CEO’s Message on UOB Group
FY2016/4Q 2016 Results

Dear Investors,

The UOB Group (the "Group") reported net profit after tax of S$3.1 billion for the full year of 2016, 3.5% lower than in 2015. Our diverse fee and lending businesses supported a steady revenue stream, with total income stable at $8.1 billion in the face of the subdued growth environment.

Net interest income rose 1.3% to S$5.0 billion year-on-year as loans advanced 8.8%, with quality growth in the consumer and non-bank financial institution segments. Net interest margin narrowed 6 basis points to 1.71%, but was stable over the last two quarters as we deployed our liquid assets more efficiently. Non-interest income was almost flat at S$3.1 billion, as fee income growth of 2.5% to S$1.9 billion was offset by lower trading and investment income. The rise in our cost-to-income ("CIR") to 45.9% was within our expectation, as we continue to invest in technology and infrastructure to sharpen our capabilities.

Preserving balance sheet strength and being agile remain our priorities. Our broader loan portfolio was healthy, with non-performing loan (NPL) ratio rising marginally to 1.5% from 1.4% a year ago. The oil and gas and shipping industries were the key drivers of new NPLs and higher specific allowance. Total credit costs were kept at 32 basis points as we released some general allowance to offset the increase in specific allowance, in line with our loan provisioning approach of building reserves during periods when specific allowance was low. Our NPL coverage ratio stood at 118%, with our general allowance still high at 1.2% of gross loans. With our regular stress tests, we are confident of our overall portfolio health, with easing new NPL inflows and specific allowances going forward.

Our funding position stayed healthy, with the loans-to-deposits ratio at 86.8%, and Singapore dollar and all-currency liquidity coverage ratios for 4Q16 averaging 275% and 162% respectively. While staying predominantly deposit-funded, we continue to tap on alternative sources to diversify our funding mix and optimise overall funding costs.

Our capital position remained sound, with the fully-loaded Common Equity Tier 1 Capital Adequacy Ratio at 12.1% and leverage ratio at 7.4% as of 31 December 2016. The Board recommended a final one-tier tax-exempt dividend of 35 cents. The Scrip Dividend Scheme will be applied, giving shareholders the option of receiving dividends in the form of new ordinary shares of the bank at a 10% discount in lieu of cash. This brings our full year dividend to a total of 70 cents, amounting to a payout ratio of 37%.

Even as global uncertainty, slow growth and rapid digital transformation continue in 2017, Asia – with its ongoing integration and rising consumer affluence – presents opportunities for long-term players such as UOB. We will continue to draw upon our strengths and deep knowledge of the region, while staying committed to investing in our capabilities to meet our customers' needs and to deliver value to our shareholders.

Wee Ee Cheong
Deputy Chairman & Chief Executive Officer
17 February 2017