United Overseas Bank Ltd (SGX: U11) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their earnings presentations.
In late July this year, UOB released its results for the second quarter and first half of 2016. I had spent time going through the webcast of UOB?s earnings presentation and took down some notes that may be of interest to investors.
As a quick background, UOB is one of the largest banks in Southeast Asia and has a network of over 500 offices in 19 countries and territories in the Asia-Pacific region, Western Europe, and North America. The…
In late July this year, UOB released its results for the second quarter and first half of 2016. I had spent time going through the webcast of UOB’s earnings presentation and took down some notes that may be of interest to investors.
As a quick background, UOB is one of the largest banks in Southeast Asia and has a network of over 500 offices in 19 countries and territories in the Asia-Pacific region, Western Europe, and North America. The bank counts the insurance outfit United Overseas Insurance Limited (SGX: U13) as a subsidiary.
Below are 15 important bites of information I picked out from the webcast:
- Wee Ee Cheong, UOB’s deputy chairman and chief executive officer, said that it has been a “roller coaster ride” for global markets since the start of the year. He said that the troubled oil and gas industry, China’s economic slowdown, and Brexit have added uncertainty to the mix.
- Despite the uncertain market, Wee said that UOB recorded a steady performance for the first half of 2016. He highlighted that the bank’s profit in the second quarter rose 5% year-on-year to S$801 million, contributing to a first half profit of S$1.6 billion. Wee said that UOB benefited from higher net interest income and trading income, which was partly offset by higher expenses.
- Wee said that UOB has a healthy balance sheet. He stressed that a strong balance sheet is a priority as it helps UOB weather uncertainty and to support customers through cycles. Wee added that UOB’s general allowances to loans ratio of 1.5% is among the highest in the industry. For perspective, DBS Group Holdings Ltd’s (SGX: D05) selfsame figure is around 1%; DBS Group is Singapore’s largest bank by assets.
- Wee touched on UOB’s outlook as well. He said that the global economy continues to struggle amidst changing geopolitical dynamics. Wee said that global interest rates are likely to stay low for a long period. At the same time, Wee also noted that the financial industry is being reshaped by digital connectivity.
- Wee brought his opening statement to a close by saying that uncertain times like this present opportunities for long term players such as UOB. He said that UOB has built trust in its stakeholders by focusing on fundamentals for the last 80 years.
- Lee Wai Fai, UOB’s chief financial officer, covered the key financial figures. For the first half of 2016, Lee said that UOB’s net interest income increased by 3% year-on-year, benefitting from a 5% year-on-year growth in loans. Earlier, Wee said that UOB continues to target mid-single digit growth for the full year.
- For the second quarter of 2016, UOB’s net interest margin was 1.68%. For the first half of the year, Lee said that UOB’s net interest margin was 1.73%. Wee said that the decline was due to lower short term interest margin and a competitive loan pricing environment. In contrast, DBS Group had recorded its highest NIM in six years during the second quarter of 2016. Wee said that UOB expects to maintain its NIM at the current rate, barring any falls in interest rates.
- Non-interest income grew 2.7% year-on-year, coming in at S$1.51 billion for the first half of the year. UOB benefited from higher trading income. For the reporting quarter, UOB recorded S$813 million in non-interest income, an increase of over 13% year-on-year.
- Total expenses rose by around 5% year-on-year for the first half of 2016. The main driver, according to Lee, is UOB’s ongoing investment in technology. Lee said that the expense to income ratio stayed stable at 45.8%.
- Specific allowances increased from S$220 million a year ago to S$253 million for the first half of 2016. For the quarter, specific allowances was down to S$121 million from S$133 million due to non-performing loan recoveries.
- The Group Retail (GR) segment clocked a 17.7% increase in operating profit to S$883 million for the first half of 2016. Meanwhile, operating profit for Group Wholesale Banking (GWB), which covers businesses and corporates, rose 7% year-on-year to S$1.35 billion. Last but not least, Global Markets (GM) recorded 20% growth in operating profit to S$131 million.
- From a geographical standpoint, Singapore pitched in S$1.32 billion in operating profit for 2016’s first half, an increase of 1.5%. Regional operating profit (which include countries such as Malaysia, Thailand, Indonesia, and Greater China) was up 3.6% in constant currency terms for the same period, but down by 0.8% in Singapore dollar terms. Lee said that all countries had positive growth except for China.
- UOB recorded 4.9% year-on-year growth for gross loans. In constant currency terms, Lee said that UOB recorded 6% growth year-on-year. As of 30 June 2016, UOB has $212.3 billion in loans.
- On the deposit base, Lee said that customer deposits increased 2.8% from a year ago to S$248.2 billion. Compared to the first quarter, deposits declined by 2.6% from S$254.8 billion. In his opening statement, Wee said that UOB has been replacing expensive deposits with stable, quality funds.
- While deposits fell, Wee noted that UOB was able to maintain a liquidity coverage ratio of 224% in Singapore dollar terms and 167% with all currencies considered. Lee said that UOB’s loan to deposit ratio was 84% for the second quarter this year.
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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.