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Fundamental View
AS OF 22 Aug 2024UOB’s Aa1/ AA-/ AA- ratings are based on its strong stand-alone credit profile and the high likelihood of support from the government of Singapore, where it is one of the three major local banks.
The bank is more focused on Singapore and Southeast Asia than on Greater China; its traditional strengths are the SME and retail sectors, although its large corporate book is now over 50% of loans.
UOB has been conservatively managed with a sound risk profile, a strong focus on liquidity and a long track record of relatively good performance, although its operational performance has lagged DBS and OCBC in recent quarters.
Business Description
AS OF 22 Aug 2024- UOB was established in 1935 as a Chinese family-owned bank catering to the Hokkien (Fujian) community, Singapore's largest Chinese ethnic sub-group. The Wee family owns about 18% of the shares. A further 5.18% is held by the Lien family which previously controlled Overseas Union Bank, which UOB merged within 2001. The Wee family has significant real estate and hospitality interests in Singapore and regionally.
- UOB's main markets are Singapore and Malaysia where its presence dates back to before Singapore's independence. It expanded through acquisitions in Thailand (Bank Radanasin and Bank of Asia) and Indonesia (Bank Buana), and more recently bought over Citi's consumer franchise in Malaysia, Thailand, Indonesia and Vietnam.
- Franchise strengths are in SME and consumer lending. Building & construction accounts for 27% of loans, followed by housing at 24%, financial institutions at 13% and general commerce at 11% at 2Q24.
- Loans by geography comprise Singapore at 48% of loans, Greater China at 16%, Malaysia at 10%, Thailand at 7%, and Indonesia at 3% at 2Q24.
Risk & Catalysts
AS OF 22 Aug 2024UOB has a greater focus on Southeast Asia than its Singapore bank peers, which leaves it open to more AQ risk in a downturn / high interest rate environment. However, both collateral and UOB’s ~SGD 2.5 bn in general provisions will be more than sufficient.
Management retained their full year 2024 outlook; amongst them were positive net income growth and 25-30 bp credit costs, both of which are more conservative than its two peers.
Similar to DBS and OCBC, loan growth has been anemic, but 2Q24 saw a modest pick up in loan growth.
2Q24 NIM rose by 3 bp QoQ, but the 2H24 NIM is expected to be flat or lower.
Key Metric
AS OF 22 Aug 2024| SGD mn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| PPP ROA | 1.19% | 1.23% | 1.31% | 1.52% | 1.50% |
| ROA | 0.69% | 0.92% | 0.99% | 1.19% | 1.19% |
| ROE | 7.4% | 10.2% | 11.9% | 14.2% | 13.7% |
| Equity to Assets | 9.5% | 9.3% | 8.6% | 8.8% | 9.2% |
| CET1 Ratio | 14.7% | 13.5% | 13.3% | 13.4% | 13.4% |
| NPL Ratio | 1.61% | 1.62% | 1.58% | 1.52% | 1.49% |
| Provisions / Loans | 0.57% | 0.20% | 0.20% | 0.25% | 0.24% |
| Liquidity Coverage Ratio | 135% | 133% | 147% | 157% | 155% |
| Net Stable Funding Ratio | 125% | 116% | 116% | 120% | 118% |
CreditSight View Comment
AS OF 11 Nov 2024UOB is conservatively run with a large family ownership and a sound balance sheet. 55% of its loan book is to large corporates and its SME book has reduced as more of its clients grow from the medium to the large corporate segments. Outside Singapore, its main operations in ASEAN are in Thailand, Malaysia and Indonesia which collectively make up ~20% of its loan book. It acquired Citi’s consumer operations in Thailand, Malaysia, Indonesia and Vietnam, which has been good for the franchise. Operating performance was behind peers in 1H24 but there was some catch up in 3Q24. The bank has benefitted more from the final Basel III rules implementation than its peers, with a fully-loaded CET 1 ratio flat to DBS and only 40 bp lower than OCBC as of 3Q24, a much narrower difference than earlier.
Recommendation Reviewed: November 11, 2024
Recommendation Changed: July 04, 2017
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