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

Welcome to our third quarter 2025 results media briefing. Today, we have with us our Deputy Chairman and Group CEO, Mr. Wee Cheong; and our Group CFO, Mr. Leong Yung-Chee. As usual, Mr. Wee will begin by giving a broad overview of how our franchise has done and the operating landscape we are operating in. And Mr. Leong will then go into more details on the financials and business performance. After both presentations, we'll be taking questions from the media. So I'd like to invite our CEO to get us going. Mr. Wee, please.

Good morning. Thank you again for joining us today. As all of you know, geopolitical developments are impacting business outlook but we always see encouraging signs. ASEAN continues to attract investments. Amid evolving tariff changes, we continue to see healthy intra-regional trade flows. While a softening rate environment is putting pressure on asset yields, we see healthy loan growth and fee income. Now for the first -- for the third quarter, we have reported a strong operating profit of $1.9 billion. And we are happy with our performance for the first 9 months with healthy growth in loans, deposits, including CASA, wealth AUM and fees. Now from this position of strength, we have proactively set aside additional preemptive general allowances. This substantially strengthens our provision coverage ratios, reinforcing resilience and flexibility to navigate headwinds and sustain long-term growth. And after building our coverage ratios, we retain a healthy capital position. By prioritizing balance sheet strength, we stand ready to act, support customers and see strategic growth opportunities across the region. Now for our shareholders, we remain committed to our $2 billion share buyback with almost 1/4 of the program completed as of September 2025. There is no change to our policy of 50% dividend payout and our 2025 final dividend will not -- let me emphasize, will not be impacted by this preemptive general allowance. Our core franchise performance remains sound with strong fundamentals and positive momentum quarter-on-quarter. If we look at the loan growth was robust, 2% quarter-on-quarter, 5% year-on-year, and they are very broad-based. CASA, this is something that we have been always emphasizing for both retail and wholesale banking registered healthy growth for the first 9 months, up 19% year-on-year. Our wealth management AUM grew strongly during the quarter, quarter-on-quarter AUM up $8 billion or 4% net new money. And the invested AUM portions continue its upward trend. In terms of P&L, net interest income down 3% quarter-on-quarter. It was impacted by margin compression in a declining rate environment but this was partially offset by healthy loan growth. Gross fee income saw robust broad-based growth across loan-related cards and wealth management businesses, up 8% quarter-on-quarter, 10% year-on-year. Customer-related trade and investment income grew strongly. We maintained cost discipline, keep expenses flat while investing in growth initiatives. On the asset quality front, NPA formation and specific allowances were higher this quarter due to a few accounts in the U.S. and Greater China commercial real estate sector. We conducted a thorough review of our portfolio. As a proactive move to further strengthen our balance sheet, we took the opportunity to ramp up our provision buffers to cushion against any further headwinds. By setting aside general allowance of $0.6 billion and raising our GP to performing ratio to 1%, which is higher than the 0.9% objective that we articulated previously. With this, our total NPA coverage improved to 100% or 240%, including collaterals. Now following this exercise, we expect our total credit cost to normalize with asset quality risk contained barring any unexpected global volatility. Our balance sheet remains strong with CET1 ratio of 14.6% and robust liquidity ratios. And we are very confident of delivering sustainable value for the long term. Looking ahead, while no market is spared from external shocks, we believe ASEAN offers strong structural growth opportunities, and we are well positioned to capture them. We are staying focused on growing our franchise and supporting businesses through our connectivity strategy. We are deepening relationships with our expanded retail base through wealth and lifestyle offerings, investing in innovations to uplift productivity. We are confident of executing our strategy and achieving sustainable growth as we invest for the future. We are in a strong position moving into next year with the following guidance: low single-digit loan growth, full year NIM of 1.75% to 1.8%; high single to double-digit fee growth driven by growth engines in wealth, cards and trade, low single-digit operating cost growth, total credit cost of 25 to 30 basis points. Now I will hand over to Yung-Chee to share more. Thank you.

