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UOB deepens its roots in Asean 'phygitally'

Goola Warden
Goola Warden • 5 min read
UOB deepens its roots in Asean 'phygitally'
Photo: Samuel Isaac Chua
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Among the three banks, United Overseas Bank U11 -

(UOB) has the most entrenched regional platform, both physically and digitally. This was further boosted by its acquisition of Citigroup.

In January 2022, some 15 years after UOB’s group CEO Wee Ee Cheong was appointed CEO, the banking group made its first major acquisition.

While investors were coping with the economic impact of the pandemic, UOB surprised the market with its announcement to acquire Citigroup’s (Citi) retail businesses in Malaysia, Thailand, Indonesia and Vietnam. The Citi sale was part of a wider retreat by Citigroup in around 13 retail markets.

In a recent interview with The Edge Singapore, Wee said the pandemic presented an opportunity to scrutinise Citi’s regional book, which proved to be sound.

The net asset value of the target entities was around $4 billion with a generated income of $0.5 billion in 1HFY2021 ended June 30, 2021. UOB paid a premium of $915 million which translates into a P/B of 1.23x, with expectations that the transaction would be immediately EPS and ROE-accretive excluding one-time costs.

Digitally integrated

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UOB has already completed the acquisition of Citigroup’s Malaysia, Thailand and Vietnam entities. UOB aims to attain Operational Day 1 (OD1) in Malaysia in 3Q2023 and in Thailand in 1Q2024. So far, the expected customer attrition rate of 10% did not materialise, suggesting the integration went better than expected.

Once the four markets are at the OD1 stage, they will be integrated into UOB’s banking platform, designed in such a way that the IT operations from the bank’s main markets across Asean can “plug and play”. The ability to integrate four markets at speed will enable UOB to reap benefits of some $1 billion a year in additional income.

UOB is familiar with all four markets. It can trace its presence in Malaysia to 1951. UOB obtained banking licences in Indonesia and Thailand around the time of the Asian Financial Crisis. In 2017, UOB became the first Singapore bank to be granted a foreign-owned subsidiary bank (FOSB) licence in Vietnam and has since increased its presence in Vietnam with eight offices and branches.

See also: OCBC launches accelerated banking career programme for 500 polytechnic students over next three years

In 2019, UOB launched its digital-only bank TMRW in Thailand. This was followed by Indonesia. Since then, UOB has merged UOB Mighty and UOB TMRW for a phygital (physical plus digital) experience.

New-to-bank customers in areas where there are no branches and young digital natives can open an account with UOB TMRW remotely and digitally. Those in the older and more affluent market segment in metropolitan areas can make use of its branches or digital services.

UOB TRMW aims to keep cost-to-serve low for retail customers. In 1Q2023, UOB acquired a further quarter million customers (outside of the Citi acquisition). Of these, 59% were acquired completely digitally. Meanwhile, UOB’s retail customer base has grown to 7 million following the incorporation of Citi’s Malaysian, Thai and Vietnam businesses.

FDI Advisory’s role in Asean expansion

In 2011, even before President Xi Jinping of China launched his Belt and Road Initiative (BRI), UOB had already foreseen the potential of Asean by forming its Foreign Direct Investment (FDI) Advisory unit. Most recently, UOB opened its 10th FDI Advisory Centre in Tokyo, to support Japanese companies looking to expand into Southeast Asia.

Since 2011, UOB has helped more than 300 Japanese companies expand into Southeast Asia. “This trend is set to grow due to various factors, including supply chain shifts, trade tensions, rising consumer demographic in a high-growth region and the digital economy,” UOB says in a statement.

UOB’s FDI Advisory is not just about loans and deposits, it also provides a holistic approach including introducing businesses from outside of Asean to government agencies, lawyers, accountants and other advisory services. Increasingly with geopolitical tensions and the China+1 strategy, UOB is viewed as a beneficiary of the global supply chain’s move into Asean.

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In an earlier interview with The Edge Singapore, Wee had said that FDI Advisory was made possible by standardising its IT platform across the region. He indicated that Chinese companies coming to Asean accounted for 40% to 50% of FDI Advisory’s business.

Familiar names such as Shake Shack, Eggslut, Owndays and Star Alliance are organisations that UOB has supported that have a presence in Asean.

In FY2022 ended December 31, 2022, UOB’s cross-border income rose by 12% y-o-y and accounted for 28% of group wholesale banking income of $6.2 billion which was up 23% y-o-y. In 2022, UOB reported a 27% rise in wholesale banking operating profit to $4.67 billion.

In a business update, group CFO Lee Wai Fai says UOB’s cross-border income during the 1QFY2023 rose 19% y-o-y, accounting for 24% of group wholesale banking income. In addition, UOB recorded a 30% y-o-y growth in suppliers and distributors within the bank’s Financial Supply Chain Management (FSCM) solution.

With 1QFY2023 net profit surging 74% y-o-y to $1.58 billion, UOB’s 50% dividend payout ratio policy would imply higher dividends in FY2023 for shareholders.

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