United Overseas Bank Limited

Good morning and welcome to UOB's full year 2022 results briefing. I'm Wendy Wan from Group Strategic Communications Team and I will be your MC for today. This morning, we have Mr Wee E Chong, UOB Deputy Chairman and CEO, and Mr Lee Wai Fai, our CFO, to present the results. A few house rules before we start. Please keep your questions till after the presentations are done. We would like to remind those in the room with us to put your mobile phones to silent. For those on Microsoft Teams, please put yourself on mute for now. Without further ado, I will now pass the time to our CEO. Mr. Wei, please.

Thank you. Now, good morning. Thank you for joining us. 2022 was a turbulent year. we saw rapid interest rate increases, stubbornly high inflation, and geopolitical tensions. This year, higher prices and interest rates are causing a drag on the global economy. But Asia will hold up well with moderate growth. Consumption is coming back. People are travelling again. and China is reopening. Trade and investment flows are ramping up. These are all positive for ASEAN, as can be seen from our performance across the markets. Our wide and deep regional footprint position us well to seize opportunities across our strategic pillars. Connectivity, Personalization and Sustainability 2022 was a milestone year for UOB. We took a bold move in the middle of the pandemic to acquire Citigroup's consumer businesses for markets in one go. I said before this deal is a strategic fit that came at the right time. a quality franchise that will accelerate our growth ambitions, a game changer that will scale our business and lift our market position. Indeed, it has proven to be timely, positioning us well as markets reopen. This acquisition was funded with capital buffers that we have set aside over the years patiently waiting for the right opportunities. Through this transformational deal, we generated higher risk-adjusted returns and closed the year with a strong balance sheet, healthy capital and liquidity positions. Last November, we completed our acquisitions in Malaysia and Thailand, adding more than $1.5 1 million customers to our retail base. We aim to close our acquisition in Indonesia and Vietnam this year. So far, the performance has surpassed our expectations. Business is resilient. We diversify earnings across products and countries while creating significant cross-selling opportunities. Financials and integration costs are on track. We expect 1 billion additional revenue in 2023. People-wise, the teams are integrating well. We now have about 7 million retail customers and we should cross 8 million by year-end. We are excited to serve the enlarged customer base with our expanded network and strengthen capabilities. Now, moving to our financials. Our last year core net profit rose 18% to a new high of $4.8 billion. If we include the one-off integration cost of the city acquisition, net profit was lower at $4.6 billion. The one-off is about $200 million, I think, is same duty, one-off, we have to pay for the transfer of assets. So this is the one-time cost that we have to pay. Our core business remains strong and we robust net interest income. Powered by loan growth and a strong margin expansion of 30 basis points. Fees were hampered by weak market sentiment, but credit card fees grew double digits. driven by a strong rebound in regional spending and travel. Asset quality was resilient with total credit costs and NPL ratio unchanged. Our balance sheet remains strong with robust CET1 and liquidity ratios positioned us well into future expansion opportunities. We are grateful to shareholders for their support in the past year. And we are pleased to announce that the Board has recommended the final dividend of $0.75 per ordinary share, bringing dividend payout to $1.35 per share, representing a payout ratio of around 49%. Now let me share some business highlights. On group retail, our balance Business model with diversified revenue drivers continue to drive good performance. As mentioned earlier, credit card fee did well, up 25%, with the recovery in regional spending and travel. City portfolio contributed to the increase last quarter. Wealth management AUM grew 11%. We saw net new money inflows. reflecting customer confidence and trust in us. The One Bank approach by our private well groups allowed us to take care of the holistic needs of our customers as we focus on an advisory-first approach. In January 2023, we saw strong pick-up in well management activity as market rebounded. We will push for deeper penetration of our customer base and drive greater contributions from the private wealth space. With our enhanced deposit offerings, we attracted eight times more new-to-bank customers over last year. It also positioned us well to engage these new customers on wealth management. On the mortgage business was stable. New mortgage sales averaged around S$1B a month. Our market share remained firm amid a slowdown in the market due to rising rates. Pipeline is strong and our credit quality is expected to stay healthy. In terms of customer acquisition through organic means, we acquired more than 800,000 new-to-bank retail customers last year, more than half of them digitally. With both our organic growth and city acquisitions, 70% of retail customer base is now digitally enabled. And this will allow us to serve customers more conveniently to various digital channels across the region. We will continue to enhance our all-in-one UOB Tomorrow app and other digital offerings to provide best-in-class services. This is an important strategy for us. On wholesale banking, it has performed well in 2022. We achieved higher margins from rising rates with more than offset the softer loan growth. We expect a stronger pickup in loans from the second half. We have been investing to become the number one cross-border trade bank in ASEAN, and it is showing results. Our cross-border income rose 12%, accounting for about one-third of our wholesale banking income. Transaction banking business expanded significantly, contributing 35%. to wholesale banking income. Our regional cash management platform UOB Infinity has helped our customers manage their businesses more efficiently. As a result, our wholesale banking average CASA balances grew 9%, with digital transactions surging 13%. With our regional footprint, Local expertise and sector-specific capabilities. We are well-placed to connect our customers to opportunities across ASEAN. Beyond cash and trade, we have also been investing in our global market business. Our treasury income, customer flow income grew 20% last year. Now on sustainability, We continue to work closely with our customers to assist them with their transition journeys in a just and orderly manner, balancing growth with responsibility. But this is more than just headline numbers. Creating meaningful value is part of our corporate purpose. That is why we launched the first Sustainability Impact Awards together with the Business Times. to celebrate companies and individuals who have made a positive impact on the environment and society. We hope to encourage more to join us on this journey. In the coming months, we expect rising rates to continue to support our net interest income and for asset quality to stay resilient. For this year, we expect mid-single Digit loan growth with a focus on high quality customer. Margin to stay high at around 2.2%. Fees to grow double digit as we come off from a low base led by cards and well management businesses. Cost to income ratio at 43% to 44% and training below 42% by 2024. Credit costs at 20 to 25 basis points. I thank my colleagues for their teamwork and dedication. Thank you too for your support. Now I move over to Wi-Fi to elaborate on our financial. Thank you.