Thank you, CEO. Good morning, everyone. I'll take you through the financials. I will have 17 slides to walk through. What I'll do is I'll spend a little bit more time on the summary slide and the highlights, and then I'll move a little bit faster through the rest of the slides. On the first slide, we walk you through the highlights. And as CEO mentioned earlier to you, the macro picture today still has certain pockets of economic uncertainties. The benchmark rates have come lower. Asset yields continue to come under pressure. But despite that, our businesses have continued to deliver on the strategies that they have articulated, whether be it in the balance sheet, assets and deposits, loans and deposits rather, if you look at the number of customers, our fee income, our trading income, our wealth AUM, our card fees, everything in those parameters have exhibited positive growth. From that position of strength, our operating profit has proved resilient at generating $1.9 billion. At the same time, our liquidity, capital and funding ratios have continued to stay strong and resilient. We have taken the opportunity in this backdrop to take the preemptive provision and bring our performing loans coverage to 1%. Overall, the NPL ratio remains flat at 1.6% I've mentioned that the coverage ratio has increased to 100% and including collateral, that's 240%. As CEO mentioned, the final dividend payout will not be impacted by this preemptive general allowance that we have decided to set aside. Now let me walk you through the third quarter's performance. On this page, specifically, I've mentioned the $1.9 billion, if you focus on the fourth column, operating profit of $1.9 billion is a drop of 3% quarter-on-quarter. It coincidentally is also a 3% comparison year-on-year, and this is primarily driven because of the net interest margin, the interest rate environment. Our core fee drivers have continued to register resilient growth. Noninterest income has also risen 5%, backed by record high customer flows and treasury income. Expenses have remained stable. Allowance, I've mentioned earlier on. We will discuss more in terms of these allowances in a slide later on. I'll now bring you to the segmental performances, just focusing on the retail business. Retail businesses profit before tax overall was stable at $1.5 billion. It exhibited strong growth in our CASA and wealth businesses and income pressures were mitigated with strength in terms of our balance sheet growth in deposits and loans. If you notice, we mentioned earlier on that if you look at the CASA line, we've actually grown 19% year-on-year. In terms of our AUM growth, we have also taken it 8% up year-on-year with the invested portion from 37% of AUM a year ago, now it's 41%. Net new money flows at $5 billion for the quarter and our card billings grew 8% year-on-year. Asset quality remains strong with credit costs significantly lower than last year in this portfolio. Operational, which we talked about in Thailand last year has eased. I'll next move to the wholesale banking portfolio. Likewise, it has demonstrated broad-based growth in terms of loans and deposits growing 6% and 4%, respectively. And in the loans portfolio, our trade loans, in particular, grew 22%. Again, this cements the strategy that our wholesale banking team was focusing on. And if you look at the CASA as a proportion of our deposit business, deposits grew 4%. The CASA portion is now at 57%. Investment banking has maintained strong momentum with our fees reaching record levels. On a year-to-year basis, that has grown 29%. This diversified strategy has seen our income contribution from non-real estate sectors stay at 69% with cross-border components of this contribution at 27%. Our regional footprint continues to deliver as we diversify our income streams. The allowances has increased. This is primarily due to collateral markdowns for some nonsystemic borrowers and preemptive provisions we have decided to proactively set aside. I'll next talk about our Global Markets business. It has grown 22% year-on-year. And for this particular quarter is our second highest performance on record. This was driven primarily from continued client demand for hedging and investment solutions. The noncustomer part of the income has also benefited because of a favorable cost of funds environment where our teams have managed to capture market opportunities across equities, foreign exchange and rates, contributing to the overall performance. Next, I'll talk briefly about net interest income and margins. In my summary slide, I did mention that the net interest income moderated 3% quarter-on-quarter. This was mitigated by asset growth. If you look at the bottom box, we grew assets from $479 billion to $494 billion on a quarterly basis. But on a 9-month basis, it was $473 billion to $491 billion. The net interest margin did compress during this quarter by about 9 basis points compared to last quarter. So if you recall, we had 1.91% in terms of our Q2 NIM. For Q3, it is 1.82% but what is important to note is the exit NIMs. So when we exited 2Q, it was 1.84%. Our exit for this quarter is 1.82%. So in terms of