CEO's Message on UOB Group 1H10/2Q10 Results
Dear Investors
The UOB Group recorded a net profit after tax of S$1,302 million for the first six months of 2010, a strong 48.0% increase from the same period last year. This performance was consistent with the Asian economic recovery story, driven largely by a strong growth in fee income and a sharp decline in credit costs. Fee income rose 22.5% from the same period last year, as we intensified our cross selling efforts and enhanced our capabilities across the Group. On a pre-provision level, the bank registered an operating profit of $1,686 million, representing a 7.9% decline after a record performance in 1H09.
For the second quarter 2010 ("2Q10"), net profit after tax came in at S$602 million, a decline of 2.6% from first quarter 2010 ("1Q10"), excluding the one-off gains from sale of UOB Life in 1Q10. Net interest income weakened as net interest margin ("NIM") decline outpaced growth in loans volume. NIM fell 11 basis points to 2.14%, due to limited gapping opportunities and intense competition in loans. In terms of non-interest income, fee and commission income sustained the strong momentum from 1Q10 and increased to S$285 million, driven largely by trade-related and credit card fees. However, the challenging trading environment since the onset of the European debt crisis led to a decline in trading and investment income.
Net customer loans grew 4.6% year-to-date to S$103.7 billion as at 30 June 2010, as we selectively reduced our exposure in the West and gravitated to the East. Loans in our key regional markets grew 11.7% year-to-date. We remain confident of a pick-up in loans drawdown as our loans pipeline remains healthy.
Disciplined cost management remains a primary focus of the bank and operating expenses remained flat at S$540 million. Impairment charges declined to 18 bps even as we continued to set aside collective impairment in 2Q10, albeit at a slower rate.
The overall improvement in asset quality resulted in a decline in our non-performing loans ratio to 1.9% as at 30 June 2010.
Our balance sheet remains strong from resilient core business and pro-active capital management initiatives including the Scrip Dividend Scheme. Our capital level continues to improve, with Tier 1 CAR at 15.1% and Total CAR at 20.1%. We remain comfortable with our exposure to Europe and have insignificant exposure to PIIGS. Our AFS reserves have recovered in-line with the rebound in global markets. We also rebalanced our investment portfolio by reducing our holdings of bank debt securities and increased our holdings of quality Asian corporate debt. We have proactively taken steps to ensure our long-term funding stability in foreign currency with the establishment of the S$5 billion medium term note (MTN) program in June 2010. For this interim, the Board is pleased to declare a dividend of 20 cents per share. The Scrip Dividend Scheme will also be applied to this interim dividend.
Looking ahead, barring any major shocks, we remain confident of delivering growth in our key markets. Singapore and the region remains our key focus, with our strong balance sheet and capital position providing us the flexibility and capacity to selectively pursue opportunities and risk adjusted returns. We will grow fee income contribution by leveraging our customer base to cross–sell products and services across the region. We will push ahead with infrastructure investment to build an integrated regional platform not only to serve customers’ rising intra-regional needs but to also better manage risks. Our long-term perspective to growth has enabled us to emerge from the financial crisis much stronger. We intend to maintain our targeted approach in executing our strategy, balancing growth and stability, to ensure long-term shareholder value.
Wee Ee Cheong
Deputy Chairman & Chief Executive Officer
10 August 2010