Region: Singapore
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Fundamental View
AS OF 08 Mar 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 large local banks.
The bank is more focused on Singapore and Southeast Asia than on Greater China; its traditional strengths are the SMEs and retail sectors, although its corporate book is now ~52% 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.
Business Description
AS OF 08 Mar 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% and general commerce at 11%.
- Loans by geography comprise Singapore at 49% of loans, Greater China at 16%, Malaysia at 10%, Thailand at 7%, and Indonesia at 3% at end-December 2023.
Risk & Catalysts
AS OF 08 Mar 2024UOB has a greater focus on Southeast Asia than its Singapore bank peers, which leaves it open to more AQ risk in a downturn / higher-for-longer interest rate environment. However, both collateral and UOB’s ~SGD 3 bn in general provisions will be more than sufficient.
Management had said that the bank was on track for an SGD 1 bn revenue uplift in 2023 as a result of the acquisition of Citi’s consumer franchise in four ASEAN markets (Thailand, Vietnam, Indonesia and Malaysia). However, more detail was not provided at 4Q23 results.
Similar to DBS and OCBC, loan growth has been anemic, and in the absence of the Citi consumer franchise would have been well down. The bank is targeting some loan growth at the cost of margin in 1H24; it hopes the latter will improve in 2H24 on lower funding costs.
Key Metrics
AS OF 08 Mar 2024SGD mn | FY19 | FY20 | FY21 | FY22 | FY23 |
---|---|---|---|---|---|
PPP ROA | 1.40% | 1.19% | 1.23% | 1.31% | 1.52% |
ROA | 1.08% | 0.69% | 0.92% | 0.99% | 1.19% |
ROE | 11.6% | 7.4% | 10.2% | 11.9% | 14.2% |
Equity to Assets | 9.8% | 9.5% | 9.3% | 8.6% | 8.8% |
CET1 Ratio | 14.3% | 14.7% | 13.5% | 13.3% | 13.4% |
NPL Ratio | 1.54% | 1.61% | 1.62% | 1.58% | 1.52% |
Provisions / Loans | 0.18% | 0.57% | 0.20% | 0.20% | 0.25% |
Liquidity Coverage Ratio | 146% | 135% | 133% | 147% | 157% |
Net Stable Funding Ratio | 111% | 125% | 116% | 116% | 120% |
CreditSights View
AS OF 08 May 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 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. FY23 net income growth has been strong thanks to higher NIMs, better trading income, and contributions from the Citi acquisitions, in 1Q24 net interest income falls were offset by better trading revenue and fee income. Spreads seem wide for senior (due to illiquidity) and fair for Tier 2.
Recommendation Reviewed: May 08, 2024
Recommendation Changed: July 04, 2017
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