United Overseas Bank Limited (U11) Earnings Call Transcript & Summary

Mr. Wee will just give a broader view of how our franchise has performed and the operating landscape we are in. Mr. Leong will then go into more details on the financials and business performance for this quarter. After both presentations, we'll be taking questions on the media. For the media or joining us online, please use the recent function, if you have a question. I'd now like to invite CEO to get us started, Mr. Wee, please.

Good morning. Thank you for joining us today. Since we last spoke, the global outlook has changed significantly. The world order has been restructured by U.S. tariff. While it is too early to quantify the exact impact, we expect growth to slow in near term and make uncertainties the long-term fundamentals of ASEAN remain attractive. The region's competitive advantage in manufacturing and commodities for help, and ensure a relevant role as global supply chains revive. Fitflows within ASEAN and between ASEAN and the rest of the world will continue to grow, as countries seek new ways to prosper. While the road ahead may not be smooth, it will be, we have compared. We have strong balance sheet, capital and liquidity to good reserve partner and navigate this uncertain times. Our diversified earnings base continues to provide stability across economic and market cycles. In the first quarter of this year, UOB delivered a solid advance. Net profit was stable year-on-year at SGD 1.5 billion. Growth was broad based, supported by resilient income from learning, record fees and higher trading and investment income. Our asset quality is healthy. The strong earnings this quarter, we are taking a conservative approach to increase our reserve given the uncertainties. We have been reshaping our business franchise with diversified client segments and product happening across our key markets. In the first quarter, we saw healthy demand across sectors and geographies, which boosted our loan books. Our loans grew 6% year-on-year. Net fee income rose 20% year-on-year, led by record investment banking news, strong growth in loan-related and well activities. Our wealth management business saw good tractions. Most of our clients adopt conservative investment strategies with a focus on wealth preservation. We see higher inflows into our discretionary portfolio management solutions, reflecting client trust in our ability to help them navigate market volatility. We will name fast [indiscernible] DPM, Asia and Singapore at the Euromoney Private Banking Awards for this year. This quarter, we also won several other prestige awards. Global Finance named us as the best bank in Asia Pacific for a second year. We were also named Best Bank in Asia. Separately, the Asian Banker named us as the best SME bank in Singapore 2025. And we are encouraged by these recognitions and will continue to focus on supporting our customers in these volatile times. Looking ahead, the external environment is still fluid. We will resume guidance when the situation stabilizes. However, we remain committed to our $3 billion capital distribution plan. We had already commenced share buyback and the first fund from [indiscernible] dividend has been paid. Despite uncertainties, we see pockets of opportunities across our diversified portfolio. [indiscernible] in China, ASEAN and into ASEAN corridors are about USD 1.53 and growing, trend that we expect to continue. We are well positioned to capture the flows from this structural ship. In fact, most of our trade finance learning continue to be done within the region, reflecting strong intraregional activities. In the research survey, UOB conducted with 800 businesses in ASEAN and Greater China, 2 in 3 businesses expecting to have ASEAN treatment to increase due to U.S. tariff. They are planning to diversify sourcing to within their own countries or in the region. There is also a growing demand for hedging from our clients and in current market volatilities. Meanwhile, we have a healthy pipeline of quality financing for infrastructure projects. This is not the first time that we have experienced volatility and external ships. We are confident in our ability to navigate the challenges just like we have done before in the past 9 years. We are fully committed to working closely with government and industry players to support our customer through this extraordinary times. Now I will hand over to our new CFO, Yung-Chee Leong.

