CEO's Message on UOB Group
1H14/2Q14 Results

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Dear Investors

The UOB Group (the “Group”) registered net profit after tax of S$808 million for the second quarter of 2014 (2Q14). This was up 2.5% from the previous quarter, led by investment gains and loans growth. This lifted the cumulative net profit for the first half of 2014 (1H14) to a new high of S$1.6 billion – 6.1% more than the same period last year.

During 1H14, net interest income increased by 12.9% year-on-year to S$2.2 billion, backed by broad-based loans growth and stable net interest margin. Non-interest income grew by 5.0%, reaching S$1.4 billion. This was driven mainly by gains from investment securities. Overall fee and commission has eased year-on-year amidst a slowdown in regional economies and partly due to the absence of a chunky transaction deal that was booked in the first quarter of 2013. We continued to pace investment in our regional franchise and capabilities, with operating costs rising 8.5% over 1H13. Together with sustained income growth, our cost-to-income ratio improved to 42.4%.

Our balance sheet remains strong. Overall asset quality indicators were largely stable, with total loans charge-off rate and non-performing loans (NPLs) ratio relatively stable at 32 basis points and 1.2%, respectively, in 2Q14. We conduct regular stress tests and remain comfortable with the overall health of our portfolio. Concurrently, we have continued to bolster our reserves buffer and kept NPL coverage ratio high at 149.2%.

We have been disciplined in maintaining a steady funding and liquidity profile. The Group's loans-to-deposits ratio was healthy at 87.8%, as having a stable deposit base is core to our funding strategy, backed by our regional branch network. Together with our strong credit ratings, we have also deepened our diverse funding sources amid growing regulatory requirements on liquidity. One such recent initiative was the increase in our US commercial paper programme size to US$15 billion from US$10 billion.

Our capital position remained robust. The Group's Common Equity Tier 1, Tier 1, and Total Capital Adequacy Ratios were at 13.9%, 13.9% and 17.8% respectively – well above the minimum regulatory requirements. In May 2014, we issued our second Basel III-compliant Tier 2 notes, totalling S$500 million, which were well-received by the investment community. The Board is pleased to declare an interim tax-exempt dividend of 20 cents per share.

The global economy has in recent months shown some signs of recovery, led by the US. Closer to home, markets remain watchful risks in China and political events in South East Asia, although we believe the economies are resilient and the risks continue to be manageable. Our commitment to the region remains intact, and there are pockets of opportunities, riding on growing intra-regional trade and rising consumer affluence, for us to create sustainable value for our investors. Importantly, our balance sheet strength, established regional footprint and disciplined risk management would equip us to cope with the evolving banking and regulatory dynamics.

Wee Ee Cheong
Deputy Chairman & Chief Executive Officer
31 July 2014