3 Major Takeaways From United Overseas Bank Ltd’s CEO In Its Latest Earnings Call

United Overseas Bank Ltd  (SGX: U11) held its second quarter earnings briefing recently.

UOB is one of the three major banks based out of Singapore and can be considered one of Southeast Asia’s largest banks with its total assets of over S$320 billion. UOB has a network of over 500 offices in 19 countries and territories in Asia-Pacific, Western Europe, and North America. The bank counts insurance outfit United Overseas Insurance (SGX: U13) as its subsidiary.

Wee Ee Cheong, UOB’s deputy chairman and chief executive officer, shared three of his main takeaways from the quarter during the briefing.

Low interest rates are expected to persist

Wee’s first takeaway is on interest rates. He shared his opinion:

“As a commercial bank today, especially for UOB, the prolonged period of low interest rate will continue to stay. It will stay for a while, in my opinion. And it will continue to persist given the various uncertainties on the global front.

So, what does it mean?

It means lower margin, and coupled with the tightening of rules and regulations and capital requirements, commercial banks will have to seek new growth avenues and fee based income. This is why we continue to invest in new capabilities.”

For the second quarter of 2016, UOB’s net interest margin (NIM) was 1.68%. This is a decline from a year ago when the NIM was 1.77%. For the first half of the year, UOB’s net interest margin was 1.73%.

The bank’s NIM could be a figure worth watching.

Where have all the cowboys gone?

On the second takeaway, Wee feels that Asia is in a moderate growth environment, slower than before, but faster than most:

“Secondly, I think we are in a moderate growth environment, which would mean rising credit cost. And this is something that we are monitoring very closely.

Growth in Asia is not as fast as before. But to put it into perspective, it’s still higher than any major economies. The credit cost, we anticipate, may rise. But we don’t expect it to spiral out of control.

So, as an ongoing concern for UOB, our profit and reserve should be more than sufficient to cushion the impact.”

For the second quarter of 2016, UOB’s general allowances to loans ratio was 1.5%, a figure that Wee said is among the highest in the industry.

Living in a digital world

The third takeaway can be seen as a minor detour from traditional banking. Wee spent some time talking about how UOB is adapting to a world that is going online:

“Now, the third thing is on the digital world. In this regard, our approach is very simple.

We are disciplined in where we put our resources. We are not a technology company, per se. We aim to be a reliable partner and enabler to our customers through providing timely, relevant, and convenient solutions to meet their changing lifestyle needs.

And we are making good progress. We will continue to invest in seamless connectivity and data analytics, internally and through collaboration with fintech [financial technology] players and ecosystem partners.

Now, ultimately it’s about the customer experience and human touch. I believe that banking is about trust and relationship.”

Wee stressed the importance of trust and relationships in the banking business. He made a clear separation that UOB is not a tech company, but will do what it needs to do on the technology front to serve its customers well, while maintaining its core tenets of trust and customer relationships.

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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.