United Overseas Bank Ord

Welcome to our third quarter 25 results media briefing. Today we have with us our Deputy Chairman and Group CEO, Mr. Wee Cheong, and our Group CFO, Mr. Leong Yong Chee. As usual, Mr. Wee will begin by giving a broad overview of how our franchise has done and the operating landscape we are operating in. And Mr. Leong will then go into more details on the financials and business performance. After both presentations, we will be taking questions from the media. So I'd like to invite our CEO to get us going. Mr. Wee, please. Good morning.

Thank you again for joining us today. As all of you know, geopolitical developments are impacting business outlook, but we always see encouraging signs. ASEAN continues to attract investments. Amid evolving tariff changes, we continue to see healthy intra-regional trade flows. While a softening rate environment is putting pressure on asset use, we see healthy loan growth and fee income. Now, for the third quarter, we have reported a strong operating profit of $1.9 billion. And we are happy with our performance for the first nine months with healthy growth in loans, deposits, including CASA, Wealth AUM and Fees From this position of strength, we have proactively set aside additional pre-emptive general allowances. This substantially strengthens our provision coverage ratios, reinforcing resilience and flexibility to navigate headwinds and sustain long-term growth. And after building our coverage ratios, we retain a healthy capital position. By prioritizing balance sheet strength, we stand ready to act, support customers, and see strategic growth opportunities across the region. Now, for our shareholders, we remain committed to have 2 billion share buyback with almost one quarter of the programme completed as of September 2025. There is no change to our policy of 50% dividend payout and our 2025 final dividend will not, let me emphasise, will not be impacted by this pre-emptive General Allowance. Our core franchise performance remains sound with strong fundamentals and positive momentum quarter-on-quarter. If we look at the loan growth, it was robust. 2% quarter-on-quarter, 5% year-on-year. And they are very broad-based. Casa, this is something that we have been always emphasizing for both retail and wholesale banking, registered healthy growth. for the first nine months, up 19% year-on-year. Our wealth management AUM grew strongly during the quarter. Quarter-on-quarter AUM up $8 billion, or 4% new money. And the invested AUM portions continue its upward trend. In terms of P&L, Net interest income down 3% quarter-on-quarter. It was impacted by margin compression in a declining rate environment, but this was partially offset by healthy loan growth. Gross fee income saw robust crop-based growth across loan-related cards and wealth management businesses, up 8% quarter-on-quarter, 10% year-on-year. Customer related trade and investment income grew strongly. We maintain cost discipline, keep expenses flat while investing in growth initiative. On the asset quality front, MPA formation and specific allowances were higher this quarter due to a few accounts in the US and Greater China commercial real estate sector. We conducted a thorough review of our portfolio. As a proactive move to further strengthen our balance sheets, we took the opportunity to ramp up our provision buffers to cushion against any further headwinds. By setting aside general allowance of $0.6 billion and raising our GP to performance ratio to 1%, which is higher than the 0.9% objective that we articulated previously. With this, our total MPA coverage improved to 100% or 240%, including collateral. Now, following this exercise, we expect our total credit costs to normalize with asset quality risks contained, barring any unexpected global volatility. Our balance sheet remains strong with CET1 ratio of 14.6% and robust liquidity ratios. And we are very confident of delivering sustainable value for the long term. Looking ahead, while no market is spared from external shocks, we believe ASEAN offers strong structural growth opportunities and we are well positioned to capture them. We are staying focused on growing our franchise and supporting businesses through our connectivity strategy. We are deepening relationships with our expanded retail base through wealth and lifestyle offerings, investing in innovations to uplift productivity. We are confident of executing our strategy and achieving sustainable growth as we invest for the future. We are in a strong position moving into next year with the following guidance. Low single-digit loan growth, full-year NIM of 1.75% to 1.8%. High single- to double-digit fee growth driven by growth engine in wealth, cuts and trade. Low single-digit operating costs, Total credit costs of 25 to 30 basis points. Now, I will hand over to Yongqi to share more. Thank you.

