This year, group CEO Wee Ee Cheong is guiding for high single-digit loan growth, double-digit fee income increase led by cards, wealth, trade and loan-related fees, higher total income, cost-to-income ratio of around 42% and total credit costs in the range of 25 to 30 bps. Although 4QFY2024’s net profit was above expectations, it was 5% lower q-o-q. During the last quarter of 2024, NIM fell by 5 bps q-o-q to 2%. Net fee income and other non-interest income also declined q-o-q.
UOB declared a core dividend of 92 cents for the second half, taking the full-year core dividend to $1.80, representing a 50% payout ratio. As part of its capital management initiatives, UOB plans to return $3 billion to shareholders, comprising a special dividend of 50 cents per share in 2025 and a $2 billion new share buyback programme over three years. The special dividend is divided into two tranches: 25 cents will be paid along with the 2H2024 dividend of 92 cents on May 13, and 25 cents will be paid in August. This is also to mark UOB’s 90th anniversary.
Under the new share buyback programme, shares to be acquired from the open market will be cancelled. The programme is in addition to the share buybacks designed for the bank’s long-term incentive plans for employees.
UOB would like to maintain a common equity tier one (CET1) ratio of 14%. The capital return package is estimated to optimise UOB Group’s CET1 ratio by 1 percentage point based on its capital position as of Dec 31, 2024.
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“UOB’s $3 billion capital return plan via special dividends and buybacks announced in 4Q2024 earnings is prudent and optimises its capital structure. The move may optimise the group’s common equity tier 1 ratio by about 1 percentage point based on 4Q2024 position, and leaving a $600 million surplus capital above its 14% CET1 operating range post,” notes Rena Kwok, credit analyst at Bloomberg Intelligence.
Outgoing group CFO Lee Wai Fai added that the bank is comfortable with a CET1 ratio of 14%. “We are confident Asean will grow, and there will be 8% risk-weighted asset growth,” he says during a results briefing on Feb 19. “We are confident that this capital strategy will support earnings growth and the growth of the franchise in the region.”
Tackling regional challenges
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While UOB’s headline net profit growth for the fourth quarter was ahead of expectations, the bank had to overcome some challenges in the first half of the year with the Citi integration, particularly in Thailand.
For the regional business, UOB had higher credit costs in Thailand in the first half of last year due to the integration of Citi Thailand. A stronger second half wasn’t sufficient to offset the weakness in the first half. Thailand’s profit before tax doubled to $36 million half-on-half, but full-year profit before tax could not match FY2023’s $164 million. The doubling of PBT in the second half was led by double-digit growth in cards and wealth management fees, partly offset by higher credit allowance.
Malaysia’s PBT rose by 15% y-o-y in FY2024 to a new high of $706 million, which the bank said was supported by robust asset quality and franchise growth. The bank added that a record-high income of $1.5 billion was supported by wider net NIM and healthy client activities in trade, wealth, and treasury.
“Asean is moving towards closer cooperation with recent developments such as the Johor-Singapore Special Economic Zone (JS-SEZ), integrated cross-border retail payment system and the shared power grid. All these will help boost intra-Asean connectivity and growth,” Wee says in a prepared statement. Malaysia’s retail payment system, DuitNow, and Thailand’s PromptPay are integrated with Singapore’s PayNow.
Asean will ‘remain resilient’
“Our long-term investments in regional platforms and capabilities are paying off, and we expect continued revenue growth this year. Despite global uncertainties, we are confident that the Asean region will remain resilient, supported by higher domestic retail spending and a stronger influx of foreign direct investment,” Wee adds.
While fielding questions, Wee says he believes that serving retail customers in its regional markets is important to understand these markets better. “We’ve been in Malaysia for 73 years and Thailand for 25 years. Retail banking needs scale and volume. This is where the wholesale part fits in,” he says. Wholesale loans are “chunky” and a lot larger than retail loans and deposits, which are a lot more diversified.
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In 2011, to tap regional connectivity and the ensuing flow business, UOB set up its Foreign Direct Investment (FDI) Advisory unit. CEO Wee has referred to this unit as UOB’s secret weapon. “Look at our cross-border income. In 2024, it contributed to 26% of wholesale banking income. Transaction banking contributed more than 50% of wholesale banking income. We are trying to shift the shape of our wholesale business from just booking chunky loans to a more holistic service,” Wee says on Feb 19.
