United Overseas Bank Ltd U11

We Expect UOB to Reap Benefits of Citi Acquisition

United Overseas Bank is one of the three dominant banks in Singapore. It has local subsidiaries or branches in almost every country in the Asia-Pacific region, particularly across the Association of Southeast Asian Nations. Singapore accounts for around 60% of its profit, Greater China around 10%, Malaysia around 10%, Thailand around 5%, and Indonesia around 2%. In late 2022 and early 2023, UOB closed the acquisition of Citi’s consumer business (wealth management and retail deposits) in Malaysia, Thailand, and Vietnam. It also agreed to buy the US bank’s consumer businesses in Indonesia, with the transaction closing in 2023. These acquisitions are temporarily increasing UOB’s costs but also should raise its net interest margin somewhat, as the bank becomes less dependent on Singapore and more geared to emerging markets where loan rates tend to be higher. In Singapore, UOB’s loan book is more heavily weighted toward small to midsize loans than its peers, which are generally more vulnerable to an economic downturn relative to corporates. However, UOB has more than adequate capital and provisions and can continue to pay out half of its earnings to shareholders in dividends while investing in growth across ASEAN, in our view.