UOB must push outside the Lion City

A saturated home market means UOB and other Singapore banks are looking to expand its business in Southeast Asia and North Asia, including China

Looking out from the 61st floor of the UOB Tower in the Raffles Place, all of Singapore nestled in its tropical cocoon is laid out below you.

With its domestic territory already conquered, the next targets for Singaporean bank UOB lie far over the horizon. The fertile hinterlands of North and Southeast Asia are where the firm is now pivoting towards in its search for further and sustainable growth.

Under the leadership of CEO Wee Ee Chong, UOB is ramping up its focus on tapping into the burgeoning middle class of the region that is home to the world’s fastest growth in personal wealth.

Wee, whose bank is Singapore’s third-