Good morning. Good to see everybody here again. So let me go into the financial details. Our full-year core profit increased 18% to a record of $4.8 billion. As our CEO mentioned, we have just completed the acquisition of Citi's Malaysia and Thailand consumer business in November last year. Core profit exclude the one-off expense, as he explained. Including it, our net profit would be $4.6 and $1.2 billion for the quarter. This $201 million of one-off expense, like Yi Chong said, probably $180 million of it is to stamp duties. So it's a one-off cost that will not be recurring. It's something that we need to pay, and we pay for it, but the revenue part is only two months. So for the rest of it, I think it's mainly the TSA cost, the transitional support cost, plus some of the things that we are doing during integration. But this is well within what we have put in during our business case when we did acquisition. Back to our own core earnings. I think the strong core earnings was driven by NII, which registered another quarter of double-digit growth. Net interest margin expanded 27 basis points to 2.22%. While loans-related and wealthy states solved this quarter on the weak market sentiment, credit card fees surged this quarter, boosted by the higher consumer spending and partly the inclusion of the city portfolio. asset quality remained resilient with NPR ratios at 1.6%. Total credit loans, total credit costs on loans was stable at 20 basis points. We have actually increased the specific allowance on a few classified accounts this year, but we have cushioned that impact with the right back of some preemptive general allowances that we had set aside earlier. With the rising interest rate, we focus our effort to grow selectively. Hence, our loans book was flat for the quarter and a 5% growth year-on-year on a constant currency basis. Post-acquisition of City, Thailand and Malaysia remain well capitalized with a healthy CT1 of 13.3%. Our board has proposed a final dividend of $0.75 per share, a 25% increase over the interim of $0.60. I think following CEO's comment on Citi, let me share some more insights with you. Based on the two months, and actually by now, three over months, of managing the Citi portfolio, we are witnessing good traction in the performance that actually exceeded our expectations. I think NIM was boosted by the 10 basis point. Card fees went up 20% to record high. Operating costs was well under control at a reasonable level of the mid 40% range. Asset quality was well managed and within our expectation. Lee Cheong said, City will give us an immediate $1 billion incremental income uplift this year and strengthen our retail value proposition in the region. With the larger customer base, better product offerings, more cross-sell opportunities, and the opening up of the regional economies post-COVID. We actually expect to exceed our original target set for 2026. So if you look on the right-hand side, this is what we promised shareholders when we did the deal. I think at all indicators, we're likely going to exceed those targets that we set. We managed the capital concern arising from the acquisition to close the year with CT1 at 13.3%. I think this allows us to keep to our 50% payout ratio guidance without the need of a capital call. The acquisition has proven to be a well-timed investment that greatly complements our ASEAN strategy. We are confident of the ROE uplift that will bring us above our promised target. A few more observations. The inclusion of Safety Malaysia and Thailand added 1.3 million customers to our retail base. This brings our total customer base to 7 million. This is just the two countries itself. By year end, this year, when we include Indonesia and Vietnam, plus some of our own organic, this number, 7 million, will be way past the 8 million that Yixuan mentioned earlier. The number of common customers in Citi and the UOB base is actually slightly higher than my original estimate when I did the business case. However, the contribution from this group of common customers remains strong. Basically, this implies that both our UOB and Citi value proposition complements and resonates with this group. So we actually do not expect any revenue attrition. More than 80% of these customers from Citi are actually digitally engaged, owning either a mobile or an internet banking. So this has largely boosted our overall digital penetration rates. Citi customers was also active card spenders, with average card billings per customer at two times higher than the industry. We also acquired a strong wealth franchise that contributed 20% more to AUM in Malaysia and Thailand. We continue to see healthy customer AUM card billing growth across both the UOV and the XCT on the enlarged customer base. Those statistics actually are in fact accelerating in January, February as we talk. This indicates that our cross-sell efforts are actually gaining good traction. With the enlarged regional consumer banking franchise, the ASEAN 4 income contribution to the group has increased from 25% to close to 30%. On retail itself, with the scaled-up retail franchise, we now have collectively, like I said, close to 7 million retail customers, of which both the combined Citi and UOB, they are now 70% digitally engaged. Organically, like Yixiong said, we ourselves have grown 800,000 customers through the year, with 55% coming through our digital channels. We partner with like-minded ecosystem partners that supported our franchise growth. Today, we have 30 strategic and co-brand partnerships across multiple markets. And that's the important part because this acquisition allows me to look