UNITED OVERSEAS BANK LIMITED Annual Report 2011 I Contents 2 About United Overseas Bank Limited 4 Our Awards & Accolades in 2011 5 5-Year Group Financial Summary 6 Financial Highlights 8 Chairman’s Statement 10 Deputy Chairman & CEO’s Report 14 Board of Directors 20 Principal Offi cers 24 2011 in Review 34 UOB in the Community 37 Corporate Governance 44 Capital Management 46 Risk Management 57 Human Resource 60 Pillar 3 Disclosure 68 Management Discussion Analysis 84 Financial Statements 161 Investor Reference 162 UOB Share Price and Turnover 163 Statistics of Shareholdings 166 Five-Year Ordinary Share Capital Summary 167 Our International Network 170 Notice of Annual General Meeting Proxy Form Corporate Information All fi gures in this Annual Report are in Singapore dollars unless otherwise specifi ed. Sweet Rambutans by Georgette Chen Oil on canvas This painting by Georgette Chen is one of the most acclaimed pieces in UOB’s art collection. The Group started its collection in the 1970s as a way to support the local arts scene. Through this programme, UOB has collected more than 1,500 artworks which are displayed at the Group’s offi ces worldwide. As UOB is acknowledged as one of the pioneer banks in Singapore, so too is Chen recognised as a forerunner of the visual arts scene in the country. The rambutan fruit is a signature element of Chen’s still-life paintings. Chen who is known for her Post-Impressionist style has blended western and eastern elements in this artwork. Chen has forged a reputation for her portraits, landscape and still-life paintings. She was conferred the Cultural Medallion in 1982. A national arts scholarship has been established in her name. UNITED OVERSEAS BANK LIMITED 1 About United Overseas Bank Limited 77 years of strength and growth United Overseas Bank Limited (UOB) was incorporated in Singapore on 6 August 1935 as the United Chinese Bank. Founded by Datuk Wee Kheng Chiang, the Bank catered mainly to the Fujian community in its early years. In 1965, the Bank changed its name to United Overseas Bank to refl ect its ambition to become a premier bank in the Asia Pacifi c region. Over the past 77 years, UOB has grown through a series of strategic acquisitions and organic growth. UOB’s major banking subsidiaries in the region now include United Overseas Bank (Malaysia), United Overseas Bank (Thai), PT Bank UOB Indonesia and United Overseas Bank (China). UOB’s portfolio also includes Far Eastern Bank. Today, UOB has a global network of more than 500 branches and offi ces in 19 countries and territories in Asia Pacifi c, Western Europe and North America. UOB provides a wide range of fi nancial services through its global network including personal fi nancial services, wealth management, private banking, commercial and corporate banking, investment banking, corporate fi nance, capital market activities, treasury services, futures broking, asset management, venture capital management, insurance and stockbroking services. UOB also has diversifi ed interests in travel and property management. In Singapore, UOB is a market leader in the credit card and private residential home loans businesses. It is also a key player in loans to small and medium enterprises. Its fund management arm, UOB Asset Management, is one of Singapore’s most awarded fund managers with a growing regional presence. UOB is rated among the world’s top banks, with a rating of Aa1 from Moody’s and AA- from Standard & Poor’s respectively. UOB plays an active role in the community, focusing its corporate responsibility efforts on the arts, promoting education and helping children. For three decades, UOB has organised the annual UOB Painting Of The Year Competition which promotes the works of budding Asian artists. UOB also encourages its employees across the region to be involved in its corporate responsibility programme through regular volunteer activities. This includes UOB’s Heartbeat Run/Walk which is held in Singapore, Indonesia, Malaysia and Thailand. For more information, please visit www.UOBGroup.com. 2 UNITED OVERSEAS BANK LIMITED About United Overseas Bank Limited Our extensive network of more than 500 branches and offi ces in 19 countries and territories worldwide WESTERN EUROPE ASIA PACIFIC NORTH AMERICA 1 France 75 Singapore 14 China 3 Taiwan 1 Philippines 1 Canada 1 United Kingdom 214 Indonesia 6 Hong Kong 2 Japan 1 South Korea 3 USA 156 Thailand 3 Australia 1 India 1 Vietnam 47 Malaysia 3 Brunei 1 Myanmar UNITED OVERSEAS BANK LIMITED 3 Our Awards & Accolades in 2011 Alpha Southeast Asia