UOB has spent more than a decade building up its regional platform. “You need to address your infrastructure and technology. We’ve spent the last eight to 10 years building the flow business. We are building a more capital-efficient business. This is why we are confident with our capital return strategy and share buyback,” adds Wee.
Singapore is a hub for many overseas Asian and Asean MNCs managing their treasury operations. Geographically, UOB classifies its loans based on the location where transactions and assets are booked. “In our wholesale banking strategy, we have to understand the customers, the value chain and the supply chain. When we look at our sector solutions, we look at cross-border supply chains and cash management to understand where the cash flows are. We are very confident in the Singapore and Malaysia markets. And the supply chain gives us a lot of confidence,” CFO Lee says, referring to UOB’s supply chain solutions and its trade financing business.
He adds: “The supply chain will give us a view of its weaknesses and strengths. With our knowledge of the region, we can connect different parts of the ecosystem across different countries.”
Wealth growth and AI
UOB’s private banking and wealth management business is playing catch-up. Wealth AUM grew 8% y-o-y to $190 billion, with net new money growing by $12 billion in 2024 and averaging around $3 billion a quarter. This is smaller than DBS Group Holdings’ franchise, where its AUM grew 17% in 2024 to $426 billion, with net new money inflows of $21 billion.
UOB is also focused on boosting fee income from various sources, including wealth management. While wealth management is not capital-intensive, unlike loans, private banks typically face high cost-to-income ratios.
Wee says: “Our emphasis is to cross-sell rather than focusing on individuals. Our wholesale bank relationship managers cross-sell to business owners and wealthy individuals from the corporate customer base to our private banking and privileged reserve businesses. Because we have commercial banking licenses for all of Asean, we are able to penetrate this sector. We have more than 450 branches in the Asean region. Our private bank’s cost-to-income ratio is around 40% compared to other private banks, which is around 80%. It’s not just AUM that matters. At the end of the day, you’re looking at total income. We have a lot of revenue synergy between our wholesale and retail banking divisions, just as with the Citibank franchise, where we acquired 8.5 million customers. We cross-sell other services and products to these customers.”
While there has been a great deal of buzz and billions of dollars spent in developing various forms of AI, its role in commercial banking is less clear.
When asked if any form of AI helps with banks’ credit scoring and credit assessments, CFO Lee says: “If there is a silver bullet, we would have found it by now. AI can help with market information. The bank has set up a team to study AI and credit scores.” He adds that sometimes, the drop in valuation takes place suddenly. “We have learned to be faster in our turnaround time.”
A prime example is US commercial real estate. In 2022 and 2023, the Federal Reserve’s (Fed) rapid rate hikes surprised landlords. Transactions stalled, creating difficulties for valuers. When the market briefly reopened, office building valuations dropped sharply.
Uncertainty over interest rates
A challenge banks and corporates are likely to face this year is parsing the US president. Lee says UOB’s in-house view is for one rate cut by the Fed this year, down from two that were anticipated for 2025 in 4Q2025.
How does the uncertainty around the direction of interest rates, Fed action and US President Donald Trump’s policies affect how banks manage their securities book? “We’ve started lengthening the duration of US long-term rates to 5%. Trump’s objective is to drive down rates,” Lee says. Analysts and strategists believe that Trump’s policies could actually drive up US treasury yields. If the policies drive down rates, and the 30-year is nearing 5%, it would make financial sense to buy now and sell when rates fall, strategists note.
“We are also watching that to make sure that our [book valuation] versus the mark to market isn’t negative,” Lee says. In 2022, banks’ securities yields would have been at around 2%-3%. The Fed raised rates, causing treasury yields to rise and treasuries (bonds) to fall. This trend caused the valuation of banks’ securities portfolios to fall.
Analysts remain upbeat about UOB, in part because of the bank’s proactive capital management strategy. On Feb 19, the six analysts who updated their recommendations following UOB’s 2024 results retained their buy and/or overweight ratings, notes Bloomberg.
Based on Bloomberg’s poll, analysts are forecasting a net profit of $6.33 billion this year, up 4.7% y-o-y. For 1QFY2025, the forecast is for a net profit of $1.55 billion, unchanged y-o-y.
