United Overseas Bank Limited

Good morning, everyone, and welcome to UOB's first quarter 2022 results briefing. This morning, we have our CFO, Mr Lee Wai Fai, presenting the results. Our CEO, Mr Wee Chong, is recovering from COVID and apologizes for his absence today. A few house rules before we start. Please keep all your questions to after the presentations are done. During the Q&A session, please use the raise hand function to indicate that you would like to ask a question. You can find the icon at the top of the frame, third button from the left. Please also turn on your camera before asking your question. We encourage you to use your headphones or earphones so that we can hear you better. Finally, before we start, please put yourself on mute for now. Without further ado, I will now pass the time to our CFO. Mr Lee, please.

Thanks, Lily. Good morning. Firstly, our CEO, Mr Wee Chong, sent his apologies for not being able to join us today. He was looking forward to meeting all of you, but is recovering from COVID. Hence, he asked me to deliver his opening remarks on his behalf. Since we spoke the last time, inflation, rising interest rates, supply chain disruptions, and geopolitical tensions have all taken center stage. These events led to higher market volatility as concern rises over global growth outlook. across most of our key markets in Southeast Asia, we see green shoots of recovery as borders reopen, including in Singapore. However, in North Asia, the situation remains challenging. The unpredictable COVID-19 situation has triggered lockdowns and disrupted economic activities. We posted a lower net profit of $906 million mainly due to the impact of some structural hedges in our trading and investment line, of which we expect to offset with higher net interest income as rates increases. More important to note, our core business drivers remain strong. On a quarter-and-quarter basis, net interest income was higher, led by margin improvement and healthy loans growth, especially in the trade and term corporate loan side. Loan fees hit a new high, supported by strong demand in our lending and advisory business. Credit cards fees were seasonally lower, while wealth and fund management fees were impacted by weak market sentiments. Asset quality remains resilient, with NPL ratio stable at 1.6%, and specific allowances on loans improving 3 basis points to 19 basis points. Total credit costs, however, rose to 19%, mainly because of the lower general allowances due to write-backs last quarter. Our balance sheet remains strong, with healthy levels of capital and funding. As a Southeast Asia bank focusing on intra-regional flows, we are less directly impacted by the Russian-Ukraine conflict. Economies in our part of the world are recovering, consumption is picking up, and business activities resuming. We remain focused on supporting businesses to help them seize opportunities as border reopens. The trade and investment corridor between ASEAN and China Placed us in a unique position to serve customers' needs. The current disruptions to global supply chain will show up the importance of the role of our region. Our extensive regional network, deep local knowledge and sector expertise will serve our customers well. Our cross-border revenue grew 11% year-on-year. We have successfully rolled out our digital cash management system for corporate clients in the region across five markets. We have seen good traction. Adoption has been strong in these markets. User numbers grew 6% year-on-year and a 19% growth in corporate customers' CASA balances. Looking ahead, we see strong demand for loans with a robust pipeline, especially for working capital. On the retail front, we are on track with our Citibank integration and digital initiative. In Malaysia and Thailand, we have appointed senior management teams pending regulatory approvals. Working on integration is progressing steadily. Digital is at the core of our growth strategy and we are gaining traction. For EOB tomorrow, we expect to additionally acquire 500,000 customers this year compared to only 300,000 last year. Our OMI channel approach enables us to cross-sell to customers as their needs grow. On the whole, our additionally engaged customers contribute 66% to our retail revenue, up from the 52% in 2019. Our mortgage pipeline remains strong, with increasing loans drawdown as more projects get completed. More people are also actively refinancing. Travel-related credit card spending has picked up and we expect the momentum to accelerate in the coming months ahead. Our own great efforts and support for our customers to make positive impact are progressing well. Earlier this month, we issued our first externally assured sustainability report. Our sustainability financing portfolio reached $18 billion today, and total AUM in the ESG-focused investments grew to $13 billion. We are building decarbonisation sector pathways to support our clients' transition to a low-carbon economy. and we aim to announce our net zero plans by the end of this year. Looking ahead, our full year guidance is as follows. Mid to high single loans growth focusing on quality amid the uncertain market conditions. We expect higher margins from rising interest rate. We expect a high single digit fee growth. Cost will remain stable with stable Cost-to-income ratio at around 45%. Asset quality to stay resilient. NPL ratio may inch up as the various relief programs taper, but remaining below 2%. Credit costs to be manageable at around 20 to 25 basis