2020 was a transformational year. The COVID-19 pandemic, which escalated to a humanitarian crisis and sadly resulted in the loss of many lives, also disrupted industries and businesses. The future never looked as uncertain.
Throughout this tumultuous period, we at UOB have continued in our role to help our customers build their businesses and attain their financial goals and lifestyle needs. We believe in standing right by them to weather the crisis.
COVID-19 response
Working alongside governments, we deployed our strong balance sheet judiciously to support our business and retail customers, providing relief assistance to tide them through unprecedented financial challenges. We were the first bank in Singapore to announce relief measures and extended the highest amount of loans under Enterprise Singapore’s schemes for local businesses. We set up restructuring teams to help our customers manage their financial obligations after government reliefs end.
We are appreciative of the efforts of regulators and government bodies across the region in ensuring liquidity in the banking system and implementing much-needed relief programmes for businesses and individuals. These measures have been instrumental in cushioning the economic shock. They also gave us time to work through restructuring solutions with our customers.
Taking care of our customers required that we take care of our people first. Within four weeks, we enabled 80 per cent of our workforce to work from home without compromising the quality of our customer service or our robust risk management and security standards. We implemented safe management measures, staggered work hours, split teams and provided additional care benefits, which included seeing to the mental well-being of our people. Internal surveys showed that 86 per cent of our people felt cared for during the year given the support measures we put in place for them.
We also stepped up our community efforts, including raising more than $2.7 million during the year. The funds raised were used to purchase personal protective gear for frontline workers and needy families as well as to provide disadvantaged children with laptops and online learning resources. Observing safe distancing, we held our annual UOB Heartbeat Run/Walk event and UOB Painting of the Year competition virtually.
Financial performance in 2020
We were not immune to the business impact of COVID-19. Nevertheless, our strong foundation, operational resilience and financial strength saw the Group report total income of $9.18 billion and net profit of $2.91 billion for the financial year ended 31 December 2020. This was 33 per cent lower than the previous year as economies contracted and business activity was curtailed for much of 2020.
Amid improving economic and business activity across the region, our net profit stabilised towards the end of 2020.
Net interest income decreased eight per cent against last year to $6.04 billion, as policy makers reduced interest rates to support economies and market liquidity. Alongside supporting our customers, we proactively reshaped our balance sheet and asset-liability structure, which enabled us to reprice our liabilities nimbly and to deploy excess liquidity more optimally. These activities enabled us to stabilise our net interest margin in the second half of the year amid the low interest rate environment.
Net fee and commission income was two per cent lower at $2 billion, as consumers tightened credit card spending and business activities reduced with movement restrictions and safe distancing measures in place. Wealth management fees and fund management fees both improved. Other non-interest income dropped 20 per cent to $1.14 billion due to lower net trading income on the back of a volatile market in 2020, partially offset by higher gains from investment securities.
Total expenses decreased six per cent to $4.18 billion on the back of the Group’s efforts to balance continued strategic investments in technology and people capabilities while reducing discretionary spend. The cost-to-income ratio for the year was 45.6 per cent.
Total allowance increased to $1.55 billion from $435 million a year ago, as the Group pre-emptively set aside additional allowance for non-impaired assets of $916 million to ensure adequate coverage even as the impact of the pandemic on credit was evolving. Allowance for impaired loans increased 45 per cent to $679 million on a few secured corporate accounts. As a percentage of loans, total credit costs increased 39 basis points to 57 basis points, leading to a stronger non-performing asset coverage ratio of 107 per cent. Our books are resilient. Based on our bottom-up analysis of our portfolio, the asset quality impact is manageable as we expect new non-performing loans of around $2 billion in the next 12 to 18 months and have pre-emptively made provisions.
Even within a year when significant support was extended to customers, the Group’s liquidity and funding positions remained robust with the fourth quarter’s average all-currency liquidity coverage ratio at 139 per cent and net stable funding ratio at 125 per cent, well above the minimum regulatory requirements. The loan-to-deposit ratio was stable at 85.4 per cent. Leverage ratio of 7.4 per cent was more than two times above the regulatory requirement. As at 31 December 2020, the Group’s Common Equity Tier 1 Capital Adequacy Ratio stayed strong at 14.7 per cent and we remain well-placed to support our customers and to seize opportunities for growth.
In 2020, we also maintained our engagement with investors, which included our frequent bond issuances. Of note, our €1 billion seven-year covered bond was Singapore’s first negative-yielding covered bond. It also achieved the tightest seven-year covered bond issuance spread in Asia Pacific since 2018.
