Singapore’s UOB Sets the Stage for Growth with Strategic Capital Returns and Record Profits

In a decisive move to celebrate its 90th anniversary, United Overseas Bank (UOB) has unveiled a strategic capital return plan, aimed at enhancing shareholder value while maintaining robust financial stability. The bank announced a special dividend of 50 Singapore cents per share in two tranches throughout 2025, amounting to S$0.8 billion, alongside a S$2 billion share buyback program set to run over the next three years. This landmark initiative comes as UOB continues to exhibit resilience and growth, despite challenging economic conditions.

4Q24 Financial Triumph: Record Profits and Strategic Capital Management

UOB posted a net profit of S$1,523 million for the fourth quarter of 2024, representing a 9% year-on-year (yoy) increase, buoyed by a 2% yoy rise in net interest income and reduced costs following the integration of Citigroup’s consumer businesses. This result slightly surpassed consensus estimates of S$1,478 million, cementing UOB’s position as a leading financial powerhouse in the region.

The bank’s CET-1 Capital Adequacy Ratio (CAR) stood at a robust 15.4% as of December 2024, reflecting a 2 percentage point increase yoy after implementing the Final Basel III Reforms. This strong capital position supports UOB’s confidence in delivering sustainable returns to shareholders while strategically investing in growth opportunities.

UOB Group CEO Wee Ee Cheong emphasized the bank’s long-term growth vision:
“Our disciplined approach to pursuing growth with stability has served us well, and we are confident of enhancing shareholders’ value in the years to come.”

Strengthening Deposit Franchise Amid Market Volatility

Despite market challenges, UOB maintained a strong deposit base with the following highlights:

• Net Interest Margin (NIM) decreased by 5 basis points quarter-on-quarter (qoq) to 2.00% in 4Q24, impacted by the Fed’s rate cuts.
• Loans grew by 5% yoy, driven by:
  • ASEAN-4 markets (+7% yoy)
  • Trade loans surged by 20% in 2024
• Current Account Savings Account (CASA) balance increased by 17% yoy, with an improved CASA ratio of 54.6%.
• Net interest income rose by 2% yoy, reflecting UOB’s resilience in managing cost pressures.

Diversified Revenue Streams Bolster Growth

Fees and Commissions:

• Remained flat yoy but decreased by 10% qoq to S$567 million in 4Q24.
• Growth in:
  • Wealth management fees (+18% yoy)
  • Credit card fees (+8% yoy)
• Assets Under Management (AUM) grew by 8% to S$190 billion.

Treasury and Trading Income:

• Trading and investment income increased by 1% yoy to S$367 million in 4Q24.
• The exceptional trading returns seen in 3Q24 were not repeated.

Citi Integration Costs:

• Integration costs reduced to S$17 million (4Q23: S$94 million), demonstrating operational efficiency.
• Operating expenses increased by 6% yoy due to higher IT-related expenses and other costs.
• Cost-to-income ratio was 44.1% in 2024 (excluding one-off Citi integration: 42.5%).

Prudent Risk Management and Capital Adequacy

UOB maintained its asset quality and capital strength:

• Non-Performing Loans (NPLs) were S$514 million in 4Q24, influenced by:
  • US office properties exposure (two accounts)
  • Consumer/automotive sector in Mainland China (one account)
• NPL ratio remained stable at 1.5%, with specific provisions of S$439 million offset by writebacks of S$227 million.
• Total credit cost was 25 basis points in 4Q24.

Capital Adequacy:

• CET-1 CAR was 15.4%, representing a substantial 2 percentage point improvement yoy, ensuring financial stability and growth capacity.

Strategic Outlook: Digital Economy and Regional Expansion

Loan Growth and Digital Economy Initiatives:

• High single-digit loan growth expected in 2025 (2024: 5% yoy).
• Fee income projected to grow by double digits, driven by:
  • Wealth management
  • Credit cards
  • Trade finance
• Digital economy expansion and green renewable energy sectors are identified as key growth areas.

Regional and Revenue Diversification:

• Increasing ASEAN-4 income contribution to 30% by 2026 (2024: 26%).
• Maintaining at least 50% income contribution from Singapore.
• Boosting non-interest income to 37% of total income (2024: 33%).

Capital Return Strategy: Celebrating 90 Years of Success

In celebration of its 90th anniversary, UOB has unveiled an ambitious capital return strategy:

• Special dividend of 50 Singapore cents per share over two tranches in 2025, marking S$0.8 billion in payouts.
• New share buyback programme worth S$2 billion over 2025-2027.
• Commitment to CET-1 CAR slightly above 14% after returning S$3 billion to shareholders over the next three years.

UOB Group CFO Lee Wai Fai stated:
“On the back of this capital strength, we are confident to continue to deliver consistent and sustainable returns to our shareholders.”

Operational Efficiency and Investment Opportunities

• Cost-to-income ratio (CIR) expected to improve to 42% in 2025 as Citi integration costs decrease.
• Total credit costs anticipated at 25-30 basis points in 2025.
• Positive JAWS with income growth outpacing operating expenses.

Investment Considerations: A Winning Strategy

UOB’s strategic initiatives position it as a key player in the regional banking sector, with the following strengths:

• Strong capital position post Basel III reforms with a CET-1 CAR of 15.4%.
• Strategic regional expansion focusing on ASEAN-4 and digital economy.
• Robust dividend and share buyback strategies enhancing shareholder value.
• Diversified revenue streams and improved operational efficiencies supporting sustainable growth.

Conclusion: UOB’s Vision for the Future

United Overseas Bank’s strategic vision and robust financial performance underscore its leadership in the banking sector. With a S$3 billion capital return plan, strategic regional growth, and investment in digital transformation, UOB is well-positioned for continued growth and value creation.

The combination of special dividends, share buybacks, and strategic investments presents a compelling opportunity for investors, reinforcing UOB’s commitment to delivering long-term shareholder value.

As UOB continues to pioneer growth in the ASEAN region, it stands as a symbol of stability, growth, and value creation in an ever-evolving financial landscape.

Next techical Price target:$40

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