United Overseas Bank Ltd (SGX: U11), or UOB, is once again the first of Singapore’s three big banks to report its fiscal 2022 third quarter (3Q2022) earnings.
The lender also started the ball rolling in the previous quarter when it reported its 2Q2022 financial numbers.
This quarter, the effects of higher interest rates helped to lift the bank’s earnings to a new record high of S$1.4 billion.
Here are five key highlights from UOB’s latest earnings report card.
1. A record net profit
UOB saw its net interest income (NII) surge by 39% year on year for 3Q2022 due to a jump in its net interest margin (NIM).
NII clocked in at S$2.2 billion and was 20% higher than 2Q2022’s S$1.9 billion.
Fee and commission income, however, came in softer, falling by 10% year on year to S$519 million.
With the boost from the higher NII, the bank’s total income surged by 30% year on year to S$3.2 billion.
Operating expenses climbed by a lower rate of 27% year on year, leading to a 32% year on year rise in operating profit.
UOB’s cost-to-income ratio was also lower at 42.6% compared to 43.7% a year ago.
Lower allowances for credit losses led to the lender’s net profit jumping by 34% year on year to a record S$1.4 billion.
For the first nine months of 2022 (9M2022), UOB’s net profit was up 12% year on year to S$3.4 billion.
2. Softer fee income
While NII performed well this quarter, UOB saw a softening in fee income because of poor market sentiment.
Wealth fees for 3Q2022 came in at S$123 million, down nearly 34% year on year from the S$186 million chalked up in 3Q2021, as investors stayed cautious amid heightened market volatility.
However, this was offset by loan-related fees of S$255 million which was slightly higher than the last year’s S$242 million.
Credit card fees also rose from S$52 million in 3Q2021 to S$55 million in the current quarter as customers spent more with border reopenings.
For 9M2022, loan-related fees hit a new record of S$814 million, up 7.7% year on year.
3. A surge in net interest margin
Surging interest rates have perpetuated a healthy upward trend in UOB’s NIM.
For 3Q2022, NIM came in at 1.95%, up 0.4 percentage points from the prior year’s 1.55%.
This quarter’s NIM was also higher than 2Q2022’s 1.67% and was responsible for the boost in UOB’s NII as mentioned earlier.
For 9M2022, NIM clocked in at 1.74%, 0.18 percentage points higher than 9M2021’s 1.56%.
There could be more to come as the US Federal Reserve indicated its intention to continue raising interest rates by yet another 0.75 percentage points in early November to combat inflation.
4Q2022 NIM is expected to come in above 2% and will result in another jump in NII.
4. Healthy loan and AUM growth
Despite the higher interest rates, the blue-chip bank also reported healthy loan growth to accompany the rise in NIM.
Its loan book stood at S$323 billion as of 30 September 2022, up 6% year on year.
The growth came mainly from a 9% year on year rise in Greater China loans and a 4% year on year increase in Singapore loans.
Elsewhere, UOB’s wealth management assets under management inched up 2% year on year to S$140 billion.
5. A stable outlook
The bank has reiterated its confidence in ASEAN’s long-term potential.
For FY2022, it expects mid-single-digit year on year loan growth with a stable cost-to-income ratio.
At the same time, the lender is focusing on completing its acquisition of Citigroup’s (NYSE: C) consumer banking business, with Thailand and Malaysia expected to close by 1 November.
For Vietnam and Indonesia, UOB estimates that completion will take place by the end of next year.
Meanwhile, UOB has also launched its brand refresh and aims to be a regional bank that grows with its customers.
Its digital platform, TMRW, hit a milestone in August by acquiring its first millionth customer digitally.
Its insurance arm, in partnership with Prudential, has also chalked up an achievement – a 23% year on year increase in annual premium equivalent.
Get Smart: Better days ahead
UOB looks set to enjoy the tailwind of higher rates as we head into the fourth quarter.
These tailwinds should also persist in FY2023 as higher rates look set to last for longer.
With this quarter’s record net profit, investors can also look to the bank declaring a higher final dividend when it reports its FY2022 earnings in February next year.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