We maintained our position as one of the world’s strongest banks, with ratings of ‘Aa1’ from Moody’s Investors Service and ‘AA-’ from S&P Global Ratings and Fitch Ratings. This strength is something we do not take for granted and we are committed to generating sustainable and responsible growth for our stakeholders.
Driving long-term strategic growth
Amid the unprecedented challenges of 2020, we persevered with our customer-focused regional strategy.
Through our well-timed and paced investments, we are positioned to capture the opportunities inherent in the three megatrends that will drive ASEAN’s growth for decades:
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Supporting surging economic flows and increased connectivity between ASEAN and Greater China;
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Creating wealth and investment solutions for ASEAN’s burgeoning middle class; and
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Riding the digitalisation wave by attracting, serving and enabling customers through our digital platform, omni-channel reach and ecosystem partnerships.
Supporting surging economic flows and increased connectivity
Geopolitical tensions continue to reshape Asia. Global fault lines and the bifurcation of the global economy worsened in 2020, reinforcing the link between ASEAN’s future and Greater China’s increasing economic influence. China is ASEAN’s largest trading partner, accounting for 18 per cent share in 2019, with the US second at 10.5 per cent.
Within ASEAN, UOB has the most extensive regional network among our peers. Our connectivity with Greater China enables us to help clients seize regional opportunities. Last year, we generated more than $1 billion in income from our cross-border business.
Our investments in capabilities such as a dedicated foreign direct investment advisory team enable us to combine deep market knowledge with access to key local connections. Across the region, we have sharpened our Wholesale Banking strategy and sector specialisation capabilities to focus on seven sectors that drive economic flows in our region and on players we think will contribute to sustainable growth.
For example, Vietnam emerged as a favoured manufacturing hub in global supply chains as industries learned the lessons of COVID-19 and sought alternatives amid global trade tensions. We are in a sweet spot as the only Singapore bank in Vietnam to have a subsidiary and we helped the country attract more than $3 billion in foreign direct investment. In 2020, we deepened our in-market capabilities, including expanding our collaboration with the country’s Foreign Investment Agency. This collaboration is expected to facilitate another $1.5 billion in investment into key sectors such as sustainable energy, manufacturing, infrastructure, healthcare and technology.
Another growth opportunity is the Greater Bay Area, one of the fastest-growing regions in China and one which counts ASEAN as its biggest trading partner. Given our strong ASEAN network, we are in a good position to help facilitate trade flows between the two regions.
In helping businesses advance responsibly, we intensified our sustainable financing efforts. We were the first bank in Asia to launch a dedicated financing framework focused on the creation of smart cities. The UOB Smart City Sustainable Finance Framework is aligned with the United Nations’ (UN) Sustainable Development Goals and is supported through the Monetary Authority of Singapore’s Green and Sustainability-Linked Loan Grant Scheme. Our U-Solar programme, now in its second year across ASEAN, continues to help companies and consumers adopt solar power with the aim of driving lower-carbon economies across the region.
Creating wealth and investment solutions
ASEAN has one of the world’s fastest-growing consumer bases with
150 million people in its burgeoning middle class. Building on our strong franchise, UOB is well-placed to serve the rising affluent across the region. We give our customers more choice in how and when they bank with us and ensure their experience between online and in-person service is seamless.
We created new ways to serve our customers, such as through digital wealth advisory. Using our Risk-First investment approach and artificial intelligence (AI)-powered investment analytics, our wealth advisers help customers to understand underlying market trends and to focus on risk ahead of potential rewards.
Understanding how investment decisions can influence the future, we integrated environmental, social and governance (ESG) considerations into our full suite of investment solutions, including unit trusts, bonds and structured products across our retail customer segments. This underpins our belief that by steering wealth to sustainable investments, we are creating a better future for generations to come. In 2020, the Bank facilitated close to $300 million in ESG investment product transactions for our wealth customers.
Our investment management subsidiaries, as signatories of the UN-supported Principles for Responsible Investment, also played their part by developing and providing sustainable mutual and private equity funds to investors in Asia and globally.
In our separate Sustainability Report, we give a detailed account of how in the past year we have been forging a sustainable future for the better, for all.
Riding the digitalisation wave
Over the years, we have been enhancing significantly our technology and digital capabilities across various channels, products and services. We have also been strengthening the product, data, integration and security layers of our systems. Riding on our regional infrastructure, our investment in digitalisation is showing results. In progressing our digital transformation, we draw on the insights and expertise of our Technology and Advisory Panel which comprises global leaders in the fields of technology, payment and digital platforms.
