UOB stays upbeat about future

UOB stays upbeat about future


Wee Ee Cheong thinks there are bright spots such as Singapore’s domestic fundamentals, and its regional efforts, writes CHOW PENN NEE


A LOOMING US recession, turmoil in the financial markets, high inflation and staff costs, compressed margins. This is the scenario facing banks this year.


Wee Ee Cheong, chief executive of Singapore’s second largest lender, United Overseas Bank, thinks there are bright spots though – Singapore’s strong domestic fundamentals, the bank’s regionalisation efforts bearing fruit, as well as good lessons to be learnt from the sub-prime crisis.


Bank executives are cognisant of the challenges that lie ahead for the banks. ‘Certainly for now, there are challenges in the global environment, ‘ noted Mr Wee. ‘The last few years’ excesses and mis-pricing of risks are catching up with the system. It is a slippery road as the system cleans up.’


But, he said, a distinction must be made between ‘fundamental losses’ and ‘accounting adjustments’ due to short-term volatilities and mark-to-market reporting, due to the fallout from the sub-prime crisis and credit crunch.


With or without sub-prime issues, he said, there are always challenges facing banks. ‘We are in the business of managing risks and are prepared to operate in volatile or uncertain markets,’ he said, adding, ‘The credit crunch is – to put it in perspective – one of those volatile situations.’ He explained that the whole episode is a lesson on how to manage risk.


With most Asian banks having relatively lower direct exposure to these toxic assets, the negative impact is more likely to come through the real economy, he said. He noted too that the US looks headed for a slowdown but it is not clear yet whether it would be long drawn. ‘At this stage we think it won’t be.’ The bank’s total exposure in CDOs is S$315 million, which constitutes less than 0.2 per cent of its total assets. ‘We continue to monitor the situation. But hypothetically, even if we write it all off, it’s immaterial,’ Mr Wee explained.


The good new is that Asian economies, he said, are still fairly resilient to the sub-prime crisis. ‘Unlike the Asian crisis when liquidity dried up significantly, there is currently money waiting to enter the system,’ he said. ‘Much as there are risks, there are opportunities as well.’


He elaborated, ‘We must not lose sight of the fact that globalisation is bringing enormous opportunities in trade and investments across the region and we have our Asian franchise to capture those opportunities. There is a lot going for Singapore and Asia.’


To capitalise on the Asian growth story, the bank has been actively looking at diversifying its earnings, and garnering more revenue from outside Singapore. ‘Ten years ago, we were still a predominantly Singapore bank, now there is more diversified earnings and risk,’ he said. ‘Our diversified portfolio serves us well in different stages of development and business cycles.’


Mr Wee said that his vision is for UOB to be a regional bank. ‘South-east Asia is key,’ he stated. ‘If we can’t be successful even in our own backyard, how to expand further?’ he questioned. Currently, Malaysia accounts for about 12 per cent of total profit. China and Vietnam are also very important, he said. ‘We hope to get 40 per cent of our profit from outside Singapore by 2010; now we are at about 30.5 per cent.’ He noted that the situation in Thailand is improving a little but believes it can do better. ‘We take a more cautious approach there, we’re invested for the long term,’ he said.


The bank has also over the past three years expanded in Thailand, Indonesia, Vietnam and China, adding new branches in Malaysia and received the licence to open a branch in Mumbai, India within a year.


As for capitalising on current volatile conditions to buy into a bank, Mr Wee said that the price is still not right. ‘If want to buy a bank in Asia today, the premium is still high.’ The bank’s year-long tango with China’s Evergrowing Bank has yet to come to fruition. ‘We are still romancing,’ explained Mr Wee. ‘We want to make sure we get the right bank, right target.’


Operationally, in terms of the core business of loans, he – like the rest of the bank head honchos – is expecting a slowing down from last year’s exceptional growth. ‘This year, growth will moderate, and will be lower than the 20 per cent last year,’ he noted. But he quickly added that positives such as the strong corporate sector and improving Asian spreads will prop up loans growth. ‘So it’s not just the volume but the quality of the spreads. Borrowers are finally paying the right margins for the risks in the market.’


Ballooning staff costs are set to be a problem, he said, but managing them is the key. ‘Looking ahead, staff costs are the biggest expenses,’ he said, but added: ‘I’m not overly concerned about the amount of money we spend, but it must be quality spending.’ He explained that the bank will leverage on technology to cut down on work done by people.


‘It is about productivity and value-adding. Even as absolute expenses increase as we continue to invest, we watch the expense/income ratio, which has been well managed.’ Money which had to be spent included a revamp of UOB’s branches. ‘We modernised, and changed the layout of the branches. We will upgrade our branding,’ said Mr Wee. ‘We cannot be status quo.’


He remains sanguine about Singapore’s overall banking outlook. ‘Generally, Singapore banks are healthy, the three Singapore banks are in a good position, from a capital standpoint, capital adequacy ratio (CAR) is more than adequate,’ he said.


There is much to cheer about on the domestic front, he noted. ‘With the integrated resort projects and other initiatives to boost tourism and create jobs coming on stream, we are positive on the outlook.’


Source: Business Times



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