Deputy Chairman and CEO’s Report

Stability and Steady Progress Amid Volatility

In a period of uncertainty and upheaval, UOB has remained as sure-footed as the elephants on the cover of this year’s Annual Report. Despite the waves of uncertainty caused by volatile commodity markets, slowing global economic growth and the changing geopolitical landscape, we have stayed resilient with our strong balance sheet and steady financial results. We have always believed in balancing growth with stability, creating value for our stakeholders and being able to support our customers through economic cycles.

2016 Financial Performance

Against a slowing economic environment, we achieved net profit after tax of $3.10 billion in 2016, 3.5 per cent lower than a year ago. Our core businesses delivered stable results with total income of $8.06 billion, driven by loan and fee income.

Net interest income was up 1.3 per cent in 2016 to $4.99 billion, led by healthy loan growth in the consumer and non-bank financial institution segments. Gross loans rose 8.8 per cent to reach $226 billion as at the end of the year. Net interest margin decreased 6 basis points to 1.71 per cent.

Non-interest income declined 1.6 per cent to $3.07 billion. Fee and commission income grew by 2.5 per cent to $1.93 billion, driven by higher credit card and fund management fees. Trading and investment income fell 8.1 per cent to $877 million due to lower gains from the sale of investment securities, partially offset by higher trading income.

Total operating expenses rose 2.8 per cent to $3.70 billion from a year ago. We were disciplined in managing total headcount as we continued to invest in technology and infrastructure to sharpen our capabilities. Our expense-to-income ratio for the year was 45.9 per cent.

Apart from some ongoing issues in the shipping industry, and oil and gas segment, the asset quality of our broader portfolio was stable. Our non-performing loans (NPL) ratio rose marginally from 1.4 per cent a year ago to 1.5 per cent as at 31 December 2016. Total credit cost was maintained at 32 basis points as we released some general allowance to offset an increase in specific allowance last year, in line with our approach to loan provisioning where we build reserves during periods when specific allowance is low. NPL coverage and the ratio of general allowance to gross loans remained strong at 118.0 per cent and 1.2 per cent respectively.

We maintained our strong funding position. Customer deposits grew 6.1 per cent to $255 billion. The Group’s loan-to-deposit ratio remained healthy at 86.8 per cent.

During the year, we tapped alternative sources to diversify our funding mix and to optimise overall funding costs such as through the issuance of $3.9 billion in debt and capital securities. These included the €500 million five-year covered bonds and US$700 million Tier 2 subordinated notes in March, $750 million Additional Tier 1 perpetual capital securities in May, and US$600 million Tier 2 subordinated notes in September. All four issuances were well-received by investors, largely due to the strong confidence they have in UOB’s credit standing.

The average Singapore dollar and all-currency liquidity coverage ratios during the fourth quarter were 275 per cent and 162 per cent respectively, well above the corresponding regulatory requirements of 100 per cent and 70 per cent.

Our capital position remained healthy. As at 31 December 2016, the Group’s Common Equity Tier 1 and Total Capital Adequacy Ratios (CAR) remained strong at 13.0 per cent and 16.2 per cent respectively. On a fully-loaded basis, the Common Equity Tier 1 CAR stood at 12.1 per cent. The Group’s leverage ratio was 7.4 per cent, well above Basel’s minimum requirement of 3 per cent.

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 Our Strengths

In 2016, we continued to build on our strengths in connecting businesses with opportunities domestically and across the region, in harnessing technology to make banking more convenient and in providing the right solutions for our customers.

Connecting Businesses to Regional Opportunities

Our integrated regional network provides a strong foundation on which we can serve our customers across countries seamlessly. We have continued to enhance our cross-border capabilities in line with our customers’ needs for increasing regional connectivity.

Multilateral efforts such as the Belt and Road initiative and the Association of Southeast Asian Nations (ASEAN) Economic Community reinforce how important cross-border trade, investment and integration are as growth drivers in Asia.

