With the earnings season in full swing, United Overseas Bank (SGX: U11) is the first of the trio of local banks to turn in its report card.
The bank did not disappoint.
For its 2023’s second quarter (2Q 2023), the lender reported robust growth in net interest income with net profit jumping to S$1.4 billion.
With the integration of UOB’s acquisition of Citigroup’s (NYSE: C) consumer banking franchise, the former’s customer base continued to expand with more than seven million customers across the region.
Here are five highlights from the group’s 2Q 2023 earnings report.
1. A sparkling set of financial numbers
UOB reported an impressive set of financial numbers.
Net interest income for 2Q 2023 came in at S$2.4 billion, up 31% year on year, driven by the sharp rise in global interest rates caused by the US Federal Reserve.
Fee income dipped slightly by 8% year on year to S$524 million but other non-interest income more than doubled year on year to S$581 million.
Total income clocked in at S$3.5 billion, largely unchanged from the bank’s first quarter but was up 31% year on year.
With total expenses increasing by just 22% year on year, operating profit shot up 38% year on year to S$2.1 billion.
Allowances, though, nearly tripled year on year to S$365 million.
After including integration costs related to UOB’s Citigroup acquisition, UOB recorded a net profit of S$1.4 billion, a 27% year-on-year improvement from 2Q 2022’s S$1.1 billion.
Excluding this one-off expense, the bank’s core net profit would have risen by 35% year on year.
2. Weaker fee income offset by trading and investment income
Fee income weakened from S$567 million in 2Q 2022 to S$524 million in the current quarter.
Softer lending activities led to a 19.8% year-on-year fall in loan-related fees while wealth-related fees dipped slightly as investor sentiment remained cautious.
Credit card fees mitigated these falls with a 22% year on year rise to S$72 million.
Meanwhile, trading and investment income chalked up a record quarter, more than doubling year on year to S$478 million from S$214 million in 2Q 2022.
This surge helped to more than offset the weakness in fee income.
3. Net interest margin is stabilising
UOB’s net interest margin (NIM) stood at 2.12% for 2Q 2023.
The NIM is stabilising after hitting a high of 2.22% in the fourth quarter of 2022 and has been trending downwards over the past two quarters.
Still, 2Q 2023’s NIM was significantly higher than 2Q 2022’s NIM of 1.67%, which explained the sharp jump in net interest income on a year-on-year basis.
UOB explained that the quarter-on-quarter dip in NIM came about due to excess liquidity as customer deposits rose 5% year on year to S$377 billion.
The CASA (current account savings account) ratio also fell year on year from 54.7% in 2Q 2022 to 47.6% in 2Q 2023.
A higher CASA indicates a cheaper source of funding for banks, so the fall in this ratio implies that UOB’s cost of funding has increased over the past year.
4. Marginal loan growth with good expense control
UOB’s loan book came in at S$319 billion as of 30 June 2023, dipping by 1% year on year.
If currency effects are removed, loans would have risen marginally by 1% year on year.
Thailand and Vietnam saw the largest year-on-year percentage increases at 21% and 15%, respectively.
Singapore, however, saw a 4% year on year dip in gross loans.
The lender kept a good lid on expenses, with the cost-to-income (CIR) ratio maintained at 40.9%, in line with its previous quarter.
This CIR was also sharply lower than the 43.8% recorded in 2Q 2022.
5. Interim dividend jumps sharply
In line with the strong results, UOB has hiked its interim dividend by 42% year on year from S$0.60 to S$0.85.
The blue-chip group’s payout ratio stayed constant at 49%, in line with prior years.
The bank’s trailing 12-month dividend stood at S$1.60, giving its shares a trailing dividend yield of 5.6%.
Get Smart: Good growth momentum achieved
CEO Wee Ee Cheong remains optimistic about the bank’s prospects.
He expects the ASEAN region to remain resilient and for growth to be supported by a pick-up in tourism along with demand for services.
UOB’s retail deposit base has risen 20% year on year while its assets under management have jumped 19% year on year to S$165 billion.
For its 2023 outlook, the lender expects low to mid-single-digit loan growth with fees growing by high single-digits.
The Citigroup Indonesia acquisition is on track for completion by year-end.
The the bank should enjoy an annualised revenue uplift of around S$1 billion for all four markets for its Citibank acquisition for 2023.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.