United Overseas Bank Limited

Good morning, and welcome to UOB's first half 2023 results briefing. I'm Wendy Wan from the 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 of you on Microsoft Teams, please put yourself on mute for now. Without further ado, I will now pass the time to our CEO. Mr Wee, please.

Thank you. Good morning. Thank you for joining us today. The global growth outlook continues to be uncertain. external demand has been solved. Concerns about commercial real estate are also spreading from the US to other developed markets. But we expect Southeast Asia region to stay relatively resilient. Thanks to a more moderate rates environment, while pick up in tourism and demand for services will support growth. The region is also benefiting from supply chain diversification. Companies and individuals are diversifying their assets overseas, including to Singapore, applied to quality. I believe UOP is well-positioned capture some of these flows with our extensive regional footprint. Amid this backdrop, we continue to deliver a commendable set of results after a strong start to the year. Our core net profit for the first half year reached a record $3.1 billion. up 53% year on year. For the second quarter, all net profit rose 35% year on year to $1.5 billion. There are general market concerns on asset quality and we are keeping a close watch. There are no major concerns. We are comfortable with the exposure and credit quality of our commercial real estate portfolio. Most of it is in our home market, Singapore. Our portfolio in developed markets consists of mainly networked clients with strong sponsors. Our total credit costs were higher this quarter largely due to a specific exposure in Thailand. and we don't see any broader systemic concerns. Our guidance remains at 25 basis points for the rest of this year. Our overall loan portfolio remains sound with healthy provision buffers. We continue to operate from a position of strength with robust CET1 at 13.6% and liquidity ratios well above regulatory minimum. And with that, we are pleased to announce that the Board has recommended an interim dividend of $0.85 per share, representing a payout ratio of 49%. Now, let me touch on our core business segments. Our retail business benefited from diversified revenue drivers, enhanced scale and synergies. The city integration is progressing well. We are on track to achieve our annualized revenue uplift of around $1 billion from the four ASEAN markets. We completed the integration in Malaysia last week. Our Indonesia acquisition should close by end of this year. As for Vietnam and Thailand, we target to complete integration next year. We continue to grow our customer base in these markets. We now have more than 7 million retail customers across the region with the right profile. Now, in terms of card spend, we are two-time industry average. And we are doing much more to reach out to our regional customers. We recently launched a regional cards campaign and private bank brand refresh. Our strength in the region now put us in a sweet spot to garner more international collaboration to fulfil the aspiration of our customers. One example is the exclusive early bird access to the Taylor Swift concert in Singapore next year. The city portfolio and strong consumer spending has boosted credit card fees which jumped 51% year on year. Total retail deposits also grew strongly. year-on-year 20%. Wealth management fees were softer due to weaker market sentiments. But we saw $12 billion of net new money inflows year-to-date, bringing our total AUM to $165 billion. POV tomorrow is now in four markets, Thailand, Indonesia, Singapore and Malaysia. and we continue to enhance our UOB Tomorrow with digital offerings to uplift customer experience across the region. Of the more than 7 million retail customers in the region, more than three quarters access our service digitally. UOB Tomorrow is among the top-rated banking apps in Malaysia. positioned us well to serve the incoming city customers digitally. Our wholesale business performed well, with a solid set of results and positive loan growth, despite a challenging operating environment. While loans dipped year on year, we saw growth quarter on quarter. We remain disciplined in our underwriting, focusing on good quality credits. Our strength in connectivity put us in a good position. Cross-border income grew 17% year-on-year, now accounting for 23% of our wholesale banking income. Transaction banking income now accounts for more than half of total wholesale banking income. held up quarter on quarter despite higher interest rates. We are seeing good new client acquisition in supply chain verticals as we roll out our financial supply chain management platform to the regional countries. The microeconomic environment for the rest of the year could remain challenging. But our balance sheet remains strong to whether volatility and to seize the right opportunities as they come. Investing across our franchise remains a key priority so that we deliver stable and balanced growth to market cycles. Our guidance for this year, low to mid single digit loan growth. with a focus on high-quality customers. Margin to remain stable at current level. In fact, last night, as you heard the announcement, I think margin could potentially actually niche a bit higher. And we expect high single-digit fee growth. Discipline cost management. As we complete the city integration in the remaining market, we expect the one-time cost substantially roll off by end of the year. And credit costs at around 25 basis points for the rest of this year. And I thank my colleagues for their teamwork and dedication. Thank you for your support. Now, if I can take over to elaborate on our financials. Thank you.