Thank you, CEO. Good morning, everyone. I'll take you through the financials. I will have 17 slides to walk through. What I'll do is I'll spend a little bit more time on the summary slide and the highlights, and then I'll move a little bit faster through the rest of the slides.

On the first slide, we walk you through the highlights.

And as CEO mentioned earlier to you, the macro picture today still has certain pockets of economic uncertainties. The benchmark rates have come lower, asset yields continue to come under pressure. But despite that, our businesses have continued to deliver on the strategies that they have articulated. Whether be it in the balance sheet, assets and deposits, loans and deposits rather, if you look at the number of customers, our fee income, our trading income, our wealth AUM, our card fees, everything in those parameters have exhibited positive growth. From that position of strength, our operating profit has proved resilient by generating $1.9 billion. At the same time, our liquidity, capital and funding ratios have continued to stay strong and resilient. We have taken the opportunity in this backdrop to take the preemptive provision and bring our performing loans coverage to 1%.

Overall,

The NPL ratio remains flat at 1.6%. I've mentioned that the coverage ratio has increased to 100% and including collateral, that's 240%. As CEO mentioned, the final dividend payout will not be impacted by this preemptive general allowance that we have decided to set aside. Now, let me walk you through the third quarter's performance. On this page specifically, I've mentioned the $1.9 billion. We focus on the fourth column, operating profit of $1.9 billion. It's a drop of 3% quarter-on-quarter. It incidentally is also a 3% comparison year-on-year, and this is primarily driven because of the net interest margin, the interest rate environment. Our core fee drivers have continued to register resilient growth. Non-interest income has also risen 5%, backed by record high customer flows and treasury income. Expenses have remained stable. Allowance, I've mentioned earlier on. We will discuss more in terms of these allowances in a slide later on. I'll now bring you to the segmental performances. First, focusing on the retail business. Retail businesses' profit before cheques overall was stable at $1.5 billion. It exhibited strong growth in our CASA and wealth businesses, and income pressures were mitigated with strength in terms of our balance sheet growth in deposits and loans. If you notice, we mentioned earlier on that if you look at the CASA line, we've actually grown 19% year on year. In terms of our AUM growth, we have also taken it 8% up year on year with the invested portion from 37% of AUM a year ago. Now it's 41%.

Net new money flows at 5 billion for the quarter, and our card billings grew 8% year-on-year.

Asset quality remains strong, with credit costs significantly lower than last year in this portfolio. Operational credit, which we talked about in Thailand last year, has eased. Our next move to the wholesale banking portfolio. Likewise, it has demonstrated broad-based growth in terms of loans and deposits growing 6% and 4% respectively. And in the loans portfolio, our trade loans in particular grew 22%. Again, this cements the strategy that our wholesale banking team was focusing on. And if you look at the CASA as a proportion of our deposit business, deposits grew 4%. The CASA portion is now at 57%. Investment banking has maintained strong momentum with our fees reaching record levels. On a year-to-year basis, that has grown 29%. This diversified strategy has seen our income contribution from non-real estate sectors stay at 69%, with cross-border components of this contribution at 27%. Our regional footprint continues to deliver as we diversify our income streams. The allowances has increased. This is primarily due to collateral markdowns. For some non-systemic borrowers and preemptive provisions, we have decided to proactively set aside. Our next talk about our global markets business. It has grown 22% year on year. And for this particular quarter is our second highest performance on record. This was driven primarily from continued client demands for hedging and investment solutions. The non-customer part of the income has also benefited because of a favourable cost of funds environment, where our teams have managed to capture market opportunities across equities, foreign exchange and rates, contributing to the overall performance. Next, I'll talk briefly about net interest income and margins. In my summary slide, I did mention that the net interest income moderated 3% quarter on quarter. This was mitigated by asset growth. If you look at the bottom box, we grew assets from $479 to $494. on a quarterly basis, but on a nine-month basis, it was $473 to $491 billion. The net interest margin did compress during this quarter by about nine basis points compared to last quarter. So if you recall, we had 1.91 in terms of our Q2 NIMH, For Q3, it is 1.82. But what is important to note is the exit NIMS. So when we exited 2Q, it was 1.84. Our exit for this quarter is 1.82. So in terms of the steepness of the decline in NIMS resulting from rates movement, you would have seen that this has significantly slowed in terms of decline. We do expect further pressures because there are further expected rate cuts, one more, we believe, for this year and two more next year. But the downward trajectory, I think, has slowed significantly. In this quarter, that 25 basis points drop in asset repricing primarily came from Sing Dollar, which accounted for about 60 basis points. And from Hibor, there was a positive 14. But there is some delays in repricing the Hibor rebounds, which we expect to show up in the fourth quarter. We have proactively managed our funding costs and that has mitigated the drop in NIMH. So that accounted for that green box of 16 basis points.

