DBS Group (SGX: D05) had reported its second-highest net profit on record for its fiscal 2022’s first quarter (1Q2022).
United Overseas Bank Ltd (SGX: U11), or UOB, however, reported a mixed set of earnings.
Both banks reported a 10% year on year fall in net profit due to heightened market volatility which impacted fee income.
However, UOB chairman and CEO Wee Ee Cheong remains optimistic about the bank’s outlook due to the gradual recovery in Asia and the long-term potential in South-East Asia.
Here are five aspects to take note of from the lender’s latest earnings report.
Slight falls in total income and net profit
Like DBS, UOB reported a year on year rise in net interest income of 10% to S$1.69 billion.
Fee and commission income, however, dipped by 8% year on year to S$572 million while other non-interest income plunged by 70% year on year to S$101 million.
As a result, total income declined by 5% year on year to S$2.36 billion.
Operating profit before allowances fell by 7% year on year as operating expenses fell by 3% year on year.
Net profit edged down 10% year on year to S$906 million.
A slight decline in fee income
Fee income saw a slight year on year dip from S$619 million to S$572 million.
Loan-related fees soared to a new record-high as UOB saw strong demand for its lending and advisory business
However, market volatility resulted in lower wealth and fund management fees.
Wealth management fees fell by 27.3% year on year to S$160 million for the quarter.
For trading and investment income, the bank saw a S$117 loss due to hedges and unrealised losses on its investments, reversing the S$102 million it enjoyed in the prior year.
Customer-related income remained robust, though, staying steady at S$161 million for 1Q2022.
Improvements in NIM and loan book
Net interest margin (NIM) showed marginal improvement as interest rates are on the rise.
Compared to a year ago, NIM rose by 0.01 percentage points to 1.58% from 1.57%.
Looking at the NIM trend, it appears that this metric had bottomed back in the third quarter of 2021 at 1.55% and is staging a sustained rebound.
UOB’s loan book also saw a healthy growth of 9% year on year to S$320 billion.
The increase was driven by corporate loans in Singapore, China and western countries.
Together, the slight increase in NIM and the rise in customer loans translated to a 10% year on year increase in net interest income for the bank.
Limited exposure to China
Around 16% of UOB’s loan book had exposure to China, based on where credit risks reside.
However, investors need not be overly worried as mainland China’s exposure stood at just 6% of total assets for the bank.
For UOB’s exposure to Chinese banks, 65% of these loans were from the top five domestic banks and three policy banks.
For its non-bank exposure, its clients comprised top-tier state-owned enterprises and large local corporates with stronger credit profiles.
This segment saw non-performing loans (NPL) ratio at just 0.3%, lower than the group’s overall NPL ratio of 1.6% for 1Q2022.
Encouraging business developments
UOB reported a slew of business developments during the quarter to grow its franchise.
The bank’s wholesale banking division rolled out UOB Infinity regionally.
This is a new cash management system for corporate clients that was introduced in Singapore, Malaysia, China, Hong Kong, and Vietnam.
As of end-March, UOB Infinity has seen a 6% year on year increase in the number of users.
For its retail division, UOB saw increased engagement across the region and is on track to digitally acquire 500,000 customers this year.
The total assets under management for its wealth advisory division, which comprises its private bank and privilege reserve units, inched up 3% year on year to S$140 billion.
As for UOB’s recent purchase of Citigroup’s (NYSE: C) consumer banking franchise, senior management has already been appointed in both Malaysia and Thailand but the deal is still subject to regulatory approval.
Get Smart: Better days ahead
Despite the risks in China and the lower investment fee income, management remains optimistic about its outlook for the rest of 2022.
CFO Lee Wai Fai noted that the bank’s core business drivers remain strong, and expects better net interest income from rising interest rates.
He also expects trading and investment income to improve for the remainder of this year.
UOB is guiding for mid to high single-digit year on year loan growth for 2022 along with high single-digit year on year fee growth.
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Disclaimer: Royston Yang owns shares of DBS Group.