Thanks, Ee Cheong. Good morning, everyone. I will take you through the financial updates. If you look at our first quarter results [indiscernible] a strong quarter. We had broad-based income and franchise store. The net profit was SGD 1.5 billion for this quarter with ROE at 4.3%. The net interest margin was stable at 2%, and it was contributed by proactive balance sheet management despite margin pressures. Our net fee income grew to a new high of SGD 694 million. This was largely driven by record low in fees from higher investment banking revenues that CEO mentioned as well as momentum in our wealth and card businesses. On treasury and investment income, we grew by 27% quarter-on-quarter. This came from strong activities from our clients and also relatively good performance in our trading and liquidity management activities. Asset quality remains stable with NPL ratio at 1.6%. And again, as CEO mentioned, given these macro uncertainties, we took a prudent stance to increase our general allowances to strengthen provision coverage, resulting in a total credit cost rising to 35 basis points this quarter. We are approaching the volatilities of the market from a very strong technical and funding position. However, CET ratio remains at [ 15.5% ] and NSFR at 116%. On this page, we can spend a little bit more time to go into detail around the operating profits. We have increased the operating profit by 11% for 2-quarter and 7% from a year ago. However, as we set aside higher preemptive allowances, the net profit after tax declined 2% quarter-on-quarter, but stable year-on-year. Next [indiscernible] business segment in a bit more detailed way. On the retail business, if you look at the slide, our increase in CASA demonstrates the franchise that we've been building for a while. The credit card buildings and the double-digit increase in work income helped to cushion some of the margin pressures. So, the credit card buildings remain robust, not just in Singapore, but throughout the region as well as we continue to give better propositions and lifestyle offerings for our customers, and in particular, the customers who have 1 model reversing [indiscernible]. The Wealth mentioned business continues to be underpinned by a shift from deposits to investments and net new money flows coming in continue to encourage us, but it was also balanced by market dislocations in value. Most of our clients have very balanced portfolios aligned with our focus and philosophy of wealth preservation. This resulted in minimal margin calls despite amongst the volatilities that we saw in the last few weeks. Moving to the Wholesale Bank. I mentioned briefly earlier on that we had record investment banking fees this quarter, double-digit trade and treasury growth, and this has helped offset the drop in margin from declining interest rates as well as competitive pressures from peers or quality assets. We remain focused on our customer franchise and our growth engines. We continue to leverage on our strength in connectivity in the region. The focus on our investments that we have made on the wholesale banking platforms that have helped us drive positive growth for our CASA and [indiscernible]. If you look at the CASA item and the slide you would have seen that 8% growth in CASA continues. We generate at least 56% in terms of CASA to deposit mix right now. The shape of our business continues to improve. NIM remained stable at 2%. This is by no means [indiscernible]. We continue to be very active in terms of how we manage our balance sheet. The quarter-on-quarter net interest income decreased by 2%, but that's also partially due to a shorter quarter. Low margin has been compressed due to asset pricing pressures and the softer environment in terms of rates, but through this balance sheet management, we've managed to have our NIM stable. I mentioned briefly about our record loan dues. So we'll dive a little bit more [indiscernible]. Investment banking fees had a good quarter. This was from participating in large syndicated deals, coupled with increased loan demand. There was also good momentum in our wealth fees from robust unit trust sales and structured products and wealth fees were generally up 30% year-on-year and 19% up from quarter-on-quarter. Card billings also grew year-on-year that compared to a quarter ago, there was a seasonal capitalization in the fourth quarter usually is higher. Bidding and investment income was underpinned by our customer treasury income rising to SGD 243 million this quarter, this was an increase of 11% from a year ago and 13% from the last quarter. It was [indiscernible] retail structured products demand. Our own trading and liquidity management activities have also continue performed well and [indiscernible] sales as well as trading opportunities in the volatile market environment. In terms of expenses, we have managed to maintain the stance on our disciplined spending and cost-to-income ratio has improved to 42.6% this quarter. While we continue to focus on investments to build up capabilities in region, the pipe cost discipline is something that we will continue to maintain, especially as we head into [indiscernible] environment. Our nonperforming assets remains sound with an NPL ratio at 1.6%. The new NPA formation has been stable and within expectations, but with lower write-offs, the total NPE inched up our ratio to 1.6% this quarter. On credit costs, we mentioned earlier on that because of the uncertainties in the macro environment, we have preempted, added to our general allowances this quarter, bringing the total credit cost of 35 basis points. It is important to note that this increase was something that we've done by taking a very prudent stance to strengthen our provision [indiscernible] into the environment. On the next page, it shows you the allowance coverage. Our total allowance as of March was SGD 4.8 billion, of which SGD 2.8 billion relates to allowances for non-impaired assets. Overall, our coverage remained adequate at 90% or 207% after taking collateral [indiscernible]. Next, we move to look at our growth -- our loans growth. So year-on-year, overall, loan growth at 6% and 1% quarter-over-quarter. The same on term of growth we've seen both in the wholesale as well as retail businesses. The momentum is staying well. We have broad-based growth and in the wholesale side has been in term and [indiscernible] on the retail side, mortgages. We do want to remain vigilant and selective in our lending given the outlook, but we remain very committed to supporting our customers [indiscernible]. On our funding position, I mentioned at the start that we are approaching this with a strong capital funding and liquidity position. From here, you can see that LCR remained sound at 143%, NSFR at 116%, both of which are well above the minimum regulatory requirements. Our CASA deposits continues to grow steadily. And I mentioned earlier on, the mix of our CASA continues to help us ship the funding mix, something which is helpful in terms of managing our cost of funds. On the next page, our capital position remains strong at 15.5%, [indiscernible]. And Again, this allows us to remain very confident in terms of how we go into the next quarter. With that, I end the presentation in terms of financials and [indiscernible] up to Q&A.