I'll speak briefly around fee income next.

This slide shows gross fee income. So if you look at gross fee income across all spectrums, overall it grew 10%, but each of the components showed almost high single digits or low double digit growth over this period of time. These fee drivers demonstrate the resilient growth led by activities such as wealth, particularly in unit trust and structured products, on the back of improved market sentiment and consumer optimism. Card fees also sustained its growth momentum. However, on card fees on a net basis, we took a harmonization of our rewards scheme in Thailand post the Citi integration. This was taken in 3Q, effective 1st of October, which means that this normalization would be normalized into 4Q in 2026. A little bit more background on that. Gula, I noticed that you were raising eyebrows on that. So when we had the rewards program, when we integrated the Citi franchise, the rewards redemption ratios were at different levels. Citi's ratios were a little richer than ours. We brought that in line, although that still puts us competitively ahead of market in Thailand. So that rationalization was effective 1st of October.

The next page on expenses.

Period to period, our expenses have actually come off. But on the cost to income ratio, it has ticked up from 44.3 to 45.2, simply because income numbers have come down, not because expenses have gone up. We continue to keep very tight cost management while continuing to invest in talent, technology and innovation to drive our franchise expansion. meet regulatory requirements and provide services for our customers. The next page on non-performing assets. NPL ratio is unchanged at 1.6%. There was some new NPA formation this quarter I mentioned earlier to non-systemic accounts in selected markets. With the higher write-offs and recoveries, We have maintained proactive in reviewing and monitoring our credit portfolio for asset quality risks.

Next page.

The 0.6 billion that CEO mentioned earlier on, more specifically, it's $615 million. This is a preemptive general provision. We did so because in the midst of reviewing our portfolio with the macro economic uncertainties and some sector specific headwinds that we see, we wanted to build a stronger buffer for potential valuation adjustments going forward. We do so today because our capital, liquidity and funding ratios are in a position of strength. By doing this, we have brought our general provisions coverage from 0.8 to 1%. We brought our NPA coverage from 88 to 100% and from the unsecured NPA coverage numbers from 209 to 240%. The next page speaks briefly to the credit costs. The 32 basis points total credit costs from second quarter bumps up to 134 basis points because of the pre-agent allowances that we have put in place. We do expect with this buffer, our credit cost levels will normalize from the fourth quarter and into 2026. Next page, provisions coverage. I mentioned this briefly earlier on. The key numbers would be the general allowance on loans, 1%, the MPA coverage, 100%, unsecured MPA coverage, 240%. Next page on the loan momentum in our balance sheet. It grew 5% year-on-year, 2% quarter-on-quarter, This was quite broad based across geographies as well as industries. I mentioned early on in particular within our loans, our trade loans continued to show the fastest growth exhibiting 22% growth. Next page, a little information on our funding situation. So if you look at our LCR, our NSFR ratios, we look at our CASA to deposit ratios. These continue to demonstrate that our funding positions, liquidity positions remain healthy and comfortably above minimum regulatory requirements. Last but not least, some information on our capital position. At 14.6%, fully loaded at 14.5%, Our capital position remains strong. Questions around our share buyback, I think we've addressed earlier on. The $2 billion share buyback, we remain fully committed. As of September, we've executed 24% of that, and this is way ahead of the trajectory if you drew simply a straight line from now to 2027. Our payout ratio of 50% remains a commitment we make to shareholders And I will emphasize again that the dividend payout for 2025 will not be impacted by our decision to set aside this preemptive general allowance. With that, I conclude my presentation and we can take questions.

