Yesterday morning (06 November 2025), United Overseas Bank (SGX: U11), or UOB, released its business update for the 3rd quarter and first 9 months of FY2025. If you have not yet read my earlier review, you can find it here.

Aside from declines across all 3 of its core income segments (net interest income, net fee and commission income, and other non-interest income), the key highlight was the sharp 72.5% year-on-year plunge in the bank’s net profit attributable to shareholders. This was largely driven by a significant 350% increase in allowances for credit and other losses.

Given the magnitude of this allowance spike, I reached out to UOB’s Investor Relations team for further clarity. Specifically, I sought to understand what prompted the higher provisioning, how this would affect the bank’s dividend payout (especially in light of management’s assurance that dividends will remain unaffected), and the nature of the “higher card rewards expenses” that contributed to the decline in net fee and commission income this quarter.

The Investor Relations team responded promptly this morning, and for the benefit of fellow investors, I have shared my questions and their responses below:

Question 1: Sharp Increase in Allowances

There was a significant jump in allowances this quarter, which came as a negative surprise to investors and was reflected in the sharp decline in UOB’s share price today. I would like to understand what drove this increase – specifically, what factors or circumstances led to this allowance being made? Were there any loans identified as being at risk of default? I ask this as, typically, such a substantial provision would not be made unless there were underlying risks to loan quality.

UOB’s Response: Macro uncertainties and headwinds in US and Greater China commercial real estate sectors have led to elevated NPL formation and specific allowance this quarter. Amid these macro challenges, we conducted thorough portfolio reviews to assess further credit deterioration risks. We also observed notable markdowns in collateral values, as major loan recoveries were finalised. As a proactive measure, we have made a pre-emptive general allowance of $615 million this quarter. This is to strengthen our provision buffer, which brings our total GP coverage to 1%, with NPA coverage at 100% and 240% including collateral.

Question 2: Dividend Payout Policy
I note from the earnings release that the dividend payout will not be affected by the higher allowances. Given UOB’s stated dividend payout policy of 50%, may I clarify whether this percentage is calculated based on profit before allowances or profit after allowances? If it is based on the latter, then the final dividend payout could be indirectly affected by the higher provisioning.

UOB’s Response: Our dividend payout policy remains at 50% of net profit after tax. However, to ensure stability in ordinary dividends, we have excluded the S$615 million pre-emptive general allowance top-up from this calculation, as it is a one-off adjustment rather than part of normal credit provisioning. This approach safeguards shareholder returns while maintaining our stated payout ratio.

Question 3: Higher Card Rewards Expenses
The business update attributes the decline in net fee and commission income for the 3rd quarter to “higher card rewards expenses.” Could the bank elaborate on the nature of these expenses? Are they one-off in nature, or should investors expect this cost to continue impacting the segment’s performance in the 4th quarter?

UOB’s Response: Following the Citi acquisition, UOB undertook a harmonisation of card reward schemes across both platforms. This led to a surge in rewards redemption, particularly in Thailand. As a result, net card fees was impacted in 3Q25. Importantly, this is a transitional effect tied to the integration process. We expect net card fees to normalise into 2026, as the harmonisation effects taper off. If you look at the credit card gross fees on CFO slides (page 9), it is still showing a good growth which means the underlying credit card franchise is still intact.

Closing Thoughts

Once again, I would like to take this opportunity to express my appreciation to UOB’s Investor Relations team for their prompt and transparent responses to the questions raised.

On the dividend front (which I believe is a key concern for many shareholders), it is reassuring to note that the pre-emptive allowance will be excluded from the payout computation. That said, investors should still be mindful that the final dividend ultimately depends on the bank’s underlying earnings in the 2nd half of FY2025. Should overall income come in weaker, the payout could still be affected accordingly.

With this, I have come to the end of today’s post summarising the clarifications provided by UOB’s Investor Relations team regarding the spike in allowances this quarter, its implications on dividend payout, and the temporary increase in card rewards expenses. Please note that the views shared above are solely for educational and informational purposes, and do not constitute any buy or sell recommendation. As always, please conduct your own due diligence before making any investment decisions.

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

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