CEO's Message on UOB Group FY09 Results

Dear Investors

2009 continues to be a challenging year for global banking industry. We took a cautious approach, focusing on preserving our balance sheet strength and asset quality. In spite of this, the UOB Group achieved a record operating profit of $3,331 million for the year ended 31 December 2009, an improvement of 4.1% over the same period last year.

The strong performance was driven by sustainable revenue streams which underscore the resilience and stability of our core franchise. Net interest income and non-interest income increased 2.7% and 3.4% respectively, despite the economic downturn. Net interest margin was also at a record high of 2.36%. Besides sustaining top-line growth, we effectively managed our expenditure to ensure cost efficiency. However, this was not at the expense of investments or rewarding our people. During the year, even as we increased staff costs, cost/income ratio improved to 38.4%. Provisions were higher as we continued to conservatively set aside collective impairments to cushion against potential shocks. Individual impairments are still working through, but we are already seeing improvements in the fourth quarter with charge off rate declining to 50 basis points. Non-performing loan ratio (NPL) increased from 2.0% as at end 2008 to 2.2% as at end 2009. However, we are seeing signs of asset quality stabilizing as NPL ratio declined against the previous quarter and from the peak of 2.4% during the year. Our portfolio remains sound and asset quality is well maintained. Overall, the Group reported a net profit after tax of $1,902 million for 2009, representing a marginal decline of 1.8% from the same period last year.

To better manage risks during the crisis, we sharpened our focus on our home market. As such, Singapore was a key driver of our performance last year. Operating profit grew 3.5% while customer loans expanded 3.4%. Our housing loan portfolio benefited from the buoyant property market. We captured more market share and remained a key leader in private residential loans segment. Through this downturn, we continued to support our customers and further strengthened our franchise among SMEs and corporates. We are also a leading player in the government assistance schemes. The general business sentiments are improving and we are well placed to deepen our domestic foothold in the SME and Corporate Banking space.

Overseas, operating profit grew, led by ASEAN operations in spite of our selective stance. In Malaysia, net interest income slowed amidst a competitive pricing environment, but operating profit rose with higher non-interest income and good cost control. UOB Malaysia made further inroads in the consumer market during the year and is now a leading player among foreign banks in housing loans, investment fund sales and bancassurance. In Thailand, we registered slower growth from local challenges. In the midst of the uncertainties, we remain prudent and continue to support our customers. In Indonesia, we performed well and recorded strong growth in operating and net profit line. We plan to leverage on the improving environment to grow SME and mortgage business, as well as quality large corporates. For China, we took a measured approach as local banks heightened their lending activities amid the global downturn. Going forward, as macro stability increases, we will target consumers as well as large foreign and local corporates.

During the year, we further strengthened our balance sheet position. Proactive steps to re-balance our portfolio have reduced the relative asset risk-weightings, reinforcing the strength of our portfolio today. Shareholders’ equity was boosted by the improvement in AFS reserves of more than $2 billion in 2009. Correspondingly, our core Tier 1, Tier 1 and Total CAR rose to 11.9%, 14% and 19% respectively. The Board has recommended a final dividend of 40 cents per share, which brings total dividend in 2009 to 60 cents per share, representing a payout of 48%. For the final dividend, the Board is proposing a Scrip Dividend Scheme to give shareholders the option of receiving dividends in the form of new ordinary shares of the bank in lieu of cash. The scheme is subject to obtaining the necessary approvals and details will be provided in due course.

Looking ahead, the macro environment is stabilizing but 2010 could be fairly volatile as de-leveraging process takes time to work through. Asia has stood out well and is fast normalizing. The region is well placed for the post crisis era, barring major shocks in the global space.

At UOB, we are mindful of ongoing challenges yet confident that we have what it takes to move ahead. We are confident of growth this year. With our strong capital and balance sheet, we have the strategic flexibility to seize opportunities and the capacity to withstand potential shocks. As a long-term player, we will continue to be disciplined, balancing growth and stability. And we will continue to build our franchise.

We have an established network of close to 500 branches to reach our target customers in this region. Our regional pillars are in place. The focus now is to harness this network potential by building an integrated platform for scalability and greater cross-border synergies. This will empower us to more effectively capture opportunities from rising customer affluence and intra-regional business flows, and to manage risks better. It is an ongoing process, but we are committed to this journey. We are confident that these efforts will bear fruit in the medium to long-term.

Wee Ee Cheong
Deputy Chairman & Chief Executive Officer
26 February 2010