CEO’s Message on UOB Group 1st Quarter 2012 Results
Dear Investors
The UOB Group (the “Group”) recorded a net profit after tax of S$688 million for the first quarter ended 31 March 2012 (“1Q12”), representing a 23.3% improvement from the preceding quarter. This encouraging start to the year was achieved on the back of record net interest income, underpinned by a second consecutive quarterly rise in net interest margins, as well as the strongest fee income showing since the 2008 global financial crisis. Our disciplined approach to pursuing risk adjusted returns and cross selling initiatives across our franchise are delivering. We will continue to build on this success to drive profitability amidst an evolving banking landscape.
Operating income was up 10.2% to S$1,629 million in 1Q12 as we saw an all round improvement across our key revenue drivers. Net interest income grew 2.1% to reach a record quarterly high of S$998 million, backed by 2.6% loans growth and a 3 basis points rise in net interest margins to 1.98% with improved loan yields. The Group maintained strong traction in fee income, which increased 10.8% to S$362 million in 1Q12, as we captured more cross-selling opportunities in both wholesale and retail banking segments. Trading and Investment income also rebounded strongly as overall market conditions improved.
Regional profit before tax increased 25.9% to S$257 million in 1Q12 and we are confident of achieving 40% overseas profit contribution by 2015. Cost-to-income ratio improved 0.8% point to 41.5%, as we pursued productivity enhancements enabled by technology, such as streamlining workflows across our integrated regional platform and offshore backroom processes. By end-2013, we are confident of reaping more meaningful synergies from our integration efforts, translating into improved scale, operational efficiency, time to market and risk management
As we paced deposits growth, loans-to-deposits ratio (“LDR”) came in higher at 86.0%, a level we are comfortable with. There remains headroom for loans growth, especially in USD loans, which are seeing better pricing. During the quarter, USD loans grew 1.2% excluding currency effects, which coupled with USD deposits growing at a much faster pace of 9.3%, resulted in USD LDR easing further to 88.3%. We remain steadfast to our commitment to pursue profitable and quality assets growth, while maintaining a strong and diversified funding base. Liabilities management is key, especially in today’s volatile environment and with impending regulatory requirements. Our regional subsidiaries continued to maintain local currency LDR of 100% or less. Earlier this year, we further diversified our USD funding base and reduced interbank borrowings by successfully tapping the capital markets to raise USD750 million of senior debt funding. We will continue to leverage our strong credit ratings and extensive regional network to strengthen our funding base.
Our asset quality was stable with non-performing loan ratio unchanged at 1.4%, total loan charge-off at 30 basis points and impairment coverage higher at 130.6% as at 31 March 2012. We maintained our prudent approach of setting aside collective impairment, albeit at a slower rate, in line with the moderation in loans growth. Collective impairment to loans coverage remained high at 1.4%. Our holdings of European bank debt securities rose slightly to S$691 million mainly on higher valuations as market conditions improved, but ongoing efforts to pare down European debt exposure remain underway. The Group’s capital position was further strengthened by higher retained earnings, with core Tier 1, Tier 1 and Total CAR higher at 12.3%, 13.9% and 17.1% respectively, well above regulatory requirements.
While we are pleased with the good set of results, we will continue to stay vigilant, given the uncertain outlook. Asian economies growth prospects are moderating, as the West undergoes a slow and painful recovery process. At UOB, our priority is to preserve balance sheet strength, so we can continue to support our customers and have the flexibility to grow in times of uncertainty. We will continue to balance our ongoing efforts to enhance long-term shareholder returns and investing to stay ahead of the competition. Our regional pillars are already in place and we are in the final stages of execution to transform into a premier regional bank.
Wee Ee Cheong
Deputy Chairman & Chief Executive Officer
9 May 2012