Along with DBS Group Holdings, United Overseas Bank (SGX:U11) also released its results for the second quarter and first half of the financial year 2020 ended 30 June 2020 yesterday morning before trading hours.

As a shareholder of the Singapore bank, I have studied its latest update in detail and in today’s post, I will be sharing with you the most important aspects to take note of, my personal thoughts (about the bank’s latest results), along with important information about the bank’s dividends (both cash and scrip) to take note of (especially if you are a shareholder of the bank)…

Key Financial Results (2Q FY2019 vs. 2Q FY2020, and 1H FY2019 vs. 1H FY2020)

In this section, we will be looking at the bank’s key financial results both on a quarter-on-quarter (q-o-q) as well as on a year-on-year (y-o-y) basis:

2Q FY2019 vs. 2Q FY2020:

2Q FY20192Q FY2020% Variance
Total Income
(S$’bil)		$2.58b$2.26b-12.5%
– Net Interest
Income (S$’bil)		$1.65b$1.46b-11.5%
– Net Fee &
Commission Income
(S$’bil)		$0.53b$0.45b-15.1%
– Other Non-Interest
Income (S$’bil)		$0.40b$0.36b-10.0%
Net Profit
(S$’bil)		$1.17b$0.71b-39.7%
Net Profit
Attributable to
Shareholders (S$’bil)		$1.17b$0.70b-39.8%

At one look, you can conclude that on a q-o-q basis, it was a weaker one for the bank.

The 11.5% q-o-q drop in its net interest income was due to margin compression. Net fee and commission income also fell by 15.1% q-o-q as movement restriction across the region weighted on customer activities. Finally, the bank’s other non-interest income dipped by 10.0% q-o-q largely due to lower net trading income.

All the above declines led to the bank’s total income falling by 12.5% q-o-q to S$2.26b.

Additionally, as a result of a huge allowance for credit and other losses being provisioned (from S$0.05b in 2Q FY2019 to S$0.40b in 2Q FY2020), UOB saw its net profit and net profit attributable to shareholders plunging by 39.7% and 39.8% to S$0.71b and S$0.70b respectively.

1H FY2019 vs. 1H FY2020:

1H FY20191H FY2020% Variance
Total Income
(S$’bil)		$4.99b$4.67b-6.5%
– Net Interest
Income (S$’bil)		$3.24b$3.05b-5.9%
– Net Fee &
Commission Income
(S$’bil)		$1.01b$0.96b-5.0%
– Other Non-Interest
Income (S$’bil)		$0.74b$0.66b-10.8%
Net Profit
(S$’bil)		$2.23b$1.56b-29.8%
Net Profit
Attributable to
Shareholders (S$’bil)		$2.21b$1.56b-29.8%

Looking at the bank’s latest set of financial results on a y-o-y basis, its top- as well as bottom-line also weakened.

Its top-line (total income) fell by 6.5% as a result of all its business segments reporting weaker results, where its net interest income was down 5.9% driven by declining margins alongside concerted interest rate cuts across the regional markets; its net fee and commission income fell 5.0% mainly due to reduced consumer spending on credit cards and slower loan disbursement fees resulted from the economic contraction; finally, its other non-interest income dipped 10.8% due to lower net trading income.

As far as the bank’s bottom-line is concerned, due to a much greater allowance for credit and other losses being provisioned (from S$0.14b in 1H FY2019 to S$0.68b in 1H FY2020), its net profit and net profit attributable to shareholders plunged by 29.8%on a y-o-y basis.

My Thoughts: Given the current economic conditions brought about by the Covid-19 pandemic around the world, and in the current low interest rate environment, the latest set of financial results reported by the bank did not come as a surprise to me.

Key Financial Ratios (1Q FY2020 vs. 2Q FY2020)

Next, let us take a look at some of the key financial ratios for the quarter under review (i.e. 2Q FY2020 ended 30 June 2020), where I will be comparing against the ratios reported in the previous quarter (i.e. 1Q FY2020 ended 31 March 2020) to find out if they have improved or deteriorated three months on:

1Q FY20202Q FY2020Difference (in
Percentage Points)
Net Interest
Margin (%)		1.71%1.48%-0.23pp
Return on
Assets (%)		0.83%0.65%-0.18pp
Return on
Equity (%)		8.8%7.1%-1.7pp
Non-Performing
Loans Ratio (%)		1.6%1.6%–

My Thoughts: Other than its non-performing loans ratio remaining unchanged, all the other financial ratios I have looked at weakened three months on.

In case you’re wondering, the drop was within my expectations, given the current economic environment.

Dividends Declared (2Q FY2019 vs. 2Q FY2020)

As a result of MAS’ call for the banks to cap their dividend payouts to 60% of what was paid out in FY2019, along with allowing shareholders the option to receive scrips, a dividend payout of 39.0 cents/share was declared (in 2Q FY2019, a dividend payout of 55.0 cents/share was declared.)

In a separate announcement, the bank announced that the ex-date will be on 26 August 2020, record date will be on 27 August 2020 at 5.00pm, and payout date will be on 13 October 2020.

As for how much will the scrip be, it will be based on the average of the closing prices on 26 and 27 August 2020, and the bank will be announcing the issue price on 28 August 2020.

My Thoughts: During the AGM (in case you have missed it, you can check out a summary I have posted here), when the bank advised that its dividend payout will be 50.0% of their earnings, I am already of the opinion that its dividend payout will come down this financial year, due to headwinds of Covid-19 pandemic negatively affecting the banks’ operations, and I was fully prepared for the drop.

As such, the dividend payout declared by the bank did not come as any surprise to me.

In Conclusion

I will be keeping tabs on UOB’s share price movements over the next week and a half or so, before I make a decision on whether I will be taking cash or scrip.

While on the whole, the latest set of results reported by UOB was a weaker one (both on a q-o-q as well as on a y-o-y basis), but it did not affect my investment decision on the bank, and I will continue to remain invested.

Last but not least, with Sunday being National Day public holiday, I would like to take this opportunity to wish my beloved country a very happy 55th birthday, and to all fellow Singaporeans, happy long weekend ahead! 🙂

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

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