Anticipating our customers’ digital banking needs
In 2020, we acquired about 200,000 new retail customers via digital channels. They represented 43 per cent of total new customers.
Currently, two-thirds of our customers are using our digital banking services, up eight percentage points from 2019. About half of them are “digital only”, with a cost-to-serve that is 30 per cent lower than that of customers using physical channels. The other half are omni-channel customers who use a mix of both digital and physical channels, accessing services conveniently in the manner they prefer. These customers generate on average 50 per cent more revenue than those using only physical channels.
To make payments simpler and for customers to enjoy more benefits when they bank and pay with us, we broadened our digital payments and e-commerce ecosystems with key players such as Grab, Fave and Shopee.
For Indonesia’s digital generation, we launched TMRW – ASEAN’s first mobile-only digital bank, a year after introducing it in Thailand. Our digital banking capabilities also enable us to scale our retail business across ASEAN, especially for young families and young professionals.
We improved the engagement capabilities of our all-in-one mobile app, UOB Mighty, by tapping the same digital capabilities used by TMRW. Mighty Insights, launched in Singapore and expanded to Malaysia last year, uses advanced data analytics, machine learning and pattern recognition algorithms to determine the best guidance for customers based on their different life stages and lifestyle priorities.
Enhancing our digital capabilities for business customers
For our corporate clients, we launched UOB Infinity, a customisable digital banking solution that makes it easier for them to manage their company’s finances at a glance and in real time. To help small- and medium-sized enterprises (SMEs) accelerate the digital transformation of their business, we tapped our partners such as The FinLab, Google, Dropee and Getz and provided assistance to help SMEs through these tough times. We rolled out a new trading platform and also made significant progress on our new trade financing platform that will be implemented in 2021.
All these digital transformation efforts help us drive productivity. Even in a lower interest rate environment, they enable profitable growth.
Growing our own timber
People are our greatest asset. We take our duty of care to them very seriously and focus on their professional and personal fulfillment.
We believe firmly in growing our own timber. We open up opportunities for our people to progress on their chosen career paths, including through leadership development initiatives. We also deepen our talent pool by welcoming specialist skills to help us build our business further and faster.
In 2020, we invested about $20 million in training programmes for our colleagues. Our flagship Better U training and development programme was expanded to include data analytics and project management – two areas essential for future relevance. Our inaugural UOB Regional AI-deathon, a Bank-wide and cross-functional hackathon, combines education and training to promote innovative mindset and to develop AI skills.
We have five centres of excellence (Digital, Technology, Sector Solutions, Product Innovation and Transformation) in Singapore, which we continue to resource through hiring, training and investments.
We have taken a leading position to establish new remote work guidelines for a post-COVID-19 world. Broadly, our people will have the option to work remotely two days a week, dependent on their job scope. They will have more control of their work-life balance while staying connected with their colleagues and the Bank. We are also accelerating our office transformation plans to support our agile work model.
Emerging stronger
Following a year of turmoil, early green shoots of recovery can be seen in 2021, just like the orchid amid the difficult terrain in the cover painting, United We Stand.
Resolving the crisis will remain the focus of all governments. Vaccines bring hope to many that the worst is behind us. However, for many economies, recovery will be neither smooth nor swift.
For UOB, we entered the crisis from a position of strength and have proven resilient. Guided by our values of Honour, Enterprise, Unity and Commitment, we will continue to help businesses to advance responsibly, to steer wealth to sustainable investments and to foster social inclusion and environmental well-being
We will emerge stronger.
As we do, we remain committed to deepening our ASEAN franchise – which gives us the competitive advantage, enabling us to connect our customers to opportunities across the region. We will continue to enhance our digital capabilities so our customers can transform their businesses and participate in the increasingly digital economy. To ensure our colleagues continue to thrive in a future dominated and determined by data and digital services, we will keep investing in their capabilities.
We believe the future of Asia and its people is bright and we stand ready to help our customers and colleagues prosper in the better times ahead.
Acknowledgements
I thank everyone at UOB for all their efforts in 2020. Your commitment and unity in helping our customers and each other in the most trying of times exemplify what is core to UOB. I would also like to thank the Board for its steadfast support and confidence in the management team throughout this year of unprecedented challenges.
Finally, to our loyal customers and shareholders, thank you for your faith in UOB over the last year and for the many years to come.
Wee Ee Cheong
Deputy Chairman and
Chief Executive Officer
February 2021
