After DBS Group Holdings, United Overseas Bank (SGX:U11) is the second Singapore bank to provide its business updates for the first quarter of the financial year 2020 ended 31 March 2020 this morning before trading hours.

I have studied the information provided and in this post, you will find a summary of the most important information, along with my thoughts about the bank’s latest set of results:

Key Financial Highlights (Q1 FY2019 vs. Q1 FY2020):

The following are some of the key financial highlights provided by the bank, where you will find a comparison of the figures for the current quarter under review (i.e. Q1 FY2020), against figures recorded in the same quarter last year (i.e. Q1 FY2019):

	Q1 FY2019	Q1 FY2020	% Variance
Total Income (S$’mil)	$2,406m	$2,407m	+0.04%
– Net Interest Income (S$’mil)	$1,587m	$1,593m	+0.4%
– Net Fee Income (S$’mil)	$479m	$515m	+7.5%
– Others (S$’mil)	$340m	$298m	-12.4&
Net Profit (S$’mil)	$1,052m	$855m	-18.7%

Total income, which comprised of 3 business components – net interest income, net fee income, and others, was flat at S$2.4bil:

• Net interest income growth was a flat one compared to the same quarter last year despite a healthy loan growth of 4% for the quarter, due to margin compression
• Net fee income saw an improvement of 7.5% on a year-on-year (y-o-y) basis, and this can be attributed to growth in the bank’s loan-related ands wealth management fees, offset by a drop in credit card fees, along with the bank’s trading and investment income due to market volatility
• Finally, the bank’s net profit declined 18.7% on a y-o-y basis to S$855m as a result of declining interest rates and higher credit costs

My Thoughts: Personally, I felt that the latest set of results reported by UOB was a satisfactory one, where despite a drop in interest rates, its net interest income still managed to hold up.

Key Financial Ratios (Q4 FY2019 vs. Q1 FY2020):

In this section, I will be looking at some of the key financial ratios reported by the bank for the first quarter of financial year 2020 ended 31 March 2020, comparing against the ratios from the previous quarter ended 31 December 2019 (i.e. Q4 FY2019) to find out if they have improved or deteriorated:

	Q4 FY2019	Q1 FY2020	Difference (in percentage points)
Net Interest Margin (%)	1.76%	1.71%	-0.05pp
Return on Assets (%)	1.00%	0.83%	-0.17pp
Return on Equity (%)	10.6%	8.8%	-1.8pp
Non-Performing Loans Rate (%)	1.5%	1.6%	+0.1pp

My Thoughts: Compared to the last quarter ended 31 December 2019, all the key financial ratios weakened in the current quarter under review (ended 31 March 2020.)

I personally feel that, in view of the uncertainties ahead, we will continue to see weakened sets of results in the remaining quarters of the year ahead.

Key Summary by UOB’s Deputy Chairman and CEO, Mr Wee Ee Chong:

• In light of the challenges brought about by Covid-19, the bank have been working closely with government agencies and central banks to provide liquidity support to individuals and businesses.
• The bank is confident that they can ride through the difficult times and emerge stronger at the end of it with their strengthened allowance coverage, as well as through their collection efforts with their stakeholders.

In Summary:

I think one of the questions many have at this juncture is how UOB’s latest set of first quarter results compare against DBS’ (which was released last Thursday, 30 April, and you can read about it here.) The following is a quick summary:

• DBS’ net interest income was up 7% on a y-o-y basis, while UOB’s net interest income was flat.
• DBS’ total income saw a 13% y-o-y growth, while UOB’s total income growth was flat.
• UOB’s net profit, however, saw a smaller magnitude of drop on a y-o-y basis – at 19%, compared to DBS’ 29% drop.
• Compared to the previous quarter ended 31 December 2019 (i.e. Q4 FY2019):
  • DBS’ net interest margin remained flat, while UOB’s net interest margin declined by 0.05 percentage points (pp).
  • UOB’s return on assets saw a slower decline by 0.17pp, compared to DBS’ 0.26pp drop.
  • UOB’s return on equity also suffered a slower fall, at 1.8pp, compared to DBS, which saw its return on equity falling by 2.9pp.
  • Both banks’ non-performing loans ratio were up by 0.1pp to 1.6%

Personally, I feel that both banks have their strong points, as well as weak points, as far as their latest first quarter results is concerned.

No dividends are declared by the bank’s management, as UOB declares a dividend payout to shareholders on a half-yearly basis. Neither did the management provide any information on the bank’s dividend payouts for FY2020 (I am looking forward to the management addressing this in the upcoming annual general meeting), and, speaking of which, at the time of writing, I understand that the bank is looking to conduct its annual general meeting on Friday, 05 June 2020 (you can read the note in full here.) I will provide further updates on The Singaporean Investor’s Telegram broadcast group (you can follow the updates here), as well as on my InvestingNote profile (you can follow my profile here) as soon as I have them.

Finally, with tomorrow being a Vesak Day public holiday, I would like to take this opportunity to wish all my Buddhist readers a happy Vesak Day, and to my non-Buddhist readers, a happy public holiday ahead!

Download Documents Related to UOB’s Q1 FY2020 Results Below:

• Financial Updates
• Performance Highlights

Disclaimer: At the time of writing, I am a shareholder of United Overseas Bank Limited.

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