points. We expect ROE to be back above 10% on interest rate increases and stronger earnings power. CET1 will be in the healthy range of 12.5 to 13.5. In summary, we remain optimistic of the recovery of our region and the longer term potential of Southeast Asia. With our strong balance sheet backed by healthy capital and liquidity positions, we are well positioned to navigate these uncertain times together with our customers and the community. We'll continue to invest for the future, to support trade and investments across borders, to help our customers transact and bank digitally, and reduce carbon footprint for ourselves and our customers. I thank my colleagues for their teamwork and dedication, and thank you all too for your support. Okay, now I will move on to the financials where I'll give you a bit more details. What a quarter. I think at the start of 2022, we were fairly optimistic towards the road to recovery. As the world learns to cope with the pandemic, soon after, emerging geopolitical tensions introduced new uncertainties to the market. Our net profit for the quarter was at $906 million, 11% lower than the previous quarter. The softer quarter-on-quarter performance was mainly due to lower trading and investment income, mainly from hedging-related impact, and lower write-back in general allowances. Excluding the market impact, our customer franchise showed steady growth. Net interest income rose as NIM was 2 basis points higher at 1.58%, and steady loans growth of 3%. Fees were largely flagged quarter-on-quarter, as record loans-related fees were offset by lower wealth and fund management fees, with customers being more cautious and the seasonally lower credit card spends. Customer-related Treasury income showed strong growth amid market volatility. However, this was more than offset. by impact of accounting asymmetry of hedging activities with unrealized mark-to-market losses showing up on our investment line. Customer loans growth grew steadily by 3% quarter-on-quarter and 9% year-on-year as we continue to support trade flows and find pockets of opportunities for strong credit term lending. Asset quality remained resilient with NPL ratios at 1.6%. Total credit costs on loans normalized to 19 basis points as the previous quarter had higher general allowances right back. Our capital and liquidity position remained healthy, with CT1 at 13.1% and NSFR at 113% respectively. Retail operating profit was lower year-on-year as wealth activity slowed down on the back of dampened market sentiment. This was partly cushioned by sustained CASA growth. I think just to recap, we actually had record fees in the first quarter last year as customers were a lot more bullish coming out of COVID. We are confident that with a more positive outlook, together with the city consumer portfolio fortifying our regional franchise, there will be opportunities ahead across products and market for growth in the retail space. wholesale saw double-digit growth led by strong demand for lending and advisory businesses, from trade flows financing to term funding opportunities with good credit customers. Global market, on the other hand, benefited from market volatility and achieved better trading and equity management results. Our wholesale banking business continued to deliver robust performance on the back of diverse growth engines. Cross-border income rose 11% and now accounts for 31% of our wholesale banking income. Loans-related fees grew 7% year-on-year to a record high this quarter. Our Global Financial Institution Group registered 25% income growth in banking global funds and financial sponsors. Across the region, we have witnessed rapid growth in transaction volume and cashless payment following the acceleration of digital adoption by our corporate customers. Across the region, we have digitally acquired 140,000 customers in the first quarter and we are well on track to acquire more than the 500,000 customers this year. Of these 140,000 acquired so far, more than 80% were new to UOB. Our investment into building strong ecosystem partners started to bear fruit, with 30% of our digitally acquired customers in Thailand and Indonesia being referred to by our partners. Such partnerships are instrumental to our retail franchise growth. For example, in Indonesia, we have secured five extensive strategic partnerships that we can leverage on to promote the use of our tomorrow pay. We managed to grow asset under management by 3% year-on-year to a new high of $140 billion. Our customers really appreciated our only channel services. I think in the 2021 franchise finance sector ranking of customer satisfaction index in Singapore, we actually came up top. Operating profit in Singapore and North Asia decreased due to lower trading and investment income amid market volatility. For the other ASEAN countries, operating profit improved as we have been more disciplined with spending while monitoring for new opportunities when economic recovery can be more sustained. Our regional franchise continues to be a key platform for customers to gain market access as they fund cross-border capital and trade flows. As a result, our overseas contributions stayed strong at 49%. Just to recap some of the key highlights for the quarter, our customer franchise remains strong with net interest income, stable fees, and expense well managed. Operating profit was lower mainly due to the accounting asymmetry impact of our hedges and market-driven volatility impacting our trading and investment income line. As my CEO