Thank you, Mr. Leong. We'll now begin the Q&A. [Operator Instructions].

[indiscernible] back to what I would say at the beginning about [indiscernible] what was the net deal might be. Second question also on your next about hedging by customers. Could you comment and provide colors on what exporters and importers do during this volatility Third question on the SD assets at UOB, including your asset managed fundament asset management. And with this, the dollar decline, especially against [indiscernible]?

I'll take that first. I think on the U.S. dollar assets, it remains actually a very small part of our portfolio. The securities portfolio in U.S. dollars are mainly [indiscernible] for governance securities. So we have not disclosed [indiscernible] numbers. I think that hopefully addresses the first question. I think the first -- sorry, the second question. The first question was around net new money. Now, net new market goes into our private bank was actually negated by market action. So net-net, it was flat, if you look at the AUM numbers that we communicated it's about SGD 189 billion, that's flat quarter-to-quarter [indiscernible]. We have net new money growth, but market actually [indiscernible].

My first question is about actions by hedging by case orders and [indiscernible] You mentioned that clients have kind of demand or hedging recent FX? And could you say specifically have your clients particle exporters and importers have that adequately hedged before the currency [indiscernible] they didn't do it sufficiently, what are being doing now?

I think we've seen customer activities. And I think the slide that I showed earlier for our treasury income activities, you have seen very [indiscernible] questions with respect to more reasons in terms of the overall [indiscernible] those activities have continued. I think we see a lot of customers front loading some of the activities. If you are looking at treasury in terms of interest rate and FX schedule activity, those activity have continued. That's not unusually higher than normal, but you see many of our customers continuing their business activities as stable as they can, just the uncertainties around the time situation [indiscernible]. So our general expectation was that maybe some of these increases, but that has not shown up to be the case because our businesses, our clients continue to front run some of the activities in anticipation.

Sorry, just last thing. You see, we all say that we resume 2025 guidance when situation stabilizes. Do you expect stabilization in this 4 years from now?

I think generally, I cannot begin to [indiscernible]. But I can tell you what I can assure the possibilities, we have a strong [indiscernible] and the strong capital [indiscernible]. Well, generally, tariff we're talking about [indiscernible] 10% of the total balance sheet. So -- and most of our [indiscernible]. It's more into our region or China plus one. So the -- yes, we did go through a portfolio advances, loan from the customer. Some of them could export with U.S. to be 20%, 30%, 40%, but our policy generally is quite. I would say, it's not really a major concern for us. The second order impact will be most uncertainty continues, then you affect consumer confidence. This is where a slowdown in the economy [indiscernible] that will be the second point. But if you talk about first order impact, but in the trade in generally, we are going through the portfolio. Of course, we continue to discuss with the customer how do they want to do. They may divert certain activity within ASEAN. So in the U.S., and our exposure to China is locked a lot so much. It basically will be more ASEAN.

