Focusing on our fundamentals
UOB turned 80 against the backdrop of a challenging global macro-environment in 2015. Through various business cycles, we have grown with and stood by our customers. And we have done so over time by increasingly harnessing the strengths of our fundamentals. These are our Asian heritage and Southeast Asian roots; an established and integrated network; our deep pool of talent and experience; strong balance sheet; and robust risk management. Our fundamentals have enabled our progress over the past eight decades and they have also anchored us when the waters turn choppy.
The industry today is increasingly complex and volatile. We face an unpredictable environment with structural changes brought on by new technology, increasing connectivity and regulations. Times such as these present opportunities for long-term players, such as UOB, to draw upon its strengths.
UOB was founded on 1 October 1935 in the aftermath of the Great Depression. A team of seven businessmen led by Datuk Wee Kheng Chiang saw the need to help enterprise in Singapore grow amid the economic uncertainties. That entrepreneurial spirit and astute business acumen continue to shape our development and position us as a leading regional financial institution, as once again, we find ourselves on the cusp of great change in the banking industry.
Our journey has seen many key turning points as we developed our Asian franchise and presence globally. From our very first overseas branch opened in Hong Kong in 1965 to our latest investment in Myanmar, we carefully planned each move as an element of our blue-print to build our pan-regional network. Today, we have a well-established and extensive on-the-ground presence, customer franchise and distribution capabilities. With our measured and long-term approach, we are always thinking for the future and for sustainable growth.
Regulators and investors are increasingly taking into account the role banks play in the development of sustainable economies. As a leading financial institution, UOB is committed to promoting responsible financing in the region. We integrate environmental, social and governance factors in our risk and credit assessment processes.
For our customers and their businesses, we have invested time and resources to understand their needs and priorities. Given our deep presence in ASEAN, we are well placed to provide our customers insight into the region and nuances of local market conditions, helping them to capture the region’s potential. Our stability, expertise and strength provide the assurance needed, especially in volatile times.
We will continue to build on our strengths, guided by our time-tested values of honour, enterprise, unity and commitment, and a strong sense of accountability to our stakeholders. As we move beyond our 80th year, to each of you, we renew our commitment to achieving sustainable and stable growth that creates long-term value for all.
2015 Financial Performance
In 2015, we kept our earnings steady and our balance sheet strong despite the challenging and volatile environment.
Net earnings for 2015 stood at $3.21 billion, 1.2 per cent lower from a year ago as prior year results included a higher write-back of tax provisions.
Total income for 2015 grew 7.9 per cent to reach $8.05 billion, led by strong client franchise income and higher gains on sale of investment securities.
Net interest income grew 8.1 per cent to a new high of $4.93 billion, driven by improved net interest margin and an expanded loan base. Net interest margin increased 6 basis points to 1.77 per cent, benefiting from rising interbank and swap offer rates in Singapore.
Non-interest income rose 7.7 per cent to $3.12 billion. Fee income grew 7.7 per cent to $1.88 billion with credit card, fund management and wealth management activities registering steady growth. Trading and investment income rose 16.8 per cent to $954 million on higher contributions from sale of investment securities and continued growth in treasury customer income.
Total expenses increased 14.3 per cent to $3.60 billion on higher staff costs, revenue and IT-related expenses as the Group continued to invest in people and technology. The increase was also partly due to a one-off expenditure of $67 million incurred for the SG50 and UOB80 commemorative events and brand campaign. Our expense-to-income ratio was 44.7 per cent, or 43.4 per cent on a normalised basis.
We are sharpening our focus on productivity and stepping up efforts to improve efficiencies across our businesses and network, especially in this environment of moderating growth.
Maintaining a strong balance sheet remains our focus. As the credit cycle began to turn, the non-performing loan (NPL) ratio rose slightly to 1.4 per cent. While specific loan charge-off increased in tandem to 19 basis points, total loan charge-off was stable at 32 basis points. We monitor our portfolio closely and are confident of the resilience of our asset quality and adequacy of provisions. We are well cushioned against credit cost with our NPL reserve coverage of 130.5 per cent and strong general allowances at 1.4 per cent of loans.
Our funding position remained healthy, with our deposit base firmly supported by our regional branch network. The Group’s loans-to-deposits ratio (LDR) was stable at 84.7 per cent as at 31 December 2015. Our Singapore dollar and US dollar LDRs were similarly steady, at 91.7 per cent and 65.6 per cent respectively. To help us broaden and diversify our investor base including tapping the institutional secured funding market, we established our US$8 billion Global Covered Bond Programme. Our Liquidity Coverage Ratios in Singapore dollars and all-currency basis averaged at a respective 217 per cent and 142 per cent in the fourth quarter of 2015.
Our capital position is strong with Common Equity Tier 1 and Total Capital Adequacy Ratios at 13.0 per cent and 15.6 per cent as at 31 December 2015 respectively.
We maintained our position as one of the world’s top-rated banks with a rating of ‘Aa1’ by Moody’s and ‘AA-’ by both Standard & Poor’s and Fitch Ratings.
