United Overseas Bank - UOB Kay Hian 2021-02-26: 4Q20 Balance Sheet Well Positioned To Support Re-Opening & Recovery


United Overseas Bank - 4Q20 Balance Sheet Well Positioned To Support Re-Opening & Recovery

  • UOB’s 4Q20 net profit of S$688m was 2% below the consensus estimate of S$702m. The positive impact from the easing of credit costs was offset by lower trading and investment income and sequentially higher operating expenses. CET-1 CAR improved 0.7ppt q-o-q to 14.7%, which is higher than its target range of 12.5-13.5%.
  • Management intends to resume its dividend payout ratio of 50% once MAS has relaxed the cap of dividends.


  • UOB (SGX:U11) reported net profit of S$688m (down 32% y-o-y but up 3% q-o-q) for 4Q20, slightly below the consensus estimate of S$702m.

Loan growth driven by overseas markets.

  • Loans grew 4.7% y-o-y and 0.3% q-o-q in 4Q20 driven by a broad-based increase of wholesale loans.
    • Singapore loans expanded 3.4% y-o-y.
    • Overseas loans contributed healthy growth of 6.2% y-o-y mainly from Greater China (+7% y-o-y) and Western countries (+18% y-o-y).

Second consecutive quarter of NIM expansion.

  • NIM expanded 4bp q-o-q to 1.57% in 4Q20. Current and savings accounts (CASA) increased 23% y-o-y due to proactive liability management. The CASA mix expanded 8ppt y-o-y to 53.5%. The cost of deposits fell 15bp q-o-q to 0.63%. Thus, net interest income grew 2.4% q-o-q.

Continued recovery in fee income.

  • Fees increased slightly by 2% q-o-q in 4Q20 driven by fund management (+25% q-o-q) and credit cards (+15% q-o-q). Wealth management fees were flat q-o-q at S$188m. AUM from affluent customers grew 6% y-o-y to S$134b, of which 60% was from overseas customers.

Lower trading and investment income.

  • Other non-interest income declined 21% q-o-q in 4Q20 due to lower trading income, which declined 20% q-o-q. Gains from investment securities also dropped a hefty 39% q-o-q.

Credit costs have started to ease.

  • New NPLs were a sizeable S$622m in 4Q20 due to a few secured corporate accounts identified by its dedicated restructuring task force. The NPL ratio deteriorated 10bp q-o-q to 1.61%. Credit costs eased slightly from 68bp in 3Q20 to 55bp in 4Q20 as UOB has already fortified its balance sheet with pre-emptive general provisions.

Capital adequacy further enhanced.

  • CET-1 CAR improved 0.7ppt q-o-q to 14.7% in 4Q20 due to a decline in risk-weighted assets of 2.2% q-o-q (upgraded models for lending to large corporations). Management intends to resume its dividend payout ratio of 50% once MAS has relaxed the cap of dividends.
  • The board recommended a final dividend of 39 cents. Dividend payout ratio was 45% for 2020. Scrip dividend is applicable to the final dividend.


Pick-up in growth as recovery gains traction.

  • Management guided high single-digit loan growth and double-digit growth in wealth management fees in 2021. Economic conditions are likely to gradually improve in the next 12-18 months. UOB expects a pick-up in working capital loans as regional economies re-open. The recovery would be led by Singapore and Greater China. ASEAN-Greater China intra-regional flows are expected to recover in 2H21, including cross-border investments to reposition the supply chain.
  • UOB will support customers in acquisitions of suburban offices, logistics and data centre properties overseas in developed markets. Management expects significant reduction in credit costs to about 30bp in 2021.

Focuses on omni-channel customer engagements.

  • On a group-wide basis, 67% of UOB’s customers utilise its digital platforms, which include UOB Mighty, TMRW and UOB Infinity. UOB aims to serve affluent customers on an omni-channel basis across various touch points.
  • Omni-channel customers, who account for 35% of UOB’s customers, generate 1.5 times more revenue compared with physical-only customers. Management plans to add retail wealth features to its UOB Mighty app.

UOB launched digital-only bank TMRW in Thailand in Feb 19 and Indonesia in Aug 20.

  • Currently, 48% of new individual customers in Thailand and Indonesia have been on-boarded digitally. UOB has adopted a disciplined approach of not burning cash to acquire new customers. Its digital apps refer customers to branches for high-value products.

Loans under moratorium not comparable across the three banks.

  • UOB’s loans under relief measures totalled S$18b, which comprises
    1. government relief programmes S$3b,
    2. UOB relief programmes S$10b (UOB grants deferment of principal repayment for customers facing short-term strain on cash flows) and 
    3. Enterprise Singapore loan schemes S$5b (government bears risk-share of 90%).
  • Management clarified that government relief programmes accounted for S$3b, or 17%, of its loans under relief measures.

Credit costs likely to be at the lower end of task force’s estimate.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-26
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000