Thank you, Lee Chong. Good morning, everyone. Nice to see you all so early. On the results itself, we recorded another strong quarter of core net profit at $1.5 billion, an ROE of 14.1%. Against the same quarter last year, core profit was 35% higher. Of course, if we included the one-off cost relating to the city integration, net profit would have been $1.4 billion. Net interest income increased this quarter, contributed by a longer day count. Net interest margin moderated by two basis points as excess liquidity was deployed to lower-yielding, high-quality assets. Fees income eased quarter-on-quarter as loans-related and wealth fees stayed soft on weak market sentiment. Trading and investment income registered another record quarter, backed by customer flows, as well as continued strong performance in trading and liquidity management activities. Cost-to-income ratio, excluding the one-off city, was unchanged at 40.9% from discipline spending. Asset quality stayed resilient with NPR ratio at 1.6%. While specific allowance increased due to the one major corporate account in Thailand that Yichong mentioned, we have also set aside more pre-emptive general allowance this quarter, resulting in total credit costs rising slightly to 30 basis points. our capital and liquidity position remain healthy with CT1 at 13.6% and NSFR at 121% respectively. For the businesses, year-on-year retail operating profits surge due to enlarged franchise with the inclusion of Citi. Deposits also grew along with the wider interest margins while credit cards and wealth management activities picked up from a year ago. Wholesale saw double-digit growth from last year, led by margin expansion and strong customer-related treasury income, while cushioned the softer lending activities this year. Global market captured trading opportunities amidst the market volatility and was impacted by the steeper cost of funding. Our retail customer base continues to expand post the city consolidation. Collectively, we have now about 7.3 million customers in the region, of which 78% are digitally enabled. I think we'll cross 8 billion by the end of the year when Indonesia gets integrated into our network. In the first half of the year, we saw a 47% increase of new-to-bank customers compared to the same period last year. And of this, 56% were acquired digitally, which points to the power of the Tomorrow franchise and the platform that we actually put in. We further grew our multi-market partnerships to cater for our customers' growing lifestyle needs. We now have 45 strategic and co-brand partnerships across multi-markets. I think the Taylor Swift show, which Yichang highlighted, this is one of the results of our strong regional customer base and the strategic partnerships. Net credit card fees displayed a solid 51% growth compared to the same period last year, with Citi contributing almost a quarter of this. We see sustained customer spending within the region. Our assets under management increased 19% from a year ago, mostly from the net new money inflows that Yishuang mentioned. We hope to deploy most of this or more of this into wealth management products in the coming quarters when market sentiments improve. Our only channel strategy continue to serve customers has proven to be highly effective. Only channel customers contribute two times higher average revenue generation compared to the rest of our customers due to the multiple product holdings and the more frequent transactions. Our wholesale business showed steady results despite an uncertain environment. We continue to focus in providing business connectivity across the region. Cross-border income grew 17% and the number of suppliers and distributors within our financial supply chain management rose 35% year-on-year. Our global financial institution group income rose 25%, while income outside of real estate, hospitality and financial institution sectors rose 28%. This shows the diversification effect of our supply chain when we wanted to move into areas that are more relevant to the regional customer base. Across the region, our cash management platform is seeing significant growth in transaction volume and cashless payments. As for the detail of the results, I think I let you read it on your own. And let me go through the key financials at the NIM site. I think there's a lot of interest on NIM, especially after this morning's bad announcement. Anyway, net interest income rose 1% quarter on quarter, like I said, contributed by a longer day count. Cost of funds pressure has eased. as the marginal cost of repricing of fixed deposit has declined. Interbank securities margin sustained at 1.1% as excess liquidity was proactively managed and deployed into higher quality assets. So as a result, you'll notice that our loans NIM actually improved. And because of some of this excess funds deployment, the overall NIM narrowed to 2.12% this quarter. Actually, that is improving name. Our exit name is actually at 