Building on Asian connectivity
In 2015, we continued to support our customers with the right balance of prudence and enterprise, harnessing the strengths of our Southeast Asian footprint and customer franchise. Despite the slowdown in Asian economies, we continue to witness the rise of Asian connectivity, led by globalisation and technological advancement. This, along with the structural trends of rising intra-regional trade and investment flows and the vast consumer market of Asia, presents growth opportunities for our customers. And we are well positioned to support them.
UOB’s advantage is in our established and integrated Southeast Asian network and our deep in-country knowledge. With the rising demand for the services we provide, we increased our support of Asian enterprises and financial institutions expanding along three key trade and investment corridors – between ASEAN and Greater China, within ASEAN, and within Greater China. We signed several trade agreements with government agencies in China, Indonesia, Thailand and Vietnam to facilitate the expansion and investment interests of our customers. We believe our clients will benefit further when the impact of cross-border programmes of the ASEAN Economic Community, China’s One Belt One Road initiative and the Trans-Pacific Partnership is progressively felt.
We also deepened our coverage of Indonesia, the Pearl River Delta region and the Yangtze River Economic Belt. New branches were opened in Yangon, Hong Kong and Suzhou.
We strengthened our client franchise by establishing dedicated teams for financial institution and financial sponsor clients. We deepened our product and advisory capabilities to provide comprehensive solutions for our clients’ increasingly sophisticated needs. For instance, our enhanced cash management and trade finance services across ASEAN and Greater China helped our clients improve their operating efficiencies, manage cash flows and better their returns on operating funds. Our hedging solutions helped businesses manage currency volatility. Overall, our efforts in building capabilities allowed us to deepen relationships with our clients and to attract new ones.
Enhancing our customers’ experience
In Retail Banking, we are sharpening our focus on three areas: helping our customers save and invest wisely to prepare for life’s milestones, providing payment options that match their lifestyles and harnessing digital technology to create a simple and consistent banking experience for them.
We design our products and services around the family, business and lifestyle needs of our customers. An example of this is how we helped our customers fight the pressures of declining returns in a low interest rate environment with solutions such as the UOB ONE account and UOB Income Builder. On wealth management, we expanded our customer base and assets under management as we strengthened our product suite and advisory processes.
We are creating a more distinctive and consistent experience for our customers, enabled by digital technology. This is wrapped with the human touch. We were the first financial institution outside the US to enable our customers to turn their Android smart-phones into electronic wallets and to make contactless payments with tokenised security worldwide through a single application - the UOB Mighty. The app enables our customers to bank, to dine and to pay on the go.
We will continue to ride on innovation and technology to enhance our customers’ experience with us at every touch point. At a broader level, we are helping to accelerate the growth of FinTech startups and innovators in the region. The FinLab, for instance, is an innovation hub bringing together UOB employees and Asia’s brightest startups. We are nurturing minds to create solutions in areas such as payments, wealth management, mobile banking and small- and medium-sized enterprise banking.
Our joint venture with Temasek Holdings – InnoVen Capital – provides venture debt financing to startups operating in high-tech sectors across Asia. We are helping to transform emerging technologies into viable financial services of the future. In encouraging the growth of new entrepreneurs and startups in Asia, we are also enhancing UOB’s franchise in the small- and medium-sized enterprise segment.
Strengthening the social fabric
We believe that sustainable growth should also enrich the lives of people. This, as with helping businesses grow, takes time and effort. For example, we have helped nurture and promote artistic talent across the region for 40 years. In 2015, our flagship regional art programme, Painting of the Year, turned 34 years old. In our 80th year as a bank, we opened the UOB Southeast Asia Gallery at the National Gallery Singapore to bring the world’s largest collection of modern Southeast Asian art to all.
Developing minds and future leaders helps ensure the success of a community. To mark our 80th anniversary, we set up the Wee Cho Yaw Future Leaders Award to provide tertiary education for the less privileged students. As Singapore celebrated its golden jubilee of nationhood, we expressed our gratitude to the country’s aging pioneers with a special donation to help care for the elderly and those with disabilities.
At the heart of our success are our colleagues. We thanked them for their part in UOB’s growth with special UOB80 and SG50 gifts of cash and leave days.
In the near term, market turbulence reflects nervousness about China’s slowdown and depressed oil prices and their impact on the wider economy. We expect financial market volatility to continue this year.
Market sentiment aside, the situation now is different from the financial crises of 1998 and 2008. We are not facing the past issues of high corporate leverage, outsized unhedged currency exposure or a global liquidity crunch. Asian economic fundamentals and corporate balance sheets are generally stronger than before and are expected to withstand potential shocks. What we are experiencing is part of an economic down cycle, not a crisis.
We remain confident of the region’s growth potential. We believe that our disciplined approach of growth with stability and maintaining a strong balance sheet will ensure our resilience and enable us to support customers through cycles. UOB has withstood the challenges of time for the past eight decades. We will continue to invest and to build our business for the next 80 years.
Our extensive regional network, strong local knowledge, deep customer relationships and dedicated people give us a distinct advantage to capitalise on the opportunities before us. We are confident of realising the full potential of UOB as we create value for our stakeholders.
I would like to thank the Board directors for their guidance and our people for their unwavering commitment and dedication to safeguarding the interests of all our stakeholders. To our customers and investors, thank you for your trust and confidence in UOB. We look forward to your support in the years ahead.
Wee Ee Cheong
Deputy Chairman and Chief Executive Officer