facebookUnited Overseas Bank Ltd (SGX: U11) 2020 Financial Results: Bank To Resume Regular Dividends Once Cap Relaxed
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United Overseas Bank Ltd (SGX: U11) 2020 Financial Results: Bank To Resume Regular Dividends Once Cap Relaxed

profileSudhan P

United Overseas Bank Ltd (SGX: U11) (UOB) is the final Singapore-listed bank to announce its financial results for the year ended 31 December 2020. 

Let’s take a look at some of the highlights from UOB’s latest earnings. 

1. Total Income

For the latest period, UOB’s total income decreased by 9% year-on-year to S$9.18 billion

The fall came on the back of lower net interest income, net fee and commission income, and other non-interest income. 

Net interest income fell 8% to S$6.04 billion due to the reduced interest rates to support regional economies and enhance market liquidity.

Net fee and commission income was 2% lower at S$2 billion as consumers spent less on their credit cards and business activities reduced amid the pandemic-driven movement restrictions. However, wealth management fees and fund management fees improved. 

With the volatile market in 2020, UOB’s other non-interest income tumbled 20% to S$1.14 billion due to lower net trading income. This was partially offset by higher gains from investment securities.

UOB’s net interest margin (NIM) in 2020 fell to 1.57%, down from 1.78% in 2019.

The NIM shows the average interest margin that a bank is earning from its borrowing and lending activities. 

Source: UOB 2020 earnings presentation

2. Operating Profit

UOB’s total expenses decreased by 6% to S$4.18 billion due to reduced discretionary spending. This led to its operating profit declining 10% to S$4.99 billion

The bank’s cost-to-income ratio for 2020 fell to 45.6% from 44.6% in 2019.

The cost-to-income ratio is used to gauge a bank’s efficiency and productivity. Generally, the lower the ratio, the better it is.

3. Allowances 

UOB’s total allowance in 2020 more than tripled to S$1.55 billion, increasing from S$435 million a year ago. 

The bank conservatively set aside an additional allowance for non-impaired assets of S$916 million to ensure adequate coverage.

UOB’s non-performing loan (NPL) ratio in 2020 stood at 1.6%, slightly increasing from 1.5% in 2019. 

The rise in the NPL ratio was expected since there were economic headwinds brought about by the pandemic. 

The NPL ratio shows the amount out of total loan that has turned sour (borrower is unable to pay off interest or the principal amount). 

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4. Net Profit

Considering all of the above, the bank reported a net profit of S$2.91 billion, down 33% from S$4.34 billion a year ago. Diluted earnings per share for the year was 1.68 Singapore cents, down from 2.54 cents in 2019.

Reduced customer activities and lower margins from benchmark rate cuts due to the pandemic affected UOB’s performance. The higher allowance set aside also hit the bank’s bottom-line. 

Source: UOB 2020 earnings presentation

5. Balance Sheet Strength

UOB’s Common Equity Tier 1 ratio at the end of 2020 improved to 14.7% from 14.3% a year back.

Meanwhile, its leverage ratio strengthened to 7.4% from 7.7%.

Both ratios, which are well above the minimum regulatory requirements, measure a bank’s financial strength. 

Source: UOB 2020 earnings presentation

6. Dividend

UOB has declared a final dividend of 39 Singapore cents per share, in line with the Monetary Authority of Singapore’s call for local banks to cap their dividends for 2020.

For 2020, the bank will be paying out a total dividend of 78 cents per share. 

Source: UOB 2020 earnings presentation

UOB’s dividend payout ratio for 2020 will be 45%. UOB revealed that its 50% dividend payout ratio will resume once the MAS dividend cap is relaxed

The scrip dividend scheme will be applicable for UOB’s fourth-quarter dividend, with scrip dividends issued at the average of the closing share prices on 6 and 7 May 2021. The bank will announce the scrip issue price on 10 May 2021.

7. Business Outlook

Looking ahead, UOB’s deputy chairman and chief executive, Wee Ee Cheong, commented:

“In the coming 12 to 18 months, macroeconomic conditions are likely to improve, albeit gradually. ASEAN’s connectivity with Greater China and the region’s growing affluence continue to be drivers of growth. Our established network, deep sectoral insights and strong local expertise ensure that we remain well-positioned to help our customers seize these growth opportunities.”

Wee also added that with net interest margin expected to remain low, the bank’s rebalancing its business with an “emphasis on wealth and connectivity-related products and services that bring greater value to our customers and also drive higher fee income”. 

He ended off by saying:

“We believe that we will emerge stronger from the crisis and can return to pre-COVID-19 profit levels in the next few years, driven by topline growth and lower credit costs, and in turn deliver better return on equity to our shareholders.”

At UOB’s share price of S$24.39, it has a price-to-book ratio of 1.1x, a price-to-earnings ratio of 14.5x, and a dividend yield of 3.2%.

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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the company mentioned. 

About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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