the steepness of the decline in NIMs resulting from rates movement, you would have seen that this has significantly slowed in terms of decline. We do expect further pressures because there are further expected rate cuts, one more, we believe for this year and 2 more next year but the downward trajectory, I think, has slowed significantly. In this quarter, the 25 basis points drop in asset repricing primarily came from Sing dollar, which accounted for about 60 basis points. And from HIBOR, there was a positive 14%, but there is some delays in repricing the HIBOR rebound, which we expect to show up in the fourth quarter. We have proactively managed our funding costs and that has mitigated the drop in NIM. So that accounted for that green box of 16 basis points. I'll speak briefly around fee income mix. This slide shows gross fee income. So if you look at gross fee income across all spectrums, overall, it grew 10% but each of the components showed almost double digit single -- high single digits or low double-digit growth over this period of time. These fee drivers demonstrate the resilient growth led by activities such as wealth, particularly in unit trust and structured products on the back of improved market sentiment and consumer optimism. Card fees also sustained its growth momentum. However, on card fees on a net basis, we took a harmonization of our rewards scheme in Thailand post the Citi integration. This was taken in 3Q effective 1st of October, which means that this normalization would be normalized into 4Q and 2026. A little bit more background on that. Gula, I noticed that you were raising eyebrows on that. So when we had the rewards program when we integrated the Citi franchise, the rewards redemption ratios were at different levels. Citi's ratios were a little greater than ours. We brought that in line, although that still puts us competitive -- still competitively ahead of market in Thailand. So that rationalization was effective 1st of October. The next page on expenses. Period-to-period, our expenses have actually come off. But on the cost-to-income ratio, it has ticked up from 44.3% to 45.2%, simply because income numbers have come down, not because expenses have gone up. We continue to keep very tight cost management while continuing to invest in talent, technology and innovation to drive our franchise expansion, meet regulatory requirements and provide services for our customers. The next page on nonperforming assets. NPL ratio is unchanged at 1.6%. There was some new NPA formation this quarter I mentioned earlier to nonsystemic accounts in selected markets. With the higher write-offs and recoveries, we have maintained proactive in reviewing and monitoring our credit portfolio for asset quality risk. Next page. The $0.6 billion that CEO mentioned earlier on, more specifically, it's $615 million. This is a preemptive general provision. We did so because in the midst of reviewing our portfolio with the macroeconomic uncertainties and some sector-specific headwinds that we see, we wanted to build a stronger buffer for potential valuation adjustments going forward. We do so today because our capital, liquidity and funding ratios are in a position of strength. By doing this, we have brought our general provisions coverage from 0.8% to 1%. We brought our NPA coverage from 88% to 100% and from the unsecured NPA coverage numbers from 209% to 240%. The next page speaks briefly to the credit costs. The 32 basis points total credit cost from second quarter bumps up to 134 basis points because of the preemptive allowances that we have put in place. We do expect with this buffer, our credit cost levels will normalize from the fourth quarter and into 2026. Next page, provisions coverage. I mentioned this briefly earlier on. The key numbers would be the general allowance on loans, 1% the NPA coverage, 100% unsecured NPA coverage, 240%. Next page on the loan momentum in our balance sheet. It grew 5% year-on-year, 2% quarter-on-quarter. This was quite broad-based across geographies as well as industries. I mentioned earlier on, in particular, within our loans, our trade loans continued to show the fastest growth, exhibiting 22% growth. Next page. A little information on our funding situation. So if you look at our LCR, our NSFR ratios, if you look at our CASA-to-deposit ratios, these continue to demonstrate that our funding positions, liquidity positions remain healthy and comfortably above minimum regulatory requirements. Last but not least, some information on our capital position. At 14.6%, fully loaded at 14.5%, our capital position remains strong. Questions around our share buyback, I think we've addressed earlier on, the $2 billion share buyback, we remain fully committed. As of September, we've executed 24% of that, and this is way ahead of the trajectory if you drew simply a straight line from now to 2027. Our payout ratio of 50% remains a commitment we make to shareholders. And I will emphasize again that the dividend payout for 2025 will not be impacted by our decision to set aside this preemptive general allowance. With that, I conclude my presentation and we can take questions.

