United Overseas Bank (UOB) saw net earnings (or net profit after tax) of $688 million for the 4QFY2020 ended December, 32% lower than earnings of $1.01 billion in the corresponding period the year before.
Quarter-on-quarter, 4QFY2020 earnings rebounded 3% on higher margins and fee income, as well as lower credit allowances.
Earnings for the FY2020 fell 33% to $2.92 billion from the $4.34 billion reported in FY2019 with lower margins from benchmark rate cuts and reduced customer activities amid the contraction of economies during the Covid-19 pandemic.
4QFY2020 net interest income (NII) fell 8% y-o-y but increased 3% q-o-q to $1.51 billion on improved net interest margin (NIM), fees, and lower allowance.
NIM grew 4 basis points in the 4QFY2020 supported by a 23% y-o-y growth in deposits in current and savings accounts (CASA) and higher CASA mix of 53.5% for the year.
Net fee and commission income grew 10% y-o-y during the quarter to $522 million driven by strong growth in wealth management, fund management and loan-related fees, offset by lower credit card spending. The figure was up 2% q-o-q due to higher fund management and credit cards fees.
4QFY2020 trading and investment income fell 28% q-o-q to $152 million as the last quarter benefitted from higher gains on investments.
Other non-interest income during the quarter fell 33% y-o-y to $214 million mainly from lower net trading income.
For the full year, NII fell 8% y-o-y to $6.04 billion as policy makers across the regional markets reduced interest rates to support the economy and provide market liquidity.
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NIM fell 21 basis points to 1.57% during the FY2020 due to a low interest rate environment. UOB says it expects its NIM to stabilise in 2021 even if interest rates are likely to stay low in the near-term.
FY2020 net fee and commission income dipped 2% y-o-y to $2.00 billion due to reduced credit card spending and business activities due to the movement restrictions during the year, but remained resilient on the back of better performance from wealth management and fund management fees.
Other non-interest income dropped 20% y-o-y to $1.14 billion due to lower net trading income on the back of a volatile market in 2020. This was partly mitigated by higher gains from investment securities.
Total allowance during the year increased to $1.55 billion from $435 million a year ago as the group pre-emptively set aside additional allowance for non-impaired assets of $916 million to ensure adequate coverage.
Allowance for impaired loans increased 45% y-o-y to $679 million on a few secured corporate accounts.
Total credit costs on loans increased 39 basis points to 57 basis points.
FY2020 loan-to-deposit ratio (LDR) was stable at 85.4%.
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As at end-December, the group’s Common Equity Tier 1 capital adequacy ratio (CET-1 CAR) remained strong at 14.7% during the year, registering a 0.4 percentage point growth y-o-y, and 0.7 percentage point growth q-o-q. Leverage ratio of 7.4% stood two times above the regulatory requirement.
UOB has recommended a final dividend of 39 cents per share with an option for scrip dividend, bringing the total dividend for FY2020 to 78 cents per share, representing a payout ratio of 45%.
The group’s chief financial officer (CFO) Lee Wai Fai says the group’s 50% dividend payout ratio will resume once the dividend cap is relaxed.
“Amid the challenges of the global pandemic, we deployed our strong balance sheet to help our business and consumer customers in their time of greatest need. We have ample provisions and capital to continue to support our customers and to remain resilient,” says UOB’s deputy chairman and CEO Wee Ee Cheong.
“In the coming 12 to 18 months, macroeconomic conditions are likely to improve, albeit gradually. Asean’s connectivity with Greater China and the region’s growing affluence continue to be drivers of growth. Our established network, deep sectoral insights and strong local expertise ensure that we remain well-positioned to help our customers seize these growth opportunities,” he adds.
“To ensure sustainable growth, we will continue to sharpen our regional strategy, while upholding asset quality and maintaining cost discipline and efficiencies. With net interest margin expected to stay low, we are rebalancing our business with an emphasis on wealth and connectivity-related products and services that bring greater value to our customers and also drive higher fee income.”
Shares in UOB closed 28 cents higher or 1.2% up at $23.88 on Feb 24.