at co-branding into a multi-market approach rather than a single market approach. In addition to more than the 1,000 in-country partnerships. So with the acquisition of Citi, We will target further growth in this multi-market penetration because that's the beauty of our franchise. Leveraging our enlarged regional customer franchise to drive customer engagement and lifetime value. Net credit card fees, like Yixiong said, saw a robust 25% year-on-year growth. We expect credit card fees to remain elevated this year as regional spending continues to surplus pre-COVID level. and now we expected to even higher boosted by the China reopening. Despite weak market sentiments, our asset under management increased 11% from a year ago to $154 million. Net money inflows continue to outpace the valuation decline last year as customer gravitated to relatively safer asset class given the turbulent market. We expect wealth management fees to recover strongly in 2023 because of a lower base. Our OMI channel strategy continues to show good customer traction. I think statistically, these customers are highly engaged with three times higher average revenue generation compared to the traditional customers due to the multiple product holdings and more frequent transactions. On the wholesale side, They actually showed a good performance last year, despite a challenging fourth quarter. Looking ahead, we see cross-border opportunities as economies reopen and companies diversify their supply chain. We stand ready to capture these flows with our broad ASEAN franchise and strong product capabilities. Our aim, like Yicheng said, is to be the number one cross-border trade bank in ASEAN. Cross-border income grew 12%. and the number of suppliers and distributors, and that's important, within our financial supply chain actually rose 29% last year. Leveraging on our sector-specific insights and solutions, our global financial institution group rose 25%, while income from retail and hospitality sectors, these are more the traditional areas, actually rose 21%. Across the region, our cash management platform is driving higher digital adoption by our corporate customers with significant growth in transactions volumes and cashless payments. This is one of the key factors that helped me stabilize my CASA for wholesale and generating the stability of funding. On the business by segment, I think we have summarized this earlier. Retail operating profit benefited from the strong deposit growth and the higher margin. Of course, with the add-on of Citi Malaysia and Thailand, coupled with the stronger credit card activities, card fees rose to record level. Wholesale, like we said, did well and saw double-digit growth last year, led by margin expansion, as well as customer-related treasury income. Global market was impacted a lot by the steeper funding costs, which more than offset the higher yields from the securities. On the geography side, we continue to see very strong momentum in Singapore and ASEAN. I think Singapore showed strong growth from margin expansion. For Thailand itself, We saw the same momentum, actually margin in their search 99 basis point for the quarter, mainly because of safety. As you know that we took in a very big part of unsecured and that actually has very high margins. That actually helped our business. Malaysia showed a lower operating profit for the quarter, mainly because we were increasing our IT costs to support the new and large franchise. Malaysia is the first that will be going into what we call the operational day one next year. And it actually sets the base for me to look at the regional platform for the other three countries that come in later. I think at the group level, I have summarized the financial performance. I will leave this for your own reading. I'll go straight to some of the key drivers in the next few slides. First, margins. On the back of rising interest rate, net interest income registered another quarter of double-digit growth. NIM expanded by a strong 27 basis point to reach 2.22% for the fourth quarter. I think this was partly contributed by Citi. Just to be transparent, Citi added 8 basis points to this increase. We expect the sharp surge in NIM to ease in the coming quarter. I think We could debate where Fed funds will be, and we can take that offline. But we think that the cost of funding will slowly catch up. But we are confident, like Yichong said, to close next year at current level. Basically, what it means is that need might go up a bit in the first half before they moderate down, because we do not expect Fed to be cutting rates. The question is, where will it be top-ish? But we don't expect them to cut rate this year. On a full year basis, NIM grew 31% year-on-year, boosted by the NIM uplift as well as the 3% loans growth. On the fee side, though it's weaker, there are few bright spots. I think card fees hit record high, recording the 35% growth quarter-and-quarter and 25% year-on-year. We saw very strong card activities from consumer spending as travel surged across the region. So you can imagine that this only happened in the last quarter last year. The potential of that number for this year will be tremendous. The inclusion of cities retail business further boosted our cut fees to record level. On the other hand, wealth and fund management fees slowed as investors' sentiment remained cautious alongside the market volatility. Loans-related fees in the last two quarters moderated from some exceptionally high first-half performance, while wealth momentum remained soft. As explained previously, this decline in fees was more than compensated by our NII expansion. On