer banking business.

Factoring in these expenses, net profit came in at $1.5 billion, representing a 67 per cent increase from the same period last year.

UOB deputy chairman and chief executive Wee Ee Cheong downgraded the bank’s forecast for loan growth in 2023 to a low to mid single digit, compared with a mid single digit previously.

Mr Wee noted that customers, conscious of rising interest rates, are focusing on paying down their existing loans. This is a good sign as it means they have liquidity to make these repayments, he told a briefing on Thursday.

Asked about the impact of Wednesday’s

fresh round of property cooling measures

on housing loans, Mr Wee noted that the higher stamp duties will have a larger impact on foreigners buying properties in Singapore.

“As far as UOB is concerned, close to 80 per cent of our loan books are owner-occupied... I believe the portfolio will continue to stay resilient,” he said.

UOB shares fell 0.51 per cent to $29.11 on Thursday, while OCBC Bank dipped 0.24 per cent to $12.57 and DBS Bank edged up 0.18 per cent to $32.76.

Phillip Securities analyst Glenn Thum said local bank shares may be down due to overall market sentiment amid banking jitters in the US and ahead of the expected flattening of interest rates, which could potentially slow the growth in banks’ net interest income and net interest margins (NIMs).

“Nonetheless, NIMs are still projected to maintain at their current high for the rest of the year and the recovery in fee income should boost banks’ earnings,” said Mr Thum.

For the first quarter, UOB’s net interest income surged 43 per cent to $2.41 billion, bolstered by an uplift of 56 basis points in its NIM – a key gauge of a lender’s profitability.

However, net fee and commission income slipped 4 per cent to $552 million due to softer loan-related and wealth management fees compared with a year ago.

Other non-interest income surged to $563 million, up from $101 million a year ago, on record high trading and investment income. It was buoyed by customer-related treasury income, supported by hedging demand and improved performance from trading and liquidity management activities.

UOB, which pays dividends half-yearly, said its performance in the first quarter was underpinned by broad-based growth across its wholesale, global markets and retail businesses.

Mr Wee at the briefing pointed to a bright spot from wealth management, with fees recovering strongly to hit their highest levels in four quarters.

Another growth area is transaction banking, with the income from the business now accounting for half of total wholesale banking income, he said.

“We continue to see upside in our connectivity business,” he added.

UOB also expects further growth in Asia despite the challenging operating environment, owing to China’s reopening and economic recovery.

“We expect trade and investment flows to improve in the second half of this year,” said Mr Wee.

The bank, nonetheless, set aside more general allowances in the first quarter for potential bad loans amid near-term uncertainty. Its total allowance declined 8 per cent from the fourth quarter because of fewer specific provisions. 

UOB’s non-performing loan ratio stood at 1.6 per cent in the first quarter, unchanged from both a year ago and the fourth quarter.

Mr Wee expects the US central bank to announce another rate hike of 25 basis points before stopping. Still, rates might not come down for the next one to two years given persistent inflation, he said.

The bank expects its NIM to remain at around 2.1 per cent to 2.2 per cent, up from an average of 1.86 per cent in 2022, said group chief financial officer Lee Wai Fai.

UOB has diversified its income, with momentum from the wholesale business likely to pick up pace in the second half of 2023 and the integration of Citi’s consumer units boosting earnings, he added.

Mr Wee said UOB is on track to meet its target of getting an additional $1 billion in revenue from the acquisition in 2023.

He added: “Our Citigroup integration is progressing well. We are on track to close (the acquisition) in Indonesia by the end of the year after completing our acquisition in Malaysia, Thailand and Vietnam.”

UOB’s core net profit was up 13 per cent from the fourth quarter’s $1.4 billion. Wealth management fees rebounded strongly from improved investor sentiment.

Its results mark the start of local banks’ earnings season. DBS will report its earnings on May 2, and OCBC on May 10.