In 2016, we continued to support our customers with their overseas expansion plans via our integrated network and effective in-market and cross-border solutions. As a direct result of the value we offer our customers, our cross-border activities grew faster than our onshore business, with income accounting for 21 per cent of our Wholesale Banking income.

In 2016, our Foreign Direct Investment (FDI) Advisory Unit, a one-stop shop dedicated to helping our customers access inter- and intra-regional opportunities, broadened its reach to help companies from Japan and Europe expand into Southeast Asia. As part of building our ecosystem of strategic alliances with local regulatory and industry bodies, we signed three more agreements in Chongqing, China and a Memorandum of Understanding with IE Singapore to facilitate our customers’ meeting their regionalisation, trade and investment objectives.

These arrangements are in addition to our agreements with the Economic Development Board of Singapore and the China Council for the Promotion of International Trade. As the only Singapore bank to have signed strategic alliances with the main trade bodies in Singapore and China, we are best-placed to connect our customers comprehensively with opportunities in the region.

We will continue to deepen our relationships with clients through sectoral focus and industry specialisation. The past year saw strong growth in the corporate and institutional client businesses, as we strengthened our product capabilities in the areas of cash management, interest rate and currency derivatives, investment solutions, trade finance and specialised finance structures. Transaction banking remains one of our stable income generators, supporting our liability management, which is a key priority as we seek to optimise our funding costs.

We recognise the important role that small- and medium-sized enterprises (SMEs) play as the bedrock of development in most economies. To help them achieve sustainable business growth through productivity enhancement, we worked with technology partners to develop financial technology (FinTech) solutions. One such example is Singapore’s first cloud-based integrated solution, BizSmart, which is linked to a business’ UOB account and helps them improve management of their back office processes such as payroll, accounting, inventory and resourcing. For the property management and education sectors, where the manual collection of monthly fees can be a laborious task, we introduced a convenient mobile payment function on the hiLife and snaapp apps.

Through the ecosystem we are building, we are helping Asia’s promising startups thrive. Critical to their growth is having the funding they need to develop further. As part of our plan to provide non-traditional forms of funding to startups, we strengthened our strategic alliances with alternative financing providers such as OurCrowd and our joint venture with Temasek, InnoVen Capital.

We constantly seek new avenues through which we can collaborate with FinTech startups. The FinLab, our joint venture with SGInnovate, is one example. The FinLab is a FinTech accelerator that supports FinTech startups in going to market with solutions in areas ranging from wealth management to SME support. These initiatives supplement our efforts to help businesses through every stage of their growth.

Connecting with Consumers’ Lifestyles

Likewise, we continue to anticipate and to serve the needs of our customers through the different stages of their lives. Young consumers or millennials, a force of growth in Asia with their spending power and entrepreneurial mindset, were of particular focus for us in 2016. As more of these millennials join the workforce and start families, they require savings and investment products in keeping with their lifestyle needs. In 2016, we developed a full suite of these solutions to help them right from the very first steps in their careers. The UOB YOLO card which we designed specifically for the millennials’ lifestyle has been launched in Singapore, Malaysia and Thailand. For parents with young children, we launched the UOB KidSmart programme.

We recognise in particular, that young, digital natives expect their banking and payment experiences to be highly customised to their mobile-reliant lifestyles. Our UOB Mighty is an example of how we are fulfilling this need. It is Singapore’s only all-in-one mobile banking app that combines banking services, contactless payments, dining and rewards features.

Through UOB Mighty, our customers were the first in the world to enjoy instant digital credit card issuance in 2016. They were the first in Southeast Asia to be able to use our contactless ATMs with just a tap of their smartphones. They were also the first in Singapore to be able to turn their mobile phones into a digital security token. We plan to make the UOB Mighty app available to our customers in Malaysia and Thailand in 2017.

UOB’s long-term strategic investments in technology and innovation have provided a solid engine to propel our future successes in the digital world. Our FinTech partnerships and digital case studies were showcased to analysts and other stakeholders at our annual Corporate Day.