Coming back to the stress test, what is the stress test that the banks do? Because I think MAS -- there's an MAS stress test that [indiscernible]. So what is it going to be more stringent or at least [indiscernible] most stressful stress test? And what's the worst-case scenario? And how would it affect your capital -- and will this and ultimately will [indiscernible]?

For the time being, it's pretty much as I said, it's still a very fluid situation, and the impact is too early to quantify, right? You can use our imagination, right? We want to [indiscernible]. But I think in this scenario, given our exposure to the trade, all the customer base we have is all very well spread. I don't see do stress, but I don't think we expect to hear that we [indiscernible]. In fact, as I mentioned in my speech, we will continue to grow up our capital easement. We are committed. It's a 3-year program. We reduced our capital and we promised 50% of our dividend will be generated by cash earnings.

[indiscernible] if I elaborate a bit further, unless the news come out [indiscernible]. Our capital positions to feel very strong to manage what we expect [indiscernible] in terms of looking at our portfolio and potential impact, we think that's very manageable. The stress test that we are conducting, when you look at the second quarter, potentially third quarter that's a little bit more comfortable because there are so many different assumptions that have to coverage as well as CEO mentioned [indiscernible]. I think some have closed variables, the macroeconomic variables have been input, I think has yet to [indiscernible] and it depends on the total outcomes you were seeing many segments.

So could it for you BCL1, -- it also depends on this [indiscernible]. So have you changed -- how much have you changed the NAV model for 1Q versus?

We have not changed yet, but we are in the process of being [indiscernible].

This is certain growth assumptions [indiscernible]?

And we know that this can change, [indiscernible].

So you haven't changed even your growth assumptions?

And I think we do have an expectation that on a broad basis that growth and 3-point of view will be impacted. The extent of that and where its, which industries, which countries, I think that still [indiscernible].

I think since the global financial crisis, you have this test where you must have enough HQLA for 90 days of outflows. So have you looked -- I mean, I think [indiscernible] that you have -- on that you have. But that's an normal situation, do you think they would actually be those outgrows?

I think if you compare the current environment versus -- sorry I think we've gone through that, and we're very well prepared for that. We do not expect even the uncertainties that we have to face in the next quarter or so that we would be as severe as [indiscernible]. So those capital positions [indiscernible] if you are more than sufficient and adequate to manage.

In fact, if you look at the whole ASEAN, you look at major countries for interest rate risk [indiscernible]. So I would say relatively speaking, in fact, the favor should be more towards ASEAN now.

[indiscernible], so since the second of April, the [indiscernible] announcement. Has that [indiscernible] so interested. Has there been...

I think there have been -- [indiscernible] the feedback is still quite good. And, at UOB, we are well positioned, and we are the biggest one in Asia. We have 7 branches [indiscernible] sign MOU with these. Chinese Chairman of Commerce in Malaysia as well as Singapore. And we are the only bank with [indiscernible] initiative. We invest [indiscernible].

Now we help customers, quite some lean services, more expedited on more approval, [indiscernible]. So this is an arrangement we make with [indiscernible] is something that we tied up with the investor [indiscernible] accelerate some of the investments they're doing. Do they [indiscernible] and help businesses move there faster.

And are people investing. Have your customers are actually [indiscernible]?

Yes, as we know we have invested our foreign direct investment for the last 2 years. So there are quite a number of inquiries and some of them are actually committed.

The interest level [indiscernible] continue. I would think that liberation date [indiscernible].

[indiscernible] very strong presence in the SME banking market [indiscernible] have been sharing with you and how you be advising them on this situation, right?

I think it's different. We are more than happy. We are more than happy to driven our strongest. And in fact, today, we at with the government and MAS, everyone is [indiscernible]. So we have to -- if we have to look at individual credits by customers, right? And depending on how should be -- and we will apply certain business logic, certain way of structuring [indiscernible] cash flow growth.