Thank you, CFO. We'll now take questions from media. Any questions? I don't know.

General Allowances, you mentioned there were sectors specific. Can you mention what some of these sectors are? And for the specific provisions, can you go a bit deeper into, I guess, the Greater China, United States, commercial real estate clients that you mentioned earlier?

NTA formation and SP charges arose specifically from US and Greater China . Now this actually of the total loan portfolio is a relatively small proportion, but we still see continued headwinds in these two markets. However, in the additional allowances also factors in something I mentioned to Gula before we started the call, which is by recognizing some of these recoveries that we are doing actually has accelerated some of the markdowns in the collaterals. Now, these flows can be chunky and it's very hard to predict in terms of a trajectory, but by building this GP position, it allows us more room to cope with any sort of

Asset Quality Gyrations and also we see a U-shaped carbon as I mentioned these are all secured by setting up a pre-emptive provision that will give us time and time to To recover and also from the customer standpoint, we also work along with the customer. As a commercial bank, I think our primary job is to make sure that we are in a position to protect the interests of the customer. That is important. Otherwise, it's very easy just to get rid of it. So the general provision will give us the strength. And also you look at the coverage is secure on the unsecured basis is 240%. So we have time while the earnings continue to be strong and robust. And we are not using that to penalize our shareholders too. So all this, the shareholders will still get the preemptive general allowance, the dividend.

In Hong Kong, we do see selective interest coming back, although it's not broad-based. So residential, for example, I think is fairly stable, but commercial real estate continues to be soft.

So you look at the IPO market in Hong Kong, it's gone three times, right? $25 billion. So there's still plenty of liquidity in the system. The question now is, at what point? So forget about the view. We just set aside first. I think Bloomberg has a great view.

You said that you expect credit costs to normalize after this. Does that mean you think the worst is over? Or could there be more provisions ahead based on your U-shape?

If I know everything, I will not be a banker. I'll go to a casino.

But at the end of the day, I think

If I have to take a calculator view, for the two markets we are operating in, I would say the worst is a U-shaped kind of thing. So we are dealing with cash flow, we are dealing with assets. So there's many factors to talk about when you talk about recovery. But what is more important is we manage our balance sheet first. So we can overcome if assuming we misjudge the situation. We are strong enough to take the headwind. That is important. This is why we are talking about preemptive.

Maybe if I could add to that, if you look at the Hong Kong context, the loan-to-value of our portfolio is at 44%. 44%. Yes, 44%. With this buffer, actually, we are bringing our credit costs back in line with our guidance of 25 to 30, not just for this year, but also for 2026. So Q4 and 2026 credit costs will be within the 25 to 30 basis points. Now, big caveat here is the global market, as much as we can see in 2026, this is what we expect. with the normal caveats of barring any big market unforeseen volatility. I think that remains.

Yeah, so also a follow-up question on the provision. Do you expect this to be something one-off or something that investors can expect in the future? Is there going to be another provision for this large sum?

It's one-off, yeah.

Sorry, just to change the subject a little bit. You said the highball rebound wasn't affected, didn't impact 3Q, meaning that it should be better? Yes.

The rebound actually happened around mid-August. So some of those effects may have come through, but we don't think all of that repricing has actually been reflected into our pre-Q numbers. There is a lag effect in terms of the repricing of the portfolio. It should support the NIM into 4Q25. Back to Bloomberg.

Just looking at the unique positioning here that UOB has because CVS and other Singapore banks haven't made similar provisions necessarily. What are you seeing in commercial real estate today that they're

I think the risk appetite as well as geographical focus of the three Singapore banks are different. I cannot comment on their areas of business. I think in the areas that we focused on, I think we have seen some optics in the CRE portfolio within our books. But these are assets that we have already identified and flagged earlier on. And these are not new exposures. So we have not actually put on new exposures in real estate in these markets. We have continued to grow our balance sheet in these markets, but not in these sectors. So I'll come back to the point again, which I mentioned to Kula earlier, which is some of these is because of recoveries that we are executing right now. When you do the recoveries, you end up marking the collaterals down. So this is the reason why you see an uptick.

