United Overseas Bank Ltd (SGX: U11) is one of the three main banks in Singapore. It has a history dating back more than 80 years and operates a network of over 500 offices and branches across 18 geographies.
Recently, the bank released its annual report for 2017. Broadly speaking, the bank did really well in the year. Total income and net profit after tax grew at 10% and 9%, respectively. Furthermore, there were many other attributes of the bank that bode well for its future. Here are three positive trends about its business that I noted from its 2017 annual report.
One of the core businesses of a bank is to collect interest from loans. The bank gets capital to offer loans mostly through individuals or organisations depositing money in the bank. It is, therefore, essential that the bank can grow its customer deposits so that it can increase the volume of loans it makes, and thus, its interest income.
In 2017, UOB grew its customer deposits by 7% to S$273 billion. Moreover, its loan-to-deposit ratio (a measure of total loans versus total deposits) decreased from 86.8% to 85.1%. This puts the bank in a stronger liquidity position to take advantage of any opportunities it sees if greater loan demand and higher interest rates appear in the next few years.
Besides growing its core business in Singapore, UOB has done well in expanding its geographical footprint. Loans from countries outside of Singapore grew 12.5% to S$108 billion in 2017. There was also a notable 9% increase in loans from regional countries.
UOB has been steadily expanding its business into markets outside of Singapore. Through its network of offices and branches, and years of building its brand, its efforts are certainly paying off now.
Shareholders’ equity and return on equity
By retaining a percentage of its earnings each year, UOB has been able to grow its shareholders’ equity over the years. The graph below shows the bank’s shareholders’ equity and its return on equity.
Source: UOB 2017 annual report
As you can see, UOB has been able to consistently achieve a return on equity of 10% or more despite its growing equity base. This is a testament to the bank’s effective use of its equity, and its ability to consistently grow its long-term profitability.
The Foolish bottom line
UOB has demonstrated through the years that it has been able to grow its business in both good and bad times. In 2017, the bank once again, showed strong momentum in expanding its business beyond Singapore, and its ability to attract customer deposits to its business. With interest rate hikes and strong regional and economic growth expected this year, along with a buoyant home market sentiment, the strong performance of UOB in 2017 looks likely to continue.
How We Made an 88% Return in Just 19 Months!
Members of David Kuo's personal investing club Stock Advisor Gold were recently rewarded with the biggest winner Motley Fool Singapore has seen to date In a special, 100% FREE report we've put together, we take you behind the scenes to show you exactly how we first uncovered this stock... every article and piece of research we released on it... and what ultimately led to our decision to SELL for an 88% gain. Click here to claim your copy now!
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of United Overseas Bank. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.