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UOB reports 40% lower 3Q net earnings of $668 mil, shores up $339 mil of credit allowance for the quarter

Felicia Tan
Felicia Tan • 3 min read
UOB reports 40% lower 3Q net earnings of $668 mil, shores up $339 mil of credit allowance for the quarter
Total income for 3QFY2020 fell 13% y-o-y to $2.26 billion.
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UOB Group reported net profit after tax (NPAT) or net earnings of $668 million for 3QFY2020 ended September, some 40% lower than the net earnings of $1.12 billion the year before, due to the pre-emptive build-up of credit allowance of $339 million in the quarter.

Net earnings for the 9MFY2020 stood at $2.23 billion, 33% lower than the $3.34 billion reported a year ago. UOB says the lower figures were a result of declining margins, slower customer activities and pre-emptive credit provisioning on the uncertainties of the Covid-19 pandemic.

See also: UOB integrates ESG considerations into investment solutions for consumers

Total income for 3QFY2020 fell 13% y-o-y to $2.26 billion.

For the 9MFY2020, total income fell 9% y-o-y to $6.93 billion.

Net interest income for the quarter came in at $1.47 billion, down 13% y-o-y on margin compression, while non-interest income fell 15% y-o-y to $786 million due to declining business activities across corporate and retail customers.

Net fee and commission income fell 7% y-o-y to $514 million.

While this was slightly mitigated by lower expenses of $1.01 billion, which was down 13% y-o-y due to “disciplined cost management”, operating profit for 3QFY2020 fell 14% y-o-y to $1.25 billion.

Q-o-q, operating profit showed a 3% improvement on improving margins and higher fees amid the gradual resumption of economic activity.

3QFY2020 net interest margin (NIM) improved 5 basis points q-o-q to 1.53% as liquidity buffers eased in line with a more stable funding environment.

The bank’s total impairment charge for the quarter surged 229.0% to $477 million from $145 million, as the bank set aside additional allowance for non-impaired assets amid uncertainties from the global pandemic.

Meanwhile, credit costs rose 45 basis points y-o-y to 68 basis points while cost-to-income ratio climbed 0.4% y-o-y to 44.6%.

The bank’s non-performing ratio (NPL) remained stable y-o-y at 1.5%. Q-o-q, NPL improved by 0.1 percentage points from 1.6% on more recoveries in the quarter.

Non-performing assets (NPA) coverage was up 15 percentage points q-o-q to 111% due to the $339 million allowance the bank took in during the quarter.

Customer loans rose 2% y-o-y to $281 billion.

As at Sept 30, the group’s funding position remained healthy with a loan-to-deposit ratio of 86.7% and higher current and savings account (CASA) mix at 51%.

During the same period, Common Equity Tier 1 (CET1) ratio remained strong at 14.0%, up 0.3 percentage points y-o-y. The group’s leverage ratio of 7.4% was more than double the minimum regulatory requirement of 3%.

“While there are early signs of recovery across the global economy, the trajectory remains uneven and unclear. Given the evolving geopolitical and pandemic situation, we remain vigilant, especially in our key regional markets,” says Wee Ee Cheong, deputy chairman and CEO.

“However, our asset quality is manageable and we are adequately provisioned even with the expiry of moratorium programmes across the region. Our healthy balance sheet, fortified with additional allowance and backed by robust capital and liquidity positions, ensures we are well-placed to help our customers to weather this crisis,” Wee adds.

Shares in UOB closed 42 cents higher or 2.2% up at $19.45 on Nov 3.

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