United Overseas Bank (UOB) has reported a core net profit of $6.06 billion for the FY2023 ended Dec 31, 2023, crossing the $6 billion mark for the first time. The figure, which is a record for the bank, is 26% higher than the bank’s core net profit of $4.82 billion in the FY2022.
Including the one-off Citi integration costs, UOB’s net profit was up by 25% y-o-y at $5.71 billion for the year, which is also a new high. For the 2HFY2023, the bank’s net profit rose by 9% y-o-y but fell by 5% h-o-h to $2.79 billion.
The record net profit was attributed to strong income growth and an enlarged customer franchise.
Core return on equity (ROE) – excluding one-off expenses – stood at 14.2% for the year, 2.3 percentage points higher y-o-y.
FY2023 net interest income (NII) rose by 16% y-o-y to $9.68 billion due to a higher net interest margin (NIM) and loan growth of 2% in constant currency terms. For the full year, the bank’s NIM was at 2.09%, 23 basis points higher y-o-y. However, in the 4QFY2023, NIM moderated by 7 basis points q-o-q to 2.02% mainly from loan margin compression due to competition for high-quality credits.
Net fee and commission income for the FY2023 grew by 4% y-o-y to $2.24 billion thanks to higher credit card and wealth fees and moderated by softer loan-related fees.
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Other non-interest income surged by 85% y-o-y to $2.02 billion driven by an all-time high customer-related treasury income as well as from a strong performance seen in trading and liquidity management activities.
Income for group wholesale banking was up by 14% y-o-y to $7.1 billion led by strong growth in the transaction banking business, which now accounts for over half of the group's wholesale banking income, as well as growth in cross-border income.
Group retail income also rose by 36% y-o-y to $5.5 billion led by a strong increase in NII and a surge in credit card fees. Wealth management income also rose due to the bank's growing bancassurance market share and higher demand for fixed-income products. The bank saw net new money inflows of $22 billion, which grew its assets under management (AUM) to $176 billion.
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Total income for the FY2023 was up by 20% y-o-y to $13.93 billion.
During the year, the bank made a total allowance of $921 million due to higher specific allowances on a few non-systemic corporate accounts. The bank also set aside a pre-emptive general allowance during the year.
In FY2023, UOB’s cost-to-income ratio improved to 41.5% from FY2022’s 43.5% due to strong income growth and disciplined spending.
In the 4QFY2023, the bank’s cost-to-income ratio, however, was up at 43.2% from 3QFY2023’s 41.0%. Including the one-off Citi integration costs, UOB’s 4QFY2023 cost-to-income ratio stood at 46.8%, up from 3QFY2023’s 44.4%.
Non-performing loans (NPL) ratio stood at 1.5% for the FY2023, down by 0.1 percentage point y-o-y and q-o-q.
Total credit costs of 25 basis points for the FY2023, 5 basis points higher y-o-y, stood within expectations. Credit costs during the 4QFY2023 also stood at 25 basis points, 6 basis points higher q-o-q.
As at Dec 31, 2023, UOB’s common equity tier 1 (CET-1) improved to 13.4%, 0.1 percentage points higher y-o-y and 0.4 percentage points higher q-o-q. Liquidity coverage ratio stood at 158% while net stable funding ratio (NSFR) stood at 120%, 4 percentage points higher y-o-y but 0.1 percentage point lower q-o-q. The loan-to-deposit ratio stood at 82.2%, 3.4 percentage points lower y-o-y and 0.1 percentage point lower q-o-q.
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A final dividend of 85 cents per share was proposed, bringing UOB’s FY2023 total dividend to $1.70 per share, or a payout ratio of approximately 50%.
“The group delivered a record core net profit for the year, fuelled by strong income growth through a diversified business franchise even as we strengthen our balance sheet. We remain prudent in maintaining ample liquidity and funding while we continue to invest to seek quality and resilient growth,” says Wee Ee Cheong, deputy chairman and CEO of UOB.
Looking ahead, Wee notes that the global economic outlook remains “uncertain” in the near-term although Southeast Asia looks to continue to be a “bright spot”.
“We are optimistic about Asean’s potential, driven by improved domestic demand, robust tourism recovery and strong investment flows into the manufacturing sector as companies reconfigure their supply chains. Our strong franchise across Asean positions us well to capture opportunities in the region,” he adds.
The group’s Citi integration is also on track after the successful integration of the portfolios in Malaysia and Indonesia. Thailand and Vietnam are scheduled to follow suit in the coming months.
“With our strengthened market position and larger regional franchise, we will focus on enhancing our offerings and capabilities as we serve our expanded customer base,” says Wee.
Looking ahead, Wee foresees the bank to see low single-digit loan growth, double-digit fee growth as well as positive growth in total income. The bank's core cost-to-income ratio is also expected to 41% to 42% on cost discipline. The one-time costs from the acquisition of the Citi businesses are also expected to roll off. The bank's credit costs in FY2024 are expected to be at the lower end of 25 to 30 basis points.
Shares in UOB closed 27 cents lower or 0.92% down at $29.24 on Feb 21.
