UOB Q4 profit jumps 48% to $1.02b; flags buoyant outlook

The bank's profit is higher than the estimate by financial market data provider Refinitiv. PHOTO: LIANHE ZAOBAO

SINGAPORE - UOB reported on Wednesday (Feb 16) a better-than-expected rise in fourth-quarter earnings from higher loan growth and fee income, and joined its peer DBS in expecting higher margins from upcoming interest rate hikes.

The bank's net profit surged 48 per cent year on year to $1.02 billion - ahead of the $986 million estimate by financial market data provider Refinitiv.

UOB has declared a final dividend of 60 cents a share, up from 39 cents a year ago, when dividend payouts from local banks and finance companies were capped due to the Covid-19 pandemic.

Together with the interim dividend of 60 cents a share, the total dividend for last year will be $1.20, representing a payout ratio of about 49 per cent.

UOB deputy chairman and chief executive Wee Ee Cheong said the bank believes the worst of the pandemic-induced economic downturn has passed.

"In Singapore, there are signs of market recovery, where we see strong institutional loan growth and a rebound in card spending and wealth management activities. We see significant upside in South-east Asia, though the pace of recovery may vary by country.

"Our confidence in the region is underscored by our continued efforts to deepen our customer franchise and to build scale through organic growth and acquisition," he said.

The bank said last month that it will acquire Citigroup's consumer banking franchise in Indonesia, Malaysia, Thailand and Vietnam for about $4.92 billion.

The move will enable UOB to "scale up its business in four key regional markets at one go" and accelerate its growth targets by five years, Mr Wee said then.

“Our focus in the coming months is to work closely with the Citi team on integration and fully realise synergies from the acquisition. With our regional infrastructure and standardised systems, we are confident of executing this deal across the markets in a phased approach,” he said at the bank’s results briefing on Wednesday. 

Singapore's third-largest lender saw an 11 per cent rise in fourth-quarter net interest income to $1.68 billion. The growth was led by a 10 per cent increase in loans.

The bank's net interest margin (NIM) - a key gauge of lenders' profitability - dropped one basis point to 1.56 per cent.

UOB expects mid to high-single digit loan growth this year backed by a strong pipeline of corporate and institutional loans and mortgages. 

Group chief financial officer Lee Wai Fai said each rate hike of 25 basis points will likely translate to a profit of $150 million to $200 million. 

The bank’s NIM is expected to rise by four to five basis points per hike. 

“Whether inflation with the increase in interest rates will be a burden for customers... we think the increase will be on a marginal level, rather than a one-time high. We don’t think credit quality will be significantly affected,” Mr Lee told the briefing. 

UOB's Q4 net fee and commission income was 13 per cent higher, at $589 million, driven by loan-related fees and credit card fees.

Other non-interest income, however, dropped 22 per cent, to $168 million, amid lower non-customer treasury income.

The bank's allowances - set aside for bad loans - fell 72 per cent to $112 million from $396 million a year ago.

Meanwhile, its cost-to-income ratio improved from 46.7 per cent to 45 per cent in line with "strong income growth and disciplined cost management".

UOB's net profit slipped 3 per cent from the previous quarter due to lower trading and investment income, which offset higher margins and lower credit allowances.

Its full-year profit rose 40 per cent to $4.07 billion amid stronger income growth and lower allowances as Singapore and regional economies gradually recovered during the year.

In particular, UOB's net fee and commission income surged 21 per cent to a record $2.41 billion amid higher loan and wealth management fees, as trade and investment transactions picked up pace and investor confidence improved.

UOB shares declined 0.46 per cent to $32.53 as at 11.30am as investors took profit.

DBS reported a 37 per cent increase in fourth-quarter profit on Monday, while OCBC's earnings will be released on Feb 23.

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