Thank you, CFO. We'll now take questions from media. Any questions?

Questions will be on the allowances, right? Specifically around general allowances. General allowances you mentioned there were sector-specific. Can you mention what some of these sectors are and for the specific provisions, can you go a bit deeper into, I guess, the Greater China and United States, commercial real estate clients that you mentioned earlier.

The NPA formation and SP charges arose specifically from U.S. and Greater China CRE. Now this actually of the total loan portfolio is a relatively small proportion but we still see continued headwinds in these two markets. However, in the additional allowances also factors in something I mentioned to Gula before we started the call, which is by recognizing some of these recoveries that we are doing, actually, it's accelerated some of the markdowns in the collaterals. Now these flows can be chunky and it's very hard to predict in terms of the trajectory. But by building this GP position, it allows us more room to cope with any sort of asset quality gyrations. And also, we see a Us -- as I mentioned, these are all secured by setting up a preemptive provision that will give us time to recover. And also from the customer standpoint, we also work along with the customer. As a commercial bank, I think our primary job is to make sure that we are in a position to protect the interest of the customer. That is important. Otherwise, it's very easy just to get rid of that So the general provision will give us the strength. And also, you look at the coverage is secured on an unsecured basis is 240%. So we have time, while the earnings continue to be strong and robust. And we are not using that to penalize our shareholders, too, right? So all this, the shareholders will still get the preemptive general allowance, the dividend. In Hong Kong, we do see selective interest coming back, although it's not broad-based. So residential, for example, I think is fairly stable but commercial real estate continues to be soft. So if you look at the IPO market in Hong Kong, it's growing 3x, right, $25 billion. So there's still plenty of liquidity in the system. The question now is at what point. So forget about the view, we just set aside first.

I think Bloomberg has a question.

You said that you expect credit costs to normalize after this. Does that mean you think the worst is over? Or could there be more provisions ahead based on your view shape?

If I know everything, I will not be a banker. I'll just go to a casino. But end of the day, I think if I have to take a calculated view, for the 2 markets we are operating in I would say -- I wouldn't say the worst -- well, the worst is a U-shape kind of thing, right? So we are dealing with cash flow, we are dealing with assets. So there's many factors to talk about when you talk about recovery. But what is more important is we manage our balance sheet. That is right, so we can overcome if assuming we misjudge the situation. We are strong enough to take the headwind that is important. This is why we are talking about preemptive.

Maybe if I could add to that, if you look at the Hong Kong context, the loan-to-value of our portfolio is 44%.

44%?

Yes, 44%. With this buffer, actually, we are bringing our credit costs back in line with our guidance of 25 to 30, not just for this year, but also for 2026. So Q4 and 2026 credit cost will be within the 25 to 30 basis points. Now big caveat here is the global market as much as we can see in 2026, this is what we expect with the normal caveats of barring any big market unforeseen volatility, I think that remains.

Also a follow-up question on the profit. Do you expect this to be something one-off or something that investors can expect in the future? Like is there going to be another provision for this lot of sum.

It's one-off.

Sorry, just to change a little bit. You said the HIBOR rebound hasn't been -- wasn't affected in the -- it didn't impact 3Q. Meaning that it should be better because...

The rebound actually happened around mid-August, right? So some of those effects may have come through but we don't think all of that repricing has actually been reflected into our 3Q numbers. Yes, there is a lag effect in terms of the repricing of the portfolio. It should support the NIM into 4Q '25.

Back to Bloomberg.

Just looking at the unique positioning here that UOB has because DBS and other Singapore banks haven't made similar provisions necessarily. What are you seeing in commercial real estate today that they're...

I think the risk appetite as well as geographical focus of the three Singapore banks are different. I cannot comment on the areas of business. I think in the areas that we focus on, I think we have seen some upticks in the CRE portfolio within our books. But these are assets that we have already identified and flagged earlier on and these are not new exposures. So we have not actually put on new exposures in real estate in these markets. We have continued to grow our balance sheet in these markets but not in these sectors. So I'll come back to the point again, which I mentioned to Gula earlier, which is some of this is because of recoveries that we are executing right now. When you do the recoveries, you end up parking collaterals down. So this is the reason why you see an uptick.

