Tag Archives: United Overseas Bank Ltd

Business

Citi to sell consumer banking operations to UOB in Malaysia, Indonesia

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A Citibank branch in New York, U.S., on Friday, Jan. 7, 2022.

Victor J. Blue | Bloomberg | Getty Images

Citigroup will sell its consumer banking businesses in Indonesia, Malaysia, Thailand and Vietnam to Singapore’s United Overseas Bank, the banks announced Friday.

As part of the deal, UOB said it will acquire Citi’s unsecured and secured lending portfolios, wealth management and retail deposit units that make up its consumer banking business in the four markets.

UOB, which has a prominent presence in Southeast Asia, will pay Citigroup for the net assets of the acquired businesses as well as a premium of $690 million.

Citi’s consumer business had an aggregate net value of about 4 billion Singapore dollars ($2.97 billion) and a customer base of approximately 2.4 million as of June 30, 2021, UOB said.

The proposed transaction is expected to be financed through the bank’s excess capital and is estimated to reduce UOB’s common equity tier 1 ratio — which measures a bank’s capital in relation to its assets — by 70 basis points to 12.8%, UOB said. It added that the impact on the CET1 ratio is not expected to be material and will remain within regulatory requirements.

The sale of these four consumer markets, along with our previously announced transactions, demonstrate our sense of urgency to execute our strategic refresh.

“UOB believes in Southeast Asia’s long-term potential and we have been disciplined, selective and patient in seeking the right opportunities to grow,” Wee Ee Cheong, deputy chairman and chief executive officer at UOB, said in a statement.

Approximately 5,000 Citi consumer banking staff and supporting employees in the four markets are expected to transfer to UOB when the proposed deal closes.

“The acquired business, together with UOB’s regional consumer franchise, will form a powerful combination that will scale up UOB Group’s business and advance our position as a leading regional bank,” Wee said.

UOB shares ticked higher by 1.23% Friday afternoon, following the announcement.

Citi said it expects the deal to release approximately $1.2 billion of allocated tangible common equity and an increase to tangible common equity of over $200 million. Tangible common equity is a measure used to assess a financial institution’s ability to deal with potential losses.

The New York-based bank will still retain control of its institutional businesses in Indonesia, Malaysia, Thailand and Vietnam.

Citigroup CEO Jane Fraser said last year that the bank will exit retail operations in 13 countries outside the United States to improve returns. Many of those markets are in Asia-Pacific, including Australia, China, India and Indonesia.

“The sale of these four consumer markets, along with our previously announced transactions, demonstrate our sense of urgency to execute our strategic refresh,” Citi CFO Mark Mason said in a statement on Friday.

Citi expects the deal to be completed between mid-2022 and early 2024, depending on the progress and outcome of regulatory approvals.

Last year, Citi said it agreed to sell its consumer banking businesses in the Philippines and Australia and was winding down consumer banking operations in South Korea.

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Business

What to expect from DBS, OCBC, UOB

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View of the Singapore Central Business District.

Suhaimi Abdullah | Getty Images News | Getty Images

SINGAPORE — Shares of Singapore’s top banks jumped in the lead-up to their third-quarter earnings this week as the global economic recovery gains momentum.

OCBC and UOB are scheduled to kick off third-quarter earnings season for Singapore-listed banks on Wednesday, while DBS is expected to report on Friday.

DBS Group Holdings, the largest of the three Singapore-listed banks, hit a fresh 52-week high on Thursday. The stock has climbed 25.9% this year as of Friday.

The other two banks, Oversea-Chinese Banking Corp and United Overseas Bank, have also inched closer to their 52-week highs. OCBC has gained around 17.3% this year, while UOB has risen 18.4%.

All three banks have beaten the benchmark Straits Times Index, which rose 12.5% so far this year.

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Banks have been among the strongest performing sectors in stock markets globally this year, said Geoff Howie, market strategist at the Singapore Exchange.

“Interest rate expectations have been a key driver of international bank stocks in 2021,” Howie said in a report in mid-October.

The yield for 10-year U.S. Treasury rose over the last month as markets started pricing in more interest rate hikes than what the Federal Reserve has indicated. It comes as a recovery in the U.S. economy and disruptions to global supply chains push up inflation.  

Higher interest rates are generally good for the profit margins of banks. Rising rates also tend to point to a strengthening economy, which may mean fewer loan defaults.

Singapore’s central bank manages monetary policy through setting the exchange rate — instead of interest rate. As a result, domestic interest rates are influenced by global rates.