[indiscernible] the direct impact to [indiscernible]. I think that one thing is [indiscernible] parts directly to the U.S., I think that's notable. The question is the second order volume. So if you supply parts [indiscernible] the exports to U.S., now when that slowdown happens, if it happens, I think that second order impact is what we are more concerned about, but the variable assumptions that goes to that as an [indiscernible]. With some of these uncertainties kind of stress [indiscernible] that will impact [indiscernible] spending and opening investments and even consumer with the domestic markets. But now what we're seeing is that most of our book exposure is domestic and [indiscernible].

Let me just ask one more question. And you talked a lot about a lot of uncertainties and you have strong capital position, stay. But what does that mean? Do you still have commissions for MAS, can review right from the remarks. Are you proposing those transitions are taking a lot...

We'll always have to go up [indiscernible] for us, okay? And in fact, given our connectivity strength, we are always on the book. We are running with business. If the opportunity by [indiscernible] I know this is a very [indiscernible], but if you look at the balance sheet, the capital decision that we had, I think that comfort from our existing customers that will give them a lot of control [indiscernible] to support it. And also for the comfort to potential customers, [indiscernible] strong, they are able to present, we may be able to attract potential customer.

Can you make this [indiscernible]?

So our priorities, [indiscernible] acquisition, that was done [indiscernible]. So these sort of situations, you can find opportunities, but we have to find opportunities access for our franchise.

Would you ever think of bringing back in the [indiscernible] that you've used to have some years ago that will stop in. And then [indiscernible]?

[indiscernible] doing share buybacks [indiscernible]. I think we've reached a maturity and confidence in our capital [indiscernible] generation. And when the vessel [indiscernible]. I think gave us the confidence that some of these excess capital [indiscernible] to shareholders, which was [indiscernible]. In fact, the top of the SGD 3 billion mentioned. So no plans for [indiscernible].

So I have a question about the forecast. I know that you deal will only resume the forecast until the situation stabilized. But I would make [indiscernible] forecast high single-digit for the loan growth [indiscernible] level digit fee income growth in February, right? So I wonder, have these 2 forecasted numbers change? Or would there be like a [indiscernible] after the liberation tariffs?

I think this comes back to common team. I think everybody is trying to [indiscernible] specific around broad numbers. I think the over updating sentiment is that our clients are building [indiscernible] planning on CapEx plans where are you going to in the mix factor. Are you ordering shipping pre-forward logistics for the next 6 to 12 months. I think there's a lot of uncertainty and inability to [indiscernible]. Even if you look at some of the global companies, [indiscernible], JPMorgan, everyone is suspending guidance because the visibility today is not easy. And the question is amidst all this, what are the things that you can handle on at best, strengthening our balance sheet. Look what we can do to help the clients navigate, many of our clients are very adaptable [indiscernible]. If this happens where we can [indiscernible] and where do we need to shape the supply chain. So our front liners are very actively engaging clients system in doing so. Not to bottom question. The question specifically was where those 3 projections grow projections still intact. We are working on the assumption today on those numbers. But [indiscernible] happy because we are not yet ready to buy some numbers in that.

Now we have a question from online [indiscernible].

This is [ Aldo ] from Reuters. First, I have 2 questions. The first question is basically a follow-up to China port earlier questions. But in general, how will the strengthening of the Asian currency against the U.S. dollar, such as Singapore dollar will affect you or both positively and negatively or directly and indirectly. And the second question is we would love to hear more on -- from your view on what changes in trade financing demand that you will be seeing from clients in a short and medium term and from this U.S. tariff and what is your doing to help for your clients?

The strengthening of the [indiscernible] against the U.S. dollar [indiscernible] sense, I think, good [indiscernible] business. I think there are various elements here. The fact that Sing dollar remains strong, would also mean that with a good set of [indiscernible] coming in the same pool. We hope to pay from that in terms of the world management as [indiscernible] do for retail clients. But for businesses, you're going to see a spectrum depending on whether you are more import or export driven. We are fairly well diversified in the sense that, yes, we have a large Singapore portfolio, and we have a regional franchise, but we manage our businesses as much as possible to metal hedging. The second question was around changes and hit finance demand from tariffs and what we are doing about it. We mentioned briefly earlier on that trade is about 10% of our total loan portfolio. It is something that we continue to want to build. The question was around, have we seen changes on it in the last month or so. The answer is that it remains fairly stable, but those signals [indiscernible] and it carries noise because some of these trade activities could like front loading of activities. People are expecting that your average situation [indiscernible] next few runs may result in certain outcomes. So some of those front loading of export shipments and trade activities have intentional numbers, from our perspective, it continues to impact. There's no particular drop off, but there are noises in those.