The recoveries are with the CRE portfolio, so that those have to be marked down. And those recoveries Greater China Can I just ask a question about excess liquidity, whether you will deploy in HQLA? If you do, what currencies would they be? Singapore, SGS Singapore, government securities, or would it be, you know, Horus, US Treasuries, or somewhere else?

I think over the last couple of quarters with the pressures from them, I think we have seen that the logical thing to deploy some of the excess liquidity is actually to make sure you focus on a bit more of your NII as to as opposed to keep defending where the money would be. Those excess capital would naturally be deployed to NSFR friendly instruments.

Which are? It will be a combination. Combination of currencies.

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Sorry, I just wanted to clarify the $615 billion general allowance. Is this the largest single provision you've offered that you've set aside in one quarter?

We did have one, I think, in the COVID period, but I think it was a smaller amount, if I recall.

Yep. This buffer is largely for US and Canadian.

I think primarily we have, again, a general allowance is actually set aside for us to have that flexibility to deal with market volatility and challenges. So I think while there are pockets in other markets, The primary areas or focus actually would be in those two markets.

So, you know, there's this interest rate cycle in the US to which Hong Kong is related, even though HSBC has been founded. And the cost, the risk-free rate affects all these assets. So as the interest rate comes down and these assets rebound, would there be any, would you look at writing back or if this is what you've done? Yeah, of course. You would look at writing back?

Definitely. At the moment? Some of this could be a write-back, yes. This is why we say it's a preemptive.

This is not a total loss, right? Preemptive. And this was for the third quarter.

So this was based on before the latest interest rate cut. You use the valuations of before the interest rate. Yes.

Well, it was about a week and a half ago. You're talking about US rate cuts?

We are down to the floor, right?

US rate cuts, there was one cut about a week and a half ago, and there's another one we expect for 4Q, and two more that we expect for 2026. Yeah.

So, again, this is pre-emptive. If you anticipate, the rate is cutting. So, hopefully, in fact, most of our investors, they are buying equity now. They are more prone to buying equity because interest rate, everything is down, the bond is down. So, hopefully, all this will translate to greater estate worth.

Other questions?

There's a question on expenses. I think nine-month expenses are lower on tax and cost management. Can you explain what this tax and cost management means? Are you going to cut back on certain spending, like marketing or things like that? And then I guess also your outlook for hiring in the year ahead, are you expecting to maintain the same level of income just because of the margin compression as you mentioned earlier?

So the expenses that come off, it's a combination of various things that we are doing. I think you're right. We did really look at all the various expense buckets within the bank to see other excesses that we can further trim down. And some of it is also sales related expenses. So the fact that income comes down, sales comes down, you actually can trim some of the sales related expenses. Aside from that, I think your other question was in terms of headcount and so on. Our headcount posture remains stable. But what we have done is to actually focus on reinvesting some of the savings cost savings into productivity tools. So some of the investments have been in newer areas like Gen AI productivity tools that we are rolling out so that we can augment the productivity of our staff without actually tuning headcount from that perspective. There is also A couple of things you need to keep in mind. Technology obsolescence and compliance costs continue to weigh heavily on us. So these are areas that we cannot compromise. Technology obsolescence presents risk, not just to us, but our service to customers. Compliance, especially in the scheme of things now with heightened scams, frauds and so on, AML, KYC matters. I think these are areas that we absolutely cannot compromise. So what we have saved, we've actually reinvested. And although we marginally managed to brought the cost down, it still feels a little elevated in terms of a cost to income ratio perspective.

