“As a group with a large SME customer base, UOB is particularly exposed to social risks in terms of balancing shareholder returns and supporting small business owners in a backdrop of Covid-19. Its ESG financing portfolio and certain diversity metrics lag Singapore banking peers,” he says in a September 18 note.
That said, he believes such ESG risks are typical for a bank with a regional presence like UOB. Among Singapore banks, Wickramasinghe prefers DBS for its North Asia growth potential and client mix.
Within the field of SME banking, UOB has a recognised franchise that is core to its strategy, notes Wickramasinghe. The group also has been proactive in supporting this customer base by introducing early Covid-19 relief measures ahead of its peers in 1Q2020.
The group has launched a digital banking product in Thailand and Indonesia (with plans for wider regional reach) to increase financial inclusivity, particularly among younger demographics. It also has a track-record of investing in productivity tools and offering flexible working arrangements to key employee segments such as mothers, students and caregivers even before the pandemic, he says.
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In addition, Wickramasinghe warns of governance and diversity risks for UOB. “The group has had several mis-selling incidents in the past two years, which raises Fair Dealing and Governance Risks. UOB may also be exposed to data security and cyber-attack risks given the sizable scale of its technology platforms.”
From a diversity aspect, women make up just 10% of Board membership (the lowest among its Singapore peers) and 35% of senior management at end-2019.
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With regards to earnings, 16% of UOB’s loans are under moratoriums, a bulk of which are set to expire between 3Q2020 and 4Q2020. This may increase near term NPL (non-performing loans) risks. Tighter net interest margins (NIMs) and softer loan growth may further erode earnings visibility, warns Wickramasinghe.
As at 2.30pm, shares in UOB are trading at 9 cents higher, or 0.47% up, at $19.30.
