Hot on the heels of OCBC Ltd’s (SGX: O39) quarterly earnings release comes the latest report card from United Overseas Bank Ltd (SGX: U11), or UOB.
And the lender did not disappoint, either.
Net profit for its fiscal 2021 third quarter (3Q2021) stayed above the S$1 billion mark for the third consecutive quarter.
Amid supply chain disruptions and China’s slowing economy, UOB has managed to report stronger year on year numbers.
This good performance demonstrates the bank’s resilience and investors can look forward to more good results as the lender invests in connectivity and digital innovation.
Here are five key highlights from UOB’s latest earnings report.
An impressive set of numbers
UOB recorded year on year growth for both its net interest income (NII) and fee cum commission income for the quarter.
NII increased by 9% year on year to S$1.6 billion while fee income jumped by 15% year on year to S$589 million.
Total income climbed by 8% year on year to S$2.425 billion.
Operating expenses increased less than the increase in total income, resulting in a 10% year on year increase in operating profit before allowances.
Allowances for bad loans plunged by 66% year on year to just S$163 million, and UOB reported a net profit of S$1.05 billion, up sharply from the S$668 million in the prior year.
Record-high fee income
Fee income continued to impress as investment and trade-related activities picked up steam.
For the quarter, fee income increased by 14.6% year on year to S$589 million, driven by a broad based increase in credit card, wealth and fund management fees.
Assets under management (AUM) for the bank’s privileged and private banking divisions also improved by 6% year on year to S$137 billion.
For the first nine months of 2021 (9M2021), UOB chalked up record-high fees of S$1.8 billion, up 23.6% year on year.
Fee income made up 25% of total income for 9M2021, up from 21% a year ago.
NIM remained stable
UOB’s net interest margin (NIM) came in at 1.55% for 3Q2021, slightly higher than the 1.53% recorded in the prior year but down by 0.01 percentage points quarter on quarter.
Nevertheless, NIM has hovered within a tight range, from 1.53% to 1.57%, reinforcing our view that this financial metric has stabilised.
With central banks planning to raise rates soon due to higher inflation, UOB could see its NIM improving in subsequent quarters.
Loans are usually re-priced much quicker as compared to the upward adjustment in deposit rates, leading to a higher NIM.
An uptick in customer loans
The increase in NII was accompanied by a 9% year on year increase in UOB’s loan book to S$306 billion.
This healthy growth came mainly from higher term and trade loans in both Singapore and Greater China.
Singapore’s gross loans grew 10% year on year while Greater China chalked up a 12% year on year increase.
Incidentally, both countries also took up the lion’s share of the bank’s loan book, with Singapore at 52% and Greater China at 16%.
Strengthening its digital platform
UOB continues to accelerate its digitalisation journey with the Singapore launch of its TMRW app last month.
The aim is to progressively roll this app out in ASEAN to reach more than seven million consumers in five years.
If successful, this move will more than double UOB’s existing base of digitally-enabled customers.
There are obvious benefits when it comes to customers transacting digitally.
For one, the digitalisation may lead to a five-percentage point reduction in the cost-to-income ratio for the bank’s digital customers by 2026.
UOB’s SimpleInvest, which provides customers with a selection of funds that is curated to meet personal investment objectives, has reported that more than 80% of its clients are new to wealth products.
By launching SimpleInvest and TMRW, UOB has successfully increased its customer base over time and provided them with useful services that should generate strong loyalty.
Get Smart: Twin pillars of growth
CEO Wee Ee Cheong remains positive on the bank’s growth trajectory.
The gradual reopening of borders has boosted business activity and the bank is also exploring areas such as decentralised finance and digital assets.
The lender is relying on two pillars to grow further – the provision of digital solutions and a focus on sustainability.
For context, during 9M2021, digital banking transactions have already jumped by 29% year on year, while cashless payments to businesses within Singapore using Corporate PayNow have tripled over the same period.
UOB has also approved S$14 billion worth of sustainable financing comprising green loans and loans for green-certified buildings.
AUM for ESG-focused investments has also hit S$7 billion for 9M2021.
These numbers showcase the bank’s commitment to further growing its franchise and entrenching itself as one of Asia’s premier banks.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.