United Overseas Bank (SGX:U11), or UOB, is the first of the three Singapore banks that have released its business updates for the third quarter and for the first 9 months of the financial year 2020 ended 30 September 2020 before market hours this morning (in case you’re wondering, the other 2 Singapore banks, DBS and OCBC, will be releasing its business updates for Q3 and 9M FY2020 tomorrow, 05 November 2020, before market hours.)

In my post today, I will be sharing with you key highlights from UOB’s latest business update you need to take note of…

Financial Performance (Q3 FY2019 vs. Q3 FY2020, and 9M FY2019 vs. 9M FY2020)

As the bank have switched to reporting its full financial statements on a half-yearly basis (i.e. in the second, as well as in the fourth quarter), it has only provided a summary this quarter.

In this section, you will find a summary of some of the key financial statistics both on a quarter-on-quarter (q-o-q), as well as on a year-on-year (y-o-y) basis:

Q3 FY2019 vs. Q3 FY2020:

Q3 FY2019Q3 FY2020% Variance
– Net Interest
Income (S$’mil)
$1,687m$1,474m-12.6%
– Net Fee &
Commission Income
(S$’mil)
$551m$514m-6.7%
– Other Non-
Interest Income
(S$’mil)
$371m$272m-26.7%
Total Income
(S$’mil)
$2,609m$2,260m-13.4%
Total Expenses
(S$’mil)
$1,154m$1,009m-12.6%
Net Profit
Attributable to
Shareholders
(S$’mil)
$1,118m$668m-40.3%

On a q-o-q basis, as expected, its key financial results suffered declines – the 12.6% drop in its net interest income was due to margin compression (offset by loan growth of 2%); its non-interest income, which comprises of both net fee and commission income, as well as other non-interest income, registered a 14.8% decline, due to lower business activities across both corporate and retail customers, along with a lower trading and investment income.

However, the bank’s total expenses went down by 12.6% as well, due to disciplined cost management.

Finally, due to a huge increase in its impairment charge (from S$145m in Q3 FY2019 to S$477m in Q3 FY2020), its net profit attributable to shareholders tumbled by 40.3% to S$668m.

9M FY2019 vs. 9M FY2020:

9M FY20199M FY2020% Variance
– Net Interest
Income (S$’mil)
$4,927m$4,524m-8.2%
– Net Fee &
Commission Income
(S$’mil)
$1,557m$1,475m-5.3%
– Other Non-
Interest Income
(S$’mil)
$1,114m$929m-16.6%
Total Income
(S$’mil)
$7,598m$6,927m-8.8%
Total Expenses
(S$’mil)
$3,356m$3,135m-6.6%
Net Profit
Attributable to
Shareholders
(S$’mil)
$3,338m$2,226m-33.3%

Looking at the bank’s key financial statistics on a y-o-y basis, again, it is a weaker set of results – the 8.2% y-o-y dip in its net interest margin can be attributed to the sharp decline in interest rates across the region to cushion against the severe macroeconomic headwinds; its non-interest income (which consists of both net fee and commission income and other non-interest income) fell by 10.0% due to lower credit card spending and loan disbursements, along with a lower trading and investment income.

The bank’s total expenses, however, fell by 6.6% on a y-o-y basis due to lower staff costs, and reduced discretionary spend.

Finally, as a result of the impairment charge ballooning from S$289m in 9M FY2019 to S$1,158m in 9M FY2020, its net profit attributable to shareholders fell by 33.3% to S$2,226m (9M FY2019: S$3,338m.)

My Thoughts: The latest set of results reported by the Singapore bank came as no surprise to me. Moving forward, I am of the opinion that due to a continued low interest rate environment over the next 1-2 years (at least), the bank’s net interest income may continue to be adversely affected, and this could negatively impact the bank’s overall results as well.

Key Financial Ratios (Q2 FY2020 vs. Q3 FY2020)

Next, let us take a look at some of the key financial ratios reported by the bank for the third quarter of the current financial year 2020 (ended 30 September 2020) under review, compared against the previous quarter three months back (i.e. Q2 FY2020 ended 30 June 2020) to find out if it has improved or deteriorated:

Q2 FY2020Q3 FY2020Difference (in
Percentage Points)
Net Interest
Margin (%)
1.48%1.53%+0.05pp
Return on
Assets (%)
0.65%0.63%-0.02pp
Return on
Equity (%)
7.1%6.9%-0.2pp
Loan/Deposit
Ratio (%)
85.8%86.7%+0.9pp
Non-Performing
Loans Ratio (%)
1.6%1.5%-0.1pp

My Thoughts: On a positive note, I am happy to note that its net interest margin saw a 0.05pp improvement (to 1.53%) as liquidity buffers eased in line with a stable funding environment, and its non-performing loans ratio also edged down 0.1pp to 1.5% as loan moratorium reliefs in the region are still in force, coupled with higher recoveries in the quarter.

However, its return on assets, return on equity, as well as loan/deposit ratio weakened slightly compared to the previous quarter. I will continue to keep tabs on these ratios in the quarters ahead.

Dividends Declared (Q3 FY2019 vs. Q3 FY2020)

As the bank pays out its shareholders on a semi-annual basis (i.e. in the second as well as in the fourth quarter), there are no dividends declared for the current quarter under review.

In Conclusion

As I have mentioned in the previous section when I looked at the bank’s financial performance, the latest set of results were within my expectations.

However, I was surprised by the slight improvement in its net interest margin, as well as as the slight dip in its non-performing loans for the current quarter under review (compared to the previous quarter.)

With that, I have come to the end of my review of the bank’s latest business update for the third quarter of FY2020. Do take note that everything you have just read above (along with my personal opinions) are meant for educational purposes only and they do not represent any buy or sell calls for the bank’s shares. Please do your own due diligence before you make any investment decisions.

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

 

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