earlier articulated from his speech, the impact on hedges will be more than offset by increasing net interest income in the coming months. Excluding this impact, total income actually grew 1% quarter-on-quarter and 4% year-on-year. I will go through some of the key drivers in my next few slides. As you heard, net interest income increased 1% led by healthy loans growth and a two basis point improvement in margin to 1.8% on the back of rising interest rate. So we expect this to continue to increase because most of our books are actually floating rate. So we will be beneficial to us when the short end start going up and we can reprice our assets more aggressively next few quarters. Total fees was largely flat at $502 million. Loans-related fees hit a new high, recording 14% growth quarter-on-quarter, as we see trade flows returning and structuring opportunities to support strong customer demands. On the other hand, wealth and fund management fees dipped as market sentiment was dampened alongside geopolitical tensions. Credit card fees were suddenly lower compared to last quarter, but above the same level same quarter last year. I think this sort of indicates the increasing customer confidence and we'll expect increasing customer spend as border reopens. I want to spend a little more time to explain the reason for the lower trading and investment income for the quarter. Our trading and investment income can be broadly classified into customer related activities such as helping customers to hedge their business risk and our own activities such as hedging, trading, and access funds deployment of our banking book. On the customer-related front, we are at record high, growing 18% quarter-on-quarter as demand for hedging activities rose when more customers wanted to hedge their own businesses' risk in this volatile market. Other investment incomes showed a sharp drop, mainly from the accounting asymmetry on hedges for our perpetual capital securities. These hedges, I think we did this earlier when rates were slower and when the outlook was more uncertain, was meant to match our funding profile to the asset book repricing. However, from the accounting perspective, there is a mismatch between the mark-to-market line on the hedges, which is showing up in this T&I line, and the accrual of the income showing up in the NII line in the assets. So you think about it, if we expect short-term interest rate to rise faster than the longer-term rates in the coming quarters, then our repriced assets will generate significantly higher net interest income than the mark-to-market losses, which is one time that occurred this quarter. So we have early guided that. we have estimated that for every 25 basis point rate increase, our net interest income will improve by $150 million on an annualized basis. For the quarter, like I said, the trading and liquidity management results from our global market actually did reasonably well. However, this will offset by some of these mark-to-market impacts from the hedges. So moving forward, as the market stabilizes over time, We expect some of these up-to-market losses and the credit that happened in this quarter to reverse in the coming future. Expenses, I think, well managed. Decreased 3% Q1Q in tandem with the lower income. And I think our CIRR stays steady at 44.8%. Asset quality of our loans portfolio also remain resilient. NPL formation reduced this quarter with NPL ratio stable at 1.6%. I think for the countries with extended relief program, we'll continue to monitor and assess the residual risk of this portfolio. We believe that the impact on credit costs of future NPAs will be manageable as the general allowances set aside remain adequate. Total credit costs at 19 basis points were in line with management expectation. The increase in allowances this quarter was mainly due to higher general allowances right back last quarter. We expect credit costs for the year to stay within the 20 to 25 basis point guidance range. The total allowances for our book were at $5 billion for this quarter, of which $3.4 billion was for general allowances. I think NPA coverage at 94%. or 216% after taking collateral into account and performance loans coverage at 0.9%, they all remain adequate. We are confident that our general allowance is sufficient to absorb anticipated credit loss from our portfolio. Loans growth momentum sustained well, increasing 3% both for the quarter and 9% year-on-year. I think this quarter-on-quarter growth was largely to fund trade flows as economic activities resume and pocket opportunities for strong institutional loans. While market continues to be very competitive in the lending space, we are very encouraged by these results as it shows that we are able to support our customer needs. our liquidity position remains healthy with the quarter's LCR at 129% and NSFR at 113% both well above regulatory requirement. Capital was deployed to mainly pursue loans growth opportunities. I think this led to the RWA growth of 3% for the quarter. We ended the quarter with CET1 at 13.1% with a solid balance sheet and adequate general allowances. We are comfortable with our current CET1 position. I think with that, I conclude my presentation and I'll pass it back to Colleen.

Thank you, Mr Lee. We will now move on to the Q&A. Please use the raise hand function if you wish to ask a question. Do turn on your camera before asking your question. Can we have the first question, please? Can we have Gula from The Edge? Hi, Gula. Can you turn on your camera?