First quarter earnings beat the mean estimate of S$1.43 billion from three analysts polled by LSEG

 

UOB : U11 -0.03% on Wednesday (May 8) reported a net profit of S$1.49 billion for its first quarter ended Mar 31, 2024, down 1.6 per cent from S$1.51 billion a year earlier.

 

The earnings beat the mean estimate of S$1.43 billion from three analysts polled by LSEG.

 

Excluding one-off expenses incurred in the acquisition of Citigroup&rsquo s consumer banking businesses, the bank&rsquo s net profit would have been 0.7 per cent lower year on year at S$1.57 billion.

 

The earnings were supported by record trading and investment income and higher net fee income, the bank said in its financial results released before the market opened.

 

Total income for the quarter was flat at S$3.52 billion, as a drop in net interest income (NII) was offset by gains in net fee income and other non-interest income.

 

Net interest income for the quarter fell 2 per cent to S$2.4 billion. Net fee income was up 5.1 per cent to S$580 million from S$552 million, while other non-interest income was 3.2 per cent higher at S$581 million from S$563 million in the same period a year ago.

 

The bank&rsquo s non-performing loans (NPL) ratio was 1.5 per cent, down from 1.6 per cent the same period last year.

 

Total allowances fell by 5.2 per cent to S$186 million for the quarter, following a 3.8 per cent drop in specific allowance on loans to S$158 million from S$164 million. General allowance, meanwhile, remained unchanged at S$28 million.

UOB&rsquo S target to achieve a return on equity (ROE) of 14 per cent is &ldquo decent&rdquo , said UOB group chief executive and deputy chairman Wee Ee Cheong.

 

UOB &ndash Singapore&rsquo s third-largest bank &ndash achieved a core ROE of 14.2 per cent for its financial year ended 2023, up 2.3 percentage points from the previous year.

 

Looking ahead, UOB is targeting an ROE of 13 to 14 per cent, with the chance for further upside if the bank&rsquo s fees from its wealth business or trading activities do well, Wee said at the bank&rsquo s annual general meeting (AGM) on Thursday (Apr 18).

 

Wee expects the bank to perform well, especially given its improved fees business.

 

The comments were made in response to a shareholder&rsquo s question on what UOB is doing to improve its ROE, and what are the segments that can boost its ROE in the coming years.

 

UOB group chief financial officer Lee Wai Fai noted that the bank is a &ldquo commercial bank by nature&rdquo , which means a certain percentage of its risk will depend on loans.

 

But the bank has since also enhanced its capabilities to bring in fees from both its consumer and wholesale segments.

 

&ldquo We believe that 14 per cent is a decent target for a commercial bank,&rdquo Lee said.

 

Lee expects that there may be opportunities to increase UOB&rsquo s ROE in the short term, but the bank will likely maintain its target of 14 per cent in the longer term.

 

If the bank does achieve such an ROE with a 50 per cent dividend payout ratio, it should be able to sustain an asset growth of 8 per cent, and a profit growth of 8 to 10 per cent, Lee noted.

 

This model that UOB has is steady and not volatile, he added.

 

Wee said it was difficult to make comparisons to the ROE targets of other banks, given that they are operating with &ldquo totally different business models&rdquo .

 

This was in response to another shareholder&rsquo s question, on the reason other banks are able to achieve better ROEs of, for example, 17 per cent.

 

DBS achieved a record ROE of 18 per cent for FY2024, and its CEO was confident the group could achieve an ROE of 15 to 17 per cent over the next three to five years.

 

Meanwhile, OCBC achieved an ROE of 13.7 per cent in FY2024, up 2.6 percentage points on year.

 

Wee said that the bank would also like to have a higher ROE, but it was more concerned with weighing its risks with rewards.

 

&ldquo If you want UOB to take more risks, of course we will get a better ROE. But what happens if we fail?&rdquo Wee said. &ldquo What I can promise is sustainability. Within our risk appetite, you will get the reward.&rdquo

 

UOB&rsquo s net profit for the fourth quarter rose 21.8 per cent to S$1.4 billion, compared with S$1.2 billion a year earlier, due to higher net fee income and other non-interest income.

 

This included S$94 million in one-off expenses from its acquisition of Citigroup&rsquo s retail portfolio in Malaysia, Indonesia, Thailand and Vietnam.

 

For the full year, UOB&rsquo s net profit was up 24.9 per cent to a record S$5.7 billion. Excluding one-off Citigroup integration costs which stood at S$350 million, core net profit was S$6.1 billion, up 25.8 per cent on the year.