Okay. So the recoveries are with the CRE portfolio. So those have to be marked down because -- and those recoveries were they in Hong Kong and the U.S. as well?

It's a mix.

It's a mix of Hong Kong and U.S.

Yes.

So the troublesome area is Hong Kong and the U.S.

I would say Greater China.

Can I just ask a question about excess liquidity, whether you will deploy in HQLA, if you do, what currencies would they be Singapore, SGS Singapore government securities? Or would it be [indiscernible] U.S. treasuries or somewhere else?

I think over the last couple of quarters with the pressures from NIM, I think we have seen that the logical thing to deploy some of the excess liquidity is actually to make sure you focus on a bit more of your NII as to -- as opposed to keep defending where the NIM would be. Those excess capital would naturally be deployed to NSFR-friendly instruments.

Which are...

A combination of currency.

Is it -- you don't reveal the currency?

We don't reveal the call on that. I think it's not simply just bucketing into 1 or 2 types of currencies. I think we've got to look at the profile of our asset liability mix, and we've got to be quite nimble in shifting between those buckets.

So including the region because you are in the region -- including it will be the...

Yes.

Sorry, I just wanted to clarify the $615 million general allowance, is this the largest single provision you buffer that you set aside in 1 quarter?

We did have one, I think, on the COVID period, but I think there was a smaller amount, if I recall.

The buffer is largely for U.S. and Greater China.

I think primarily, we have -- again, a general allowance is actually set aside for us to have that flexibility to deal with market volatility and challenges. So I think while there are pockets in other markets, the primary areas or focus actually would be in those two markets.

So there's this interest rate cycle in the U.S. to which Hong Kong is related even though HIBOR has rebounded and the cost -- the risk-free rate affects all these assets. So as the interest rate comes down and these assets rebound, would there be -- would you look at writing back? Or this is one instance, how you would look at them at the moment.

Some of this could be write-off, yes. This is why we say it's a preemptive. This is not a total loss, right, preemptive.

And this was for the third quarter. So this was based on before the latest interest rate cut. You use the valuations before the interest rate.

Yes.

It was about 1.5 weeks ago. last -- you're talking about U.S. rate cut.

U.S. rate cut but we are down to the...

U.S. rate cut -- there was one cut about 1.5 weeks ago and there's another one we expect for 4Q and 2 more that we expect for 2026.

So again, this is preemptive, right? If you anticipate the rate is cutting. So hopefully, in fact, most of our investors, they are buying equity now. They are more prone to buying equity because interest rate, everything is down, the bond is down. So hopefully, all this will translate to the way we see that.

Question on expenses. I think 9-month expenses are lower impact on cost management. Can you explain about what this type of cost management means? Are you going to cut back on certain spending or marketing or things like that? And then I guess also on your outlook for hiring in the year, right? Are you expecting to maintain the same level of headcount just because of the margin compression as you mentioned earlier?

So the expenses did come off. It's a combination of various things that we are doing. I think you're right, we did relook at all the various expense buckets within the bank to see other excesses that we can further trim down. And some of it is also sales-related expenses. So the fact that income comes down, sales comes down, you actually can trim some of the sales-related expenses. Aside from that, I think your other question was in terms of headcount and so on. Our headcount posture remains stable. But what we have done is to actually focus on reinvesting some of the savings -- cost savings into productivity tools. So some of the investments have been in newer areas like Gen AI productivity tools that we are rolling out so that we can augment the productivity of our staff without actually tuning headcount from that perspective. There is also a couple of things you need to keep in mind. Technology obsolescence and compliance costs continue to weigh heavily on us. So these are areas that we cannot compromise. Technology obsolescence presents risk, not just to us but our service to customers. Compliance, especially in the scheme of things now with heightened scams, frauds and so on, AML, KYC matters. I think these are areas that we absolutely cannot compromise. So what we have saved, we've actually reinvested and although we marginally managed to brought the cost down, it still feels a little elevated in terms of a cost-to-income ratio perspective.

