3 Things To Like About United Overseas Bank Limited’s Latest Results

United Overseas Bank Limited (SGX:U11) released its first quarter results for 2018 earlier this month.

As expected, the bank reported an impressive set of numbers for the quarter. Operating profit increased 7% year-on-year, while net profit jumped by a staggering 21%. However, besides these impressive headline numbers, there were, in fact, many other positives that shareholders should be pleased about. Here are three more positives from its earnings update worth mentioning.

Improving cost efficiencies

The expense-to-income ratio is a key metric used to assess the cost efficiency of a bank. The lower the ratio, the more cost-efficient the bank is. For the first quarter of 2018, UOB’s cost-to-income ratio declined to 44.2% from 46% in the previous quarter. This translates to a substantial 1.8 percentage point improvement.

The improved cost efficiency means more of the bank’s income can filter down to the bottom, which is eventually what matters most. If the bank is able to sustain or improve its cost efficiency over the rest of the year, it will greatly improve the bank’s overall profitability over the longer term.

Growing loan volume

The main business of any bank is to provide loans to customers. The bank can then earn money through the interest that it charges on the loans.

During the quarter, the total loan volume of the bank increased by 2% from the previous quarter to S$241 billion. This was largely driven by strong regional growth in Malaysia, Thailand and Greater China.

With the regional economy expected to continue to expand this year, the bank will most likely build on this momentum to increase its loan volume, and consequently its interest income.

Increasing fee income, again

Finally, the bank has been able to leverage on its extensive track record and brand awareness to grow its fee income business. This portion of the business includes wealth management fees and credit card fees, among others.

With fee income being a low capital and high profit margin business, it is integral that the bank expands this segment of its overall business.

Over the quarter, fee income rose 1.6% from the previous quarter and 17% year-on-year. The consistent and substantial growth over the last few years can continue to contribute growth and stability to the bank’s profitability in the future.

The Foolish bottom line

UOB once again did a fantastic job in growing both its interest and non-interest income for the quarter. With momentum picking up in the home loan sector, UOB’s growing wealth management segment and improving cost-efficiencies, the future certainly looks bright for the bank.

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.