Just one question. In terms of overlays, you say you have about 1.5 billion, and this would add a little bit. This would add something to it. Now, one of your peers that has a lot of overlay has actually said that they could consider releasing some if the earnings become very volatile. But you're adding to it now. So I'm just trying to, in my own mind,

I think it's difficult to be clairvoyant about what we face in the year ahead. I think if you look at where we are in terms of trade policies, show political tensions and so on, the situation continues to have pockets where we can't see that clearly. Putting these in place allows us that flexibility to navigate. but doesn't mean that we will use it. And if we don't use it, it could be reversed. But putting that in place gives us confidence and also be in a posture where if our customers require us to support them in their growth areas, we are in a position to do so.

If any of the media online have questions, please use the raise hand function and we'll call on you. But we can continue with those in the room as well.

So in terms of the region, are there any credit costs anywhere in the region that you see coming up? Or is the region okay? Because they've all interest rates, right? Even Indonesia.

I would say quite stable. I would say Thailand, a bit of a headwind, but I think generally it's okay. In overall scheme of things. And if you can see the growth without the currency translate.

The constant currency.

So it's still growing.

And our exposures to the consumer markets in the region is more focused on our higher customer segments, whereas in Singapore is broader based.

So the consumer, the retail bank and the consumer banking, is that more stable versus, because all the issues are on the wholesale side, is that more stable than the corporate side? Is the retail banking more stable than the corporate banking?

Well, retail will be more a reflection of the overall economy, right? Because it cuts across the general population. Overseas Bank Ord Overseas Bank Ord Overseas Bank Ord Overseas Bank Ord Overseas Bank Ord Overseas Bank Ord Overseas Bank Ord Overseas Bank Ord Overseas Bank Ord Overseas Bank Ord

I'll give you a barometer. We are the largest card issuer for Visa and Mastercard in the region. The eight and a half million customers we have, if you look at the gross card billings, they grew 8% year on year. So in terms of customer spendings and confidence in that franchise, I think it shows, right? Now, there are obviously a spread. It's roughly half in Singapore, half in the region. But it gives you a good sense that this diversified customer base across the region provides a level of stability for our retail franchise. Wholesale is a lot more susceptible, I think, to asset pricing pressures. That, particularly in this environment, everyone is chasing higher quality companies. So there is intense competition in that space.

We have a question from Timothy from Straits Times who's online. Because his connection is bad, I'll just read out the question. Do the additional provisions cover SMEs or large corporations?

Across our portfolio. Okay. Any other questions?

Chile provision is a very positive and it's quite important. Because you are buying insurance, right? We as an organization, I think taking a long-term view, you don't just focus on P&L. It's very easy to focus on P&L, right? Today, if you forget about the pre-emptive provision, then the number looks everything okay. But we are taking a view. We're here to make sure that our balance sheet continues to be strong so that we are in a position. It's no different than during the COVID, we set aside $3 billion to help our customers. That will give the market confidence, okay? And then we give ourselves time to react, to recover.

So if you had not set aside the $615 million, what would your net profit figure have been?

Yeah, it would be close to a billion. Yeah, around a billion.

Around a billion. Yeah.

Some minor adjustments for techs and other things, but around a bit.

But that would have still been down to and quite a bit year on year.

That's right.

Just one more. Can you, I mean, any chance you can give us any specific names or characterize the borrowers? Are these, you know, developers, office building owners?

No, I don't think we are in a position to tell you exactly who. Then the next day I will receive a call, why?

But the SEC, I mean, it is commercial real estate. Yeah. It's commercial.

It's basically secured commercial real estate. That's what Yongqi said. Yeah. Outreach is quite low So We don't want to be in a position To force sales certain thing We want to In a position of strength So that together with our customer This is where you call franchise value Otherwise when you have a crisis situation The tendency is everyone to overreact Do you want to do that? You have a property I overreact I sell No We want to set aside. We want to be calm. We want to be measured. That to me is important. So you have to look at it from the overall standpoint rather than just focus on all. I want to have a P&L. I want to protect my profit. I will sell everything just to make sure. It's more than that.

Okay, if there's no other questions, thank you everyone. As usual, if you have any further questions later, do reach out to the communications team. Thank you and have a good day. Thanks everyone for your time.