Just one question. So in terms of overlays, you say you have about 1.5 billion and this would add a little bit -- this would add something to it. Now one of your peers that has a lot of overlay has actually said that they could consider releasing some if the earnings become very volatile. But you're adding to it now. So I'm just trying to -- in my own mind.

I think it's difficult to be buoyant about what we face in the year ahead. I think if you look at where we are in terms of trade policies, political tensions and so on, the situation continues to have pockets where we can't see that clearly. Putting these in place allows us that flexibility to navigate but it doesn't mean that we will use it. And if we don't use it, it could be reversed. But putting that in place gives us confidence and also be in a posture where if our customers require us to support them in their growth areas, we are in a position to do so.

If anyone from the media online have question [Operator Instructions] but we can continue with those in the room.

So in terms of the region, how is there -- are there any credit costs anywhere in the region that you see coming up? Or is the region -- okay because they all interest rates, right, even in Indonesia?

I would say quite stable, quite stable, I would say. Ireland, a bit of a headwind but I think generally it's okay in the overall scheme of things. And if you can see the growth without the currency [indiscernible].

The constant currency...

It's still growing.

And our exposures to the consumer markets in the region is more focused on our higher customer segments, whereas in Singapore, it's broader based.

So the consumer, the retail bank and the consumer banking, is that more stable versus because of the issues on the wholesale side that more stable than the corporate side. Is the retail banking more stable than the corporate banking at the volatile?

Retail will be more a reflection of the overall economy, right, because we cut across general population. The wholesale will be a little bit more chunky in nature, right? So I would say, yes, in terms of diversification, retail will definitely the segment that you are in is important. It's where employment situation, economy become very important. If you look at the Citibank portfolio when we acquired, they are generally unsecured but they're very focused on the segment that they want to focus, right?

To give you a barometer, we are the largest card issuer for Visa and Mastercard in the region. 8.5 million customers we have, if you look at the gross card billings, it grew 8% year-on-year. So in terms of customer spending and confidence in that franchise, I think it shows, right? Now there are obviously a spread. It's roughly half in Singapore, half roughly, half in Singapore, half in the region. But it gives you a good sense that this diversified customer base across the region provides a level of stability for our retail franchise. Wholesale is a lot more susceptible, I think, to asset pricing pressures. That particularly in this environment, everyone is chasing higher quality companies, right? So there is intense competition in that space for sure.

We have a question from Timothy from Straits Times who's online. Because his connection is bad, I'll just read out the question. Do the additional provisions cover SMEs or large corporations?

Across our portfolio.

Any other questions?

Provision is very positive and it's quite [indiscernible] .

Because you are buying insurance, right? We, as an organization, I think, taking a long-term view, you don't just focus on P&L. It's very easy to focus on P&L, right? Today, if you forget about the preemptive provision, then the number looks everything okay. But we are taking a view. We are here to make sure that our balance sheet mix continue to be strong, right? And so that we are in a position. It's no different than during the COVID, we set aside $3 billion to help our customer. That will give the market a confidence, okay? And then we give ourselves time to react to recover.

If you had not set aside the 615 million, what would your net profit figure have been.

That will be around 1 billion. Minor adjustments for tax and other things, but around that.

But that would have still been down quite a bit year-on-year.

That's right.

Just one more. Can you -- I mean, any chance you can give us any specific names or characterize the borrowers? Are these developers, office building owners?

No, I don't think we are in a position to tell you exactly who -- then the next day, I will receive a call.

I mean it is commercial real estate, it's commercial?

Yes, basically secured commercial real estate is quite -- which you said, our rate is quite low. So we don't want to be in a position to force certain thing, right? We want to in a position of strength, right, so that together with our customer. This is where we call franchise value, right? Otherwise, when you have a crisis situation, the tendency is everyone to overreact. Do you want to do that? You have a property, I overreact, I sell, no, right? We want to set aside. We want to be calm. We want to be measured. That to me is important. So you have to look at it from the overall standpoint rather than just focus on all. I want to have a P&L. I want to protect my profit. I will sell everything just to make it right. It's more than that.

Okay. If there's no other questions, thank you, everyone. As usual, if you have any further questions later, do reach out to the communications team. Thank you, and have a good day.

Thank you, everyone for your time.