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What Investors Need to Know About United Overseas Bank Ltd’s Exposure to China

Shares of United Overseas Bank Ltd (SGX: U11) have hit a rough patch lately.

After hitting a high of $25.05 last year, the bank’s share price has dwindled by 25% to $18.90 as of yesterday. Worries around UOB’s exposure to the struggling oil and gas industry and a slowdown in China’s economic growth appear to be some of the issues weighing on its shares.

These concerns were not lost on Wee Ee Cheong, UOB’s chief executive. In a recent briefing for the bank’s 2015 fourth-quarter earnings, Wee shared his thoughts on the bank’s exposure to China. He said:

“On China, we have been selective in our growth. Sticking with target segments, strategically important banks, and corporates in key cities and focusing on cross-border flows.

We have a total S$21 billion exposure, less than 7% of group’s assets. Half of the exposure is to banks. Half to non-banks. Of the exposure to banks, the bulk is to the top five Chinese banks, short-term and trade related. Of the exposure to non-banks, the bulk is to top-tier state-owned enterprises, large local corporates and foreign investment enterprises.”

Lee Wai Fai, UOB’s chief financial officer, added more figures behind UOB’s China exposure. His focus was around the slide below:

2016-03-18 UOB China Slide
Source: UOB’s earnings presentation

Here’re three quick but important notes from the briefing:

  1. As Wee had mentioned, half of UOB’s China exposure comes from banks. This amounted to S$11 billion. Around three quarters of UOB’s China bank exposure is to the top five domestic banks and policy banks.
  2. The other half, or S$10.1 billion, came from non-bank exposure and debt. The non-performing loan (NPL) ratio was 1% for this piece. For comparison, UOB’s NPL ratio was 1.4%. In other words, the NPL ratio for UOB’s non-bank China exposure is lower than UOB’s overall NPL.
  3. Summing up the situation, Lee said that there is some weakness in this portfolio but it was not systemic in nature. Lee added that UOB is extremely comfortable with its China exposure.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.