Broker: UOB Kay Hian
Date of Report: 8 August 2025

UOB Posts Resilient 2Q25 Results: Strengthening Deposit Franchise and Strategic Capital Distribution

Company Overview: United Overseas Bank (UOB)

Founded in 1935, United Overseas Bank (UOB) is a leading regional bank with a strong presence across Singapore, Malaysia, Indonesia, Thailand, Vietnam, Hong Kong, and Mainland China. In Singapore, UOB stands out as a market leader in credit and debit cards, as well as in SME lending.

• Share Price: S\$35.81
• Market Cap: S\$59.5 billion (US\$46.3 billion)
• Shares Issued: 1,660.2 million
• Net Asset Value per Share: S\$28.62
• CET-1 Capital Adequacy Ratio: 15.1%
• Major Shareholders: Wee Family (12.7%), Wah Hin & Co (5.2%)
• 52-Week High/Low: S\$39.20 / S\$29.00

2Q25 Results: Key Takeaways

UOB reported a net profit of S\$1,338 million for the second quarter of 2025, representing a 6% year-on-year decline, slightly below the consensus estimate of S\$1,475 million. The dip was primarily attributed to a 3% decrease in net interest income and higher provisions of S\$274 million. Non-performing loan (NPL) formation was elevated at S\$472 million, highlighting some pressure in asset quality.

• Net Interest Income: S\$2,336 million (-2.7% yoy, -3.0% qoq)
• Net Profit: S\$1,339 million (-6.0% yoy, -10.1% qoq)
• Net Interest Margin (NIM): 1.91% (down 14bps yoy, down 9bps qoq)
• Loan Growth: 4.7% yoy, driven by wholesale banking and residential mortgages
• Deposit Growth: 4.1% yoy
• Cost-to-Income Ratio: 44.3% (2Q24: 44.1%)
• Return on Equity (ROE): 11.7% (2Q24: 13.0%)
• NPL Ratio: 1.6% (stable yoy and qoq)
• Credit Costs: 32 bps (above full-year guidance of 25-30 bps)
• Loan Loss Coverage: 88% (down 10ppt yoy, down 2ppt qoq)
• CET-1 Capital Adequacy Ratio: 15.3% (up 1.9ppt yoy, down 0.2ppt qoq)

Detailed Segment Analysis

Loan and Deposit Trends

UOB saw a 4% year-on-year increase in loans, largely driven by robust activity in Singapore (+7.7% yoy) and across ASEAN markets (+8% yoy). Wholesale banking and residential mortgages were the main contributors. The deposit franchise strengthened, with the CASA (current account savings account) ratio improving 5 percentage points year-on-year to 56.5%. CASA balances surged 14% (retail: +18%, wholesale: +9%), while fixed deposits declined 7%, reflecting a strategic shift towards lower-cost funding.

Non-Interest Income Performance

Non-interest income improved, with fees up a modest 3% year-on-year to S\$636 million, mainly from wealth management (+9%) and credit cards (+4%). UOB maintained a cautious stance in wealth management to preserve capital amid ongoing market uncertainties, but net new money inflow was impressive at S\$3 billion for the quarter. Other non-interest income rose by 8% year-on-year.

Expense Management

Operating expenses remained tightly controlled and were flat year-on-year. Staff costs dropped by 2% year-on-year and 7% quarter-on-quarter, while IT-related expenses stayed stable. The cost-to-income ratio was essentially unchanged at 44.3%.

Asset Quality and Provisions

Asset quality showed signs of strain, with NPL formation elevated at S\$472 million. The increase was largely due to exposure to US commercial real estate (up S\$110 million yoy) and a rise in NPLs in Greater China (up S\$282 million yoy). However, the overall NPL ratio remained steady at 1.6% due to upgrades, recoveries, and write-offs totaling S\$430 million. Total provisions amounted to S\$274 million, translating to credit costs of 32bps, which is above UOB’s full-year guidance.

Capital and Dividend

UOB’s CET-1 capital adequacy remained robust at 15.1%. The bank declared an interim dividend of 85 Singapore cents per share and remains committed to its S\$3 billion capital distribution plan, which includes a special dividend and a share buyback program.

Financial Highlights Table

Management Guidance and Strategic Initiatives

2025 Guidance Reinstated

• Loan growth forecast at low single digits (2024: 5% yoy), primarily from trade loans and residential mortgages.
• Fee income targeted to increase by high single digits (2024: 10%), led by wealth management, credit cards, and trade finance.
• Operating expenses expected to remain flat.
• Total credit costs guided at 25-30 bps for 2025 (2024: 27 bps); general provisions to reach 80-90 bps of gross loans by 2026.

Stable NIM Outlook

Management expects the full-year 2025 NIM to be between 1.85% and 1.90%, assuming three rate cuts totaling 75bps in the second half of 2025. The reduction in rates for UOB’s flagship One Accounts and fixed deposits is expected to positively impact NIM from 3Q25 onwards.

Trade and Tariff Exposure

About 80% of UOB’s wholesale business relates to domestic and intra-regional trade. Trade loans represent 10% of total loans, with 20-30% of these related to companies exporting to the US. Direct exposure to US-bound corporate customers is relatively low (1.3% of total loans). While first-order tariff impacts are manageable, management remains vigilant regarding second-order effects such as a slowdown in business investment and domestic consumption.

Capital Distribution Plan and Share Buyback

• UOB is rolling out a S\$3 billion capital distribution plan, which includes a special dividend of 50 Singapore cents per share (S\$0.8 billion) split over two tranches in 2025 for its 90th anniversary.
• A new share buyback program of S\$2 billion is underway for 2025-2027, with S\$255 million in shares already bought back and cancelled, representing 13% of the target.

Fee Income and Provision Breakdown

Profit & Loss Snapshot for 2Q25

Conclusion: UOB’s Strategic Positioning for 2025 and Beyond

United Overseas Bank continues to demonstrate resilience with its strong regional presence, healthy capital ratios, and strategic approach to deposit franchise and capital distribution. While facing challenges from lower net interest income and increased provisions, the bank’s robust CASA growth, prudent expense management, and commitment to returning capital to shareholders position it well for the evolving macroeconomic environment in 2025 and beyond. Investors should monitor potential impacts from macroeconomic headwinds and trade policy changes, but UOB’s fundamentals remain solid and its management strategy forward-looking.