Earnings preview

The three Singapore banks have reported improved earnings in the last few quarters as the global economy recovers from the Covid-19 pandemic. Analysts said the momentum will likely continue.

Here’s what analysts are expecting from the banks’ third-quarter report cards, according to estimates compiled by Refinitiv as of Monday:

Third-quarter earnings estimates

Bank Net income Year-on-year change
DBS SGD 1.57 billion 21.4%
OCBC SGD 1.02 billion -0.45%
UOB SGD 982.4 million 47.1%

“As in the previous quarter, we expect all banks to report robust earnings growth (YoY) on lower credit costs,” said David Lum, an analyst with brokerage Daiwa Capital Markets.

Credit costs refer to the amount of reserves that banks set aside in anticipation of loan losses.

Like many banks globally, the Singapore lenders made those provisions last year when Covid weighed down economic activity — but the banks started winding down the provisions this year as the global economy bounced back.  

Lum said in an October report that wealth management could do well for the Singapore banks, but trading and market-related income might come under pressure in the third quarter.

Greater China exposure

Greater China accounted for 30% of DBS loans in the first half of 2021, according to Krishna Guha, equity analyst at investment bank Jefferies. The figure for OCBC and UOB stood at 25% and 16%, respectively, he said in a September report.

Slightly more than half of those Greater China loans was from Hong Kong, said Guha.

All three banks have sufficient buffer to withstand potential stresses in their Greater China portfolio, the analyst said. But lingering uncertainty could still hurt sentiment and future growth prospects, he added.

For now, dividend yield and reasonable valuation would support Singapore bank stocks, said Guha.

Jefferies has maintained its “buy” rating for all three banks.

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Business

Singapore’s DBS bank reports Q2 2021 earnings

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DBS Group Holdings in the central business district of Singapore.

Nicky Loh | Bloomberg | Getty Images

SINGAPORE — DBS Group Holdings, the largest bank in Singapore and Southeast Asia, reported on Thursday second-quarter earnings that beat expectations as the economic recovery in its home market takes hold.

The bank’s net profit for the April-to-June quarter jumped 37% from a year ago to 1.7 billion Singapore dollars ($1.26 billion). That beat an average forecast of 1.42 billion Singapore dollars, according to analyst estimates on Refinitiv.

But compared with the previous quarter, net profit was 15% lower.

DBS shares in Singapore rose around 0.7% on Thursday.

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Piyush Gupta, chief executive of DBS, said better-than-expected performance in all business segments helped to offset headwinds from lower interest rates. He said the bank saw improvements in its loans business, as well as fee income from investment banking and wealth management.

“It was a case of everything else kicking in very solidly, offsetting the headwinds from the interest rate,” Gupta told CNBC’s “Capital Connection.”

“Quite clearly, the zero interest rate environment takes its toll. And for a bank like us which is very long on current account and savings account deposits … that headwind is quite significant,” he added.

DBS announced a dividend of 33 Singapore cents per share for the second quarter. That’s an increase from 18 Singapore cents per share in the previous quarter after the Monetary Authority of Singapore lifted a cap on dividend payments.

Here are the other highlights from the earnings report:

  • The bank’s provisions for potential loan losses fell to 79 million Singapore dollars in the second quarter, compared with 849 million Singapore dollars a year ago.
  • Net interest margin, a measure of lending profitability, was 1.45% in the second quarter. That’s lower than 1.62% a year ago.
  • Customer loans rose to around 397 billion Singapore dollars in the first six months of 2021, 6% higher than the same period last year.

Prospects of Singapore banks

The release of DBS’ second-quarter earnings wrapped up the financial reporting season for Singapore-listed banks.

On Wednesday, two smaller Singapore banks — Oversea-Chinese Banking Corp and United Overseas Bank — reported financial results that beat estimates.

OCBC, Singapore’s second-largest bank, reported a 59% year-on-year increase in net profit to 1.16 billion Singapore dollars in the second quarter. UOB’s net profit for the period was around 1 billion Singapore dollars, 43% higher than a year ago.

Prospects of the Singapore banking trio have improved this year as the economic recovery boosted demand for loans, while an upswing in financial markets earlier this year helped their wealth management businesses.

But worsening Covid-19 outbreaks in parts of Asia could hit consumers, said the DBS CEO.

“I do think that there will be more stress in the consumer portfolio, that’s where the increasing pandemic might have some impact than SMEs,” Gupta said, referring to small- and medium-sized enterprises.

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