UOB's Q4 profit falls 32%, but beats earlier estimates
Lender remains upbeat on loans and wealth management, says recovery will be uneven
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UOB posted a fourth-quarter net profit of $688 million, down from $1 billion a year earlier, due to lower net interest income and higher allowances set aside for non-impaired assets. The bank's results were largely in line with rivals DBS and OCBC, which also saw earnings decline.
ST PHOTO: KUA CHEE SIONG
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The last of the three local lenders posted its results yesterday, with United Overseas Bank reporting a 32 per cent plunge in fourth-quarter earnings but like its peers, was fairly optimistic about the year ahead.
Chief executive Wee Ee Cheong said the pace and strength of economic recovery from the pandemic will be uneven across sectors although vaccines are now available.
But he was upbeat on growth in loans and wealth management fees, as well as lower credit costs.
"Some credit migration is inevitable, but we have made sufficient provisioning and expect to stay profitable and resilient," Mr Wee told a briefing yesterday.
UOB posted a fourth-quarter net profit of $688 million, down from $1 billion a year earlier, due to lower net interest income and higher allowances set aside for non-impaired assets. Its earnings, nonetheless, beat the $652 million average estimate of six analysts polled by Bloomberg.
UOB's results were largely in line with rivals DBS Bank and OCBC Bank, which also saw earnings decline.
UOB declared a final dividend of 39 cents a share, down from 55 cents a year earlier. The scrip dividend scheme will apply.
Together with the interim dividend of 39 cents, the total dividend for the full year will be 78 cents per share, representing a payout ratio of about 45 per cent. This is in line with the Monetary Authority of Singapore's guidance for local banks to cap dividends for the 2020 financial year.
Mr Wee said the bank will resume its 50 per cent dividend payout once regulatory caps are lifted.
Annualised earnings per share for the three months to Dec 31 stood at $1.59, down from $2.35 a year earlier.
Net interest income slid 8 per cent to $1.51 billion on lower interest rates. Its net interest margin (NIM), a key gauge of profitability for banks, fell 19 basis points to 1.57 per cent.
Chief financial officer Lee Wai Fai expects NIM to stabilise at the current level, with interest rates likely to stay low this year.
Credit costs are expected to ease significantly as the bank has set aside sufficient funds to cushion the possibility of new non-performing assets forming this year, he added.
Its non-performing loans ratio was 1.6 per cent as at Dec 31, up from 1.5 per cent a year earlier.
Loans under government relief programmes fell from $11 billion in December to $3 billion last month as moratoriums across the group's markets ended.
These loans made up 1 per cent of UOB's total lending as at Jan 31. Most comprise loans that have resumed repayment, rather than ones that have turned bad, said Mr Lee.
Full-year net profit shrank 33 per cent to $2.91 billion as economies contracted amid the global pandemic, with lower margins from benchmark rate cuts and reduced customer activity.
Net fee and commission income fell 2 per cent to $2 billion as consumers spent less on credit cards, and there was lower business activity due to travel restrictions. However, wealth and fund management fees improved.
Mr Wee said the bank will rebalance its business to focus on wealth management services.
In Singapore, it will expand its range of wealth management products and services in its UOB Mighty mobile banking app, added Mr Lee.
UOB shares rose 3.22 per cent to $24.65 yesterday, while DBS gained 1.89 per cent to $26.90 and OCBC rose 2.03 per cent to $11.07.
Experts said banks are likely to see better performance this year amid economic green shoots but some uncertainty remains.
CIMB Private Banking economist Song Seng Wun said there will be higher lending activity if business confidence continues to recover. Property loans, stock market activity and wealth management services are bright spots for lenders now, he added.
Associate Professor Lawrence Loh from the National University of Singapore Business School noted that banks' net profits have fallen for a few consecutive quarters: "While being optimistic, we are still in a sensitive phase and there is some uncertainty over whether this has bottomed out.
"Banks are critical nodes in the entire business ecosystem... What they are going through is a reflection of the broader economy."
