United Overseas Bank (UOB) has reported earnings of $703 million for 2Q20 ended June, down 40% y-o-y, as it set aside some $379 million of allowances for non-impaired assets amid weaker macroeconomic conditions.

The lower earnings were due to lower margins, higher credit costs, and higher provisions. 

During the quarter, the bank declared an interim dividend of 39 cents with an option for a scrip dividend. The lower dividend, compared to 1H2019’s dividend of 55 cents, is in line with the Monetary Authority of Singapore (MAS)’s call for banks to cap the total dividend per share at 60% of the previous year’s on July 29.

UOB says its scrip dividend scheme will be applied to the interim dividend. A separate announcement will be made of the books closure and relevant dates. 

Net interest income fell 12% y-o-y to $1.46 billion as margin compression offset loan growth of 3%. 

Net interest margin fell 0.33 percentage points y-o-y, or 0.23 percentage points lower q-o-q to 1.48%.

Net fee and commission income fell 15% y-o-y to $445 million due to lower customer activities from movement restrictions across the region.

Trading and investment income declined to $294 million from $311 million a year ago mainly due to lower net trading income.

Other non-interest income fell 28.6% y-o-y to $65 million.

Total expenses fell 8% y-o-y to $1.04 billion in line with lower income, reflecting a cost-to-income ratio of 46.0% for the quarter, from 43.7% in the corresponding period last year.

Total allowances rose to $396 million from $51 million a year ago owing to higher allowances set aside for non-impaired assets. This brought total credit costs to 67 basis points for 2Q20, from 36 basis points in 1Q20.

The bank also booked higher impairment charges of $396 million for 2Q20 compared to the $51 million a year ago.

UOB’s non-performing loan (NPL) stood at a stable 1.6% for the quarter, unchanged from the last quarter due to the low NPL formation.

For the quarter, the bank's all-currency liquidity coverage ratio (LCR) fell 3 percentage points to 136%, while net stable funding ratio (NSFR) rose 10 percentage points to 119%. Both remain well above the minimum regulatory requirements.

Loan-to-deposit ratio (LDR) for 2Q20 remained stable at 85.8%.

The bank also registered Common Equity Tier-1 ratio (CET1) ratio of 14%, down 0.1 percentage points from the previous quarter, which remains well above the regulatory requirement of 6.5%. The leverage ratio of 7.3% for the quarter was more than twice the regulatory minimum of 3%.

For 1H20, UOB recorded a 30% decline y-o-y in earnings of $1.56 billion primarily due to the higher allowance for non-impaired assets set aside.

Net interest income in 1H20 fell 6% y-o-y to $3.05 billion, mainly attributable to declining margins along with interest rate cuts across the region.

Net fee and commission income came in 4% y-o-y lower at $960 million, mainly due to reduced consumer spending on credit cards and slower loan disbursement fees from the economic contraction.

Other non-interest income declined 12% y-o-y to $657 million. Trading and investment income fell 11% y-o-y to $517 million due to lower net trading income. 

As at June 30, cash and cash equivalents stood at $25.95 billion.

In its outlook statement on August 6, UOB says it expects a “moderate rebound” in fees for 2H20, upon gradually reopening economies.

“With the global economy moving into the deepest recession in recent history, our financial performance for the first half of the year has not been immune to the impact. However, UOB entered this crisis from a position of strength, having built our resilience through weathering past storms, be they economic, man-made or natural disasters,” says Wee Ee Cheong, UOB’s Deputy Chairman and Chief Executive Officer.

“Our strong balance sheet, robust capital and liquidity positions equip us well to navigate the uncertain macro environment ahead and in sharpening our service and digital capabilities. These include the recent expansion of our mobile-only digital bank, TMRW, to Indonesia, to serve the needs of the young and digitally-savvy population there,” he adds.

Shares in UOB closed 11 cents higher, or 0.6% up, at $19.42 on Aug 5.