SINGAPORE – UOB turned in a record set of results for the third quarter as it joined other banks like Standard Chartered Bank and HSBC in reporting a surge in lending income from higher interest rates.
The bank’s net profit for the three months to September jumped 34 per cent year on year, and 26 per cent quarter on quarter, to $1.4 billion. The number easily topped estimates of $1.19 billion by analysts polled by Bloomberg.
The results were driven by strong net interest income, higher customer-related treasury income and lower charges, the bank said on Friday.
UOB shares and those of its peers DBS Bank and OCBC Bank rallied on Friday on UOB’s solid results. UOB jumped $1.04 or 4 per cent to close at $27.06. DBS gained 97 cents or 3 per cent to $33.78, while OCBC added 21 cents or 1.8 per cent to $11.99.
DBS will report its third-quarter results on Nov 3, with OCBC joining in a day later.
UOB deputy chairman and chief executive Wee Ee Cheong said that while uncertainties continue to cloud the global economy, the bank expects Asean economies to show resilience and avoid a recession.
“We are seizing the opportunities. If you look at the whole Asean generally, they are fairly strong. I think it could potentially be just a slowdown,” said Mr Wee at the bank’s results briefing.
UOB’s net interest margin (NIM) expanded by 40 basis points to 1.95 per cent, driving net interest income up by 39 per cent year on year to a new high of $2.23 billion. Loans grew 6 per cent to $323 billion.
Mr Lee Wai Fai, the bank’s chief financial officer, sees NIM rising to above 2 per cent before it peaks in the first half of 2023 as interest rate increases in the United States channel down to the global financial system.
But as interest rates rise further and as the global economy runs the risk of falling into a recession, there are growing concerns that non-performing loans (NPLs) will pick up.
UOB said its NPL ratio for the third quarter was down 0.2 percentage point quarter on quarter to 1.5 per cent, while the loan-to-deposit ratio was healthy at 85.2 per cent.
Ms Yustina Quek, credit research analyst at CreditSights, a financial research firm that is part of Fitch, said delinquency rates may rise modestly later down the road because there is always a lagged effect for higher rates to feed through.
But, Ms Quek said the impact of higher rates will be broadly manageable domestically as the labour market remains resilient. She does not expect UOB will have to increase its provisions meaningfully as it has set aside robust buffers for loan losses during the pandemic period.
UOB’s non-interest income, which includes wealth and fund management fees, remained soft as investors stayed cautious amid market volatility.
Other non-interest income rose, surging 58 per cent year on year to $431 million. This was due to record-high customer-related treasury income as demand for hedging activities rose.
UOB said its group’s balance sheet stayed robust as liquidity positions strengthened, with the all-currency liquidity coverage ratio improving to 142 per cent.
The common equity tier 1 ratio eased to 12.8 per cent largely due to interim dividends for 2022, but remained well above the minimum regulatory requirement of 6.5 per cent.
On its overseas markets, Mr Wee said UOB is making “meaningful progress” in growing its franchise across Asean.
Its digital platform, UOB TMRW, reached a significant milestone in August, achieving one million digitally acquired customers, he added.
“This platform will also be key in serving our incoming Citibank customers across the region,” Mr Wee said.
UOB announced in January that it will acquire Citigroup’s consumer banking franchise in Indonesia, Malaysia, Thailand and Vietnam for about $4.9 billion.
Mr Wee said UOB will complete its acquisition in Malaysia and Thailand on Nov 1, and Vietnam and Indonesia will follow by end-2023.
Around 90 per cent of Citi’s staff have agreed to join UOB, he added.