Connecting Our People with Growth Opportunities

In this increasingly tech-savvy world, we are developing enterprising minds and digital skills among our people to ensure they are well-prepared to address and to anticipate our customers’ changing needs. We have various initiatives to embed a culture of innovation among our people, including The FinLab accelerator programmes, regional hackathons and digital workgroups.

The UOB 2020 Ideas Contest, for instance, taps the creativity and expertise of our employees to conceptualise innovative solutions for the banking industry. In 2016, the contest drew more than 200 submissions from colleagues in Singapore, Indonesia, Malaysia and Thailand. Twenty-one teams were shortlisted for the inaugural UOB 2020 Regional Hackathon in Singapore, where they were guided on designing apps, building sound business models and delivering compelling pitches by senior managers and industry experts.

In addition, we have continued to strengthen the capabilities of our people to provide quality advice and solutions to our customers. For instance, in the area of wealth management, we have improved the depth and quality of advice we provide our Private Bank clients through strategic hires and specialised training for our investment advisers and relationship managers. In the area of Business Banking, we have been teaming up with tertiary education institutions across the region to develop specialised programmes to deepen the expertise of our business bankers.

While we attract people with aptitude for their specific roles, we focus on ensuring they also possess and demonstrate the right attitude – one that is based on our values of honour, enterprise, unity and commitment. At every stage in an employee’s career with us – from hiring and training to progression, rewards and recognition – we review and reinforce the strength with which the individual upholds the values of UOB.

Ultimately, we want our customers to experience a quality of service that is distinctively that of UOB – the spirit of a handshake, where they can always count on our word. We held our inaugural Customer Commitments Awards which recognise the role models from across the organisation who live up to our values and who meet our customer commitments: to treat our customers fairly, to provide them with the right solutions, to know them personally and to be there for them when it matters.

Connecting Communities Through Art, Children and Education

Our deep and strong presence across the region comes with other responsibilities beyond that to our customers. We are deeply committed to supporting communities through art, children and education which we believe are essential for the progress of a country, its economy and its people.

In 2016, we contributed to the community through sponsorships, donations and scholarships by the Bank, and funds raised by our employees and our customers. Our initiatives included our annual Heartbeat Run/Walk where we raised funds for beneficiaries across six markets to improve the lives of children including those with financial difficulties or special needs. Our people have volunteered more than 49,600 hours to support local community initiatives across Asia. We maintained our long-term commitment to championing Southeast Asian art and artists through our annual UOB Painting of the Year competition, which has run for more than three decades, as well as through our art partnerships and outreach programmes.

For more than eight decades, UOB has pursued a sustainable business as we have supported customers, employees, communities and economies.

2017 Outlook

Looking ahead, we can expect the ongoing volatility and a less predictable environment to persist. Focus will be on policy uncertainties in the US and China’s economic transition. The prospects of higher interest rates in the US in 2017 may be a positive driver for banks’ margins.

Despite the uncertainties, ASEAN’s fundamentals remain sound and the major trends driving growth – a vast and growing consumer market, rising intra-regional trade and continued investment flows – remain promising. We are confident of the region’s mid- to long-term growth prospects and its ability to weather external shocks.

The current environment presents unique opportunities for long-term players such as UOB. With our deep and strong connectivity across the region, we are well-placed to support customers in trade and investment across the region. We remain committed to investing in our capabilities, including digital initiatives and strategic partnerships, to anticipate and to meet our customers’ needs, for banking and other services across market cycles.

Like the herd of elephants on our annual report cover with their firmness of purpose and stability in unity, we will draw upon the combined and time-tested strengths of the UOB Group – our integrated network, deep customer insights and strong balance sheet – to face new challenges and to seize the opportunities ahead with purpose, vigour and determination.


I would like to thank the Board directors for their insight and guidance, and our people for their dedication in doing what is right for our Bank, our customers and our community. To our valued customers and our investors, thank you for your continued confidence in UOB.

Wee Ee Cheong

Deputy Chairman and Chief Executive Officer

February 2017