the other part of the income, customer-related treasury income, like Yee Cheong said, rose to a new high with year-on-year growth of 20%. as customers seek hedging opportunities amid market volatility. So this basically shows the investment that we did when we look at what customer needs in market volatility. This is one area that we have the solution to help them hedge their risk. On the other hand, the non-customer trading investment income suffered a little bit from the volatile market valuations. Okay, this basically really would be my long-term portfolio. and part of the equity holdings that I have. On the expense side, the core expense excluding the one-off relating to the city acquisition grew 16% year-on-year as we continue to invest in our people and technology to build for the people. for the future. However, this was outpaced by the strong income growth and cost to income actually improved to 43.3% this year. And like Yichong guided, we will bring this down to maybe closer to 42% by next year. Overall asset quality of our loans portfolio remained resilient. NPF formation was higher this quarter from a few well-secured corporate accounts. This were well within management expectation and we have adequately set aside provisions for them. NPL ratios rose marginally to 1.6% with the inclusion of the city's impact loans. Total credit costs increased from 16 to 21 basis points this quarter, mainly from specific allowances as we revise the valuation of our security of the existing NPLs. to reflect the near-term volatility uncertainty. So we took our price down to reflect some of the illiquidity that we think that we will go through. So this actually strengthened my coverage. But this was cushioned by unwinding general allowances earlier provided for and total credit costs remain stable at 20 basis points for the year. The group total allowances was $5 billion, of which $3.2 billion was general allowances. MPA coverage was at 98% or 207% after taking collateral into account. And another ratio which we call performing loans coverage at 0.9%. I think these are all very healthy and adequate. So we are very confident that our general allowances will be sufficient to cushion any anticipated slowdown or credit loss from our portfolio. I think loans growth momentum sustained well, increasing by 5% year-on-year on constant currency basis. The inclusion of Citi franchise lifted the ASEAN book by 11% for the quarter, around $8 billion. I think customers actually have been more cautious in the last quarter in view of the rising interest rate. So some of them look at their projects and they think that with the rising interest rate, they might not be viable. Hence, many of them are actually not committing yet But we remain committed to support our customers in their pursuit of business needs and trading opportunities when needed. So, you know, businessmen, at some point, they will realize that the high interest rate is for real. So based on that, there will be viable product projects that we think, okay, will come back next year. With rising interest costs in the wholesale market, we maintain our focus on customer deposits as a major source of stable funding. Customer deposits grew steadily at 5% from a year ago. The increase was mainly in FD, in Singapore, in the retail space, of course. As you know, we started the FD campaign ahead of the industry, as this allowed us to capture the volume at lower rate despite some of the refinancing that happened. The average cost of outstanding FD in Singapore actually is significantly lower than the current rate should we go to the market. CASA was definitely affected. So actually we focus our strategy on strong CASA acquisition and also to look at how we can increase digitization to understand their needs. The 16% new to bank customers arising from our FD campaign. So this is not just losing money outflow. This is positive for us. Open a CASA account. I think we have since focused on strategic initiative to grow the right type of CASA through our one account value proposition, and some of you have written on it before, especially in November when we launched the revamp of our one account, salary credit, gyro, pay now transactions. I think we are quite hopeful that with this, we will stabilise some of the sharp drop in the CASA. And when they are, the FDs are due for refinancing, we are able to cross out into them like Yisheng said. Our liquidity position remains strong with the Quarters LCR at 147% and NSFR at 116%, both well above the minimum regulatory requirements. I think we ended the year with a healthy CT1 at 13.3%. We have mentioned previously that the city acquisition will bring our CET1 by 70 basis points. I think there are much worries that will this affect my dividend paying capacity, etc. So I think, think about it. We have already completed Malaysia and Thailand. These two are probably the biggest portfolio. Probably of that 70, I've already taken 50 to 60% to my book. So, and with the strong earnings and the efficient RWA management, so we managed to keep it above 13%, something which I thought that I can only do end of this year. We did it last year. So, and this was like I said, post the city acquisition, the two big markets. So I think we are really quite confident that we are able now to compete head on and look at our growth long-term strategy. I think in appreciation of the support from our shareholders, the board is recommending a final dividend of $0.75 per share in view of our strong earnings. I think this translates to a payout ratio of around 49%. I think with that, I conclude my presentation. I'll pass it back to Wendy.