2.14. So I think we are hopeful with the announcement by the Fed and we will watch where margins would be. We actually expect margin to stabilize in the short term with the Fed hype, maybe with some upward biasness. Fees income softened this quarter. Loans and trade-related fees declined due to slower lending activities. Recovery of wealth fees was hampered as investor sentiment remained cautious following the U.S. banking crisis in the early part of this year. There was some one-off adjustment to cut fees expenses last quarter as we rebase our partnership schemes following the enlarged retail portfolio. So that's the other advantage when you have scale. Excluding this, card fees continued with growth momentum since the inclusion of Citi from the fourth quarter of last year. Trading and investment registered another record quarter. Customer-related treasury income held up, setting a new high last quarter, supported by demand for hedging activities. Trading and liquidity management activity saw another quarter of strong performance as we proactively manage excess funds to optimize our return amidst the market volatility. Cost-to-income ratio was unchanged at 40.9% this quarter, supported by strong income growth as well as continued disciplined spending. Including the one-off city, the cost-to-income ratio would be 44.1%. We expect the one-off cost to be significantly lower next year after the completion of the operational merger of Malaysia, which we have just completed, and Indonesia by the end of this year, and Thailand in the first quarter of next year. So by next year, my three key big markets will have completed my operation integration. As a result, the one-off cost will come down significantly. The overall asset quality of Alon's portfolio remained resilient, with NPL ratios unchanged at 1.6% from last quarter. The new NPL formation included the one unexpected major corporate accounts in Thailand. All non-performing accounts have been adequately provided for. For specific allowance, Flexit allowance increased this quarter, mainly from that single corporate exposure in Thailand. However, we continue to set aside general allowance this quarter on prudence, bringing total credit costs to 30 basis points. So again, if you think about it, if you exclude that one-off, total credit costs would be a normalized 25 basis point, even for this quarter, as there is no indication on broader systemic concerns. The total group allowance was $5.1 billion, of which I think if you look at it, the buck was in general allowance or GP as we commonly talk. More important, the general allowance coverage on performing loans stayed significantly higher at 1%. We believe our prudent provision reserves will be adequate to cushion us against any potential downside risk from credit migration. Core operating profit for the first half of 2023 surged to a new high, with growth seen across all markets. ASEAN 4 performance, of course, was boosted by the city portfolio in Malaysia, Thailand and Vietnam. Indonesia only come in later part of the year. And then the North Asia itself benefited from recovery of some benchmark rate, especially in Hong Kong. For the first half of the year, loans demand was moderate due to the uncertain macro environment. However, loans growth momentum was slightly better in the second quarter, increasing by 1% from the first quarter. We are hopeful of a stronger second half, though that is highly dependent on the recovery of China and the stability of the interest rate outlook. We maintain our focus on good quality credits in view of the uncertainties ahead. We continue to see strong inflows of funds. Customer deposits grew 1% quarter-on-quarter alongside the loan's growth. CASA to total deposit ratio remains stable at 47.6%. I think more important is that the absolute CASA level has stabilized quarter on quarter. And in fact, it has actually grown slightly year on year. After four quarters of decline last year, I think everybody remembered the challenge that banks face of funds moving to FD. I mean, that shows that our focus in offering the best value to our customers, focusing on the CASA trend going forward, is showing results. Our funding and liquidity position stayed robust with LCR at 167, NSFR at 121. I think these are all well above regulatory ratios. Again, our CT1 was steady at 13.6%, backed by strong earnings and efficiency and efficient RWA management. I think in appreciation of the support from our shareholders, The board has recommended an interim dividend of $0.85 per share in view of the stronger earnings. I think this is 42% if you see higher than the first half of 2022 dividend of $0.60 per share. I think we are committed to a consistent and sustainable returns to shareholders. I think we appreciate shareholders that stayed through us when we did the CT purchase and some of those are actually showing results. With this, I conclude my presentation and pass it back to Yicheng before we start the Q&A.