Just to accurately if I say I'm not [indiscernible] export. I think that will be good?

Yes.

Do you have any other questions?

Yes. Just kind of [indiscernible] put some mortgage demand in the Singapore and demand for buildings and construction with loans in Singapore. Is that a drop off? Or is that -- has that been stable or is that?

It is stable but..

[indiscernible] .

[indiscernible] the compensation here in this room, we try to compress time lines on what has happened a month ago. Now [indiscernible] just overnight like that. People make plans for low [indiscernible] terms for loans and the document to install that [indiscernible]. So even if [indiscernible] to slow down loan activity, people were to stop their mortgage activities and so on. The numbers flowing through to go down about maybe next quarter, you will [indiscernible] -- but you're talking about what actually came out operationally in [indiscernible] then multiple variations and changes to it since, yes. So it's probably too premature to see what those impacts will flow through in terms of. But on the practical aspect, these things do take time, [indiscernible] plan and adjust their capital outlays and CapEx plans and [indiscernible] little bit more time that flow through.

Go back to the confidence, it takes time.

And if you're focused on first quarter numbers because the results that we are sharing with you today this morning, first quarter numbers remain strong, quarter-to-quarter, year-on-year.

So was that [indiscernible]?

[indiscernible].

Sorry. I have a question about the coverage comparison. I think we compared to the 4 big [indiscernible], which situation is [indiscernible]?

[indiscernible], total shutdown is very different. So we've gone through all this. So again, as I said, we are more than confident same and we are willing to pay dividend. We are willing to have capital reduction. I don't think we need to be overly [indiscernible].

If I could [indiscernible] in certain industries, in certain countries complete [indiscernible]. Here, you expect a slowdown adjustment. [indiscernible] cannot set up open up even if you needed to reestablish your supply chain and manufacturing locations elsewhere, it takes time. It takes time to ship. So in the meantime, some of these activities will continue. It may come retirement costs associated with and business costs associated, but it's not like co-ideating in this shutdown. So you would see a period of volatility adjustments, but I think [indiscernible].

Specific to this situation where activity increases [indiscernible] more investment into Penang [indiscernible]?

I think the overall [indiscernible] doesn't change over time. Unless it's consumer confidence that they have been back there. If you look at trade flows, I think the trade flows were evolved. Countries that have been more affected by tariffs and can no longer take [indiscernible] is not economically viable to export to a particular [indiscernible] new markets [indiscernible] businesses time to adjust, but it doesn't suddenly create global duty management. They're looking for where to shift those [indiscernible].

Maybe we take 1 or 2 last questions if you want to.

If I may, what do you see NPI [indiscernible] non-performing asset and what's the ratio [indiscernible]?

You're asking the same question [indiscernible]. So I think to mentioned the high of the bid prices, our credit cost actually went up to about 57 basis points, right? We've just mentioned to you that build it up to the 35 basis [indiscernible]. Do we need more or less, I think, next quarter.

My question is not [indiscernible], I'm sure you can. I'm just trying to see your assessment on your client side, driving them. If I can make it clearer.

Well, the [indiscernible] the NPA formation numbers that came out around clients and geographies that we already saw, we were recognizing it and provisioning for it. It hasn't been an spike up [indiscernible], right? It is what we already saw recognizing our provision. But these are not [indiscernible].

In fact, your ECL suite [indiscernible] actually fell in the first quarter because...

I think the takeway would be, I think we moved downside risk in asset quality seems manageable versus the group risk [indiscernible] work is not done. We need to look at all of these stress system, outcomes of projections and forecasts [indiscernible].

All right. If there's no further questions, thank you, everyone. And if you have any further questions or clarifications, please meet us [indiscernible].

Thank you.