Community Chest Awards Most Innovative Deal/Innovative Islamic Deal of the Year Special Events Platinum Award in Southeast Asia Global Finance: Best Structured Loan Deal of the Year in Southeast Asia Best Developed Market Banks Asia Asset Management Best Bank in Singapore Best of the Best Awards Best Retail House (Singapore) Islamic Finance News Deals of the Year Awards AsianInvestor IPO Deal of the Year Investment Performance Awards Real Estate Deal of the Year Best Onshore Fund House (Singapore) National Arts Council Asia Pacifi c Loan Market Association Distinguished Patron of the Arts Award Asia Pacifi c Syndicated Loan Awards Syndicated Corporate Deal of the Year SPRING Singapore Syndicated Deal of the Year Singapore Quality Class “Star” Award American Society for Training The Asian Banker and Development Excellence in Retail Financial Services Awards BEST Award Best Retail Bank in Singapore Best SME Banking Asiamoney Awards Best Local Cash Management Bank The Asset in Singapore (Small Corporates) Triple A Regional Deal Awards Best Syndicated Loan Top 2 Best Foreign Cash Management Bank in Thailand (Small Corporates) Triple A Transaction Banking Awards Rising Star Cash Management Bank in Thailand Association of Banks in Singapore Rising Star Trade Finance Bank in Thailand SPRING Excellent Service Awards (EXSA) ABS Service Excellence Champion Award Triple A Transaction Banking Awards 317 Star Awards Rising Star Cash Management Bank (Malaysia) 221 Gold Awards 156 Silver Awards 4 UNITED OVERSEAS BANK LIMITED Five-Year Group Financial Summary 2007 2008 2009 2010 1 2011 Selected income statement items ($ million) Total income 4,872 5,250 5,405 5,507 5,699 Total expenses 2,018 2,050 2,074 2,258 2,450 Operating profi t 2,854 3,200 3,331 3,249 3,248 Net profi t after tax 2 2,109 1,937 1,902 2,426 2,327 Selected balance sheet items ($ million) Total assets 174,950 182,941 185,578 213,778 236,958 Customer loans (net) 92,669 99,840 99,201 112,440 141,191 Customer deposits 106,967 118,171 121,502 142,299 169,460 Shareholders’ equity 2 17,329 15,573 18,986 21,473 22,967 Financial indicators (%) Return on average ordinary shareholders’ equity 12.6 12.2 11.9 12.9 11.1 Return on average total assets 1.24 1.07 1.06 1.24 1.06 Expense/Income ratio 41.4 39.0 38.4 41.0 43.0 Non-performing loans ratio 1.8 2.0 2.2 1.8 1.4 Capital adequacy ratios (“CAR”) 3 Core Tier 1 9.3 9.0 11.9 13.3 11.9 Tier 1 10.0 10.9 14.0 15.3 13.5 Total 14.5 15.3 19.0 19.8 16.7 Per ordinary share Basic earnings ($) 1.36 1.25 1.19 1.52 1.43 Net asset value ($) 10.91 8.90 11.17 12.51 13.23 Net dividend (¢) 4 73.7 60.0 60.0 70.0 60.0 Dividend cover (times) 4 1.90 2.14 2.10 2.25 2.46 Notes: 1 Excluded one-time gain on sale of UOB Life Assurance Limited and United Industrial Corporation Limited. 2 Attributable to equity holders of the Bank. 3 The Group adopted Basel II framework for its capital adequacy ratio computation in accordance with the revised MAS Notice 637 which took effect on January 2008. Prior to that, the Group adopted Basel I framework. 4 2007 and 2010 included special dividends of 12.3 cents and 10.0 cents respectively. UNITED OVERSEAS BANK LIMITED 5 Financial Highlights Total income $5,699 million ▲ 3.5% Overseas profi t contribution 34.7% ▲ 3.2%pt 38.8% 35.9% 35.5% 31.9% 32.0% 1,975 2,021 1,675 1,732 1,892 Singapore 65.3% Malaysia 16.0% Thailand 1.8% 3,576 3,674 3,532 3,678 2011 2,980 Indonesia 5.4% Greater China 5.2% Others 6.3% 2007 2008 2009 2010 1 2011 Net interest income ($ million) Non-interest income ($ million) Non-interest income/Total income (%) Core business was resilient. Income growth was underpinned by strong Overseas contributed 34.7% to the Group’s net profi t before tax, while fee and commission income as well as net interest income. Singapore’s contribution was 65.3%. Fee income rose 13.3% year-on-year with increased cross-selling across geographies and products, leveraging on the Group’s pan-regional franchise. Loan-related fee income reached a new yearly high of $370 million, an increase of 29.9%. Net interest income grew 4.1% supported by robust loans growth. Net profi t after tax $2,327 million ▼ (4.1%) Customer loans $141 billion ▲ 25.6% Customer deposits $169 billion ▲ 19.1% Loans/Deposits 83.3% ▲ 4.3%pt 86.6% 2,426 84.5% 83.3% 2,327 81.6% 79.0% 2,109 169 1,937 1,902 142 141 118 122 107 112 93 100 99 2007 2008 2009 2010 1 2011 2007 2008 2009 2010 2011 Net profi t after tax ($ million) Loans ($ billion) Deposits ($ billion) Loans/Deposits (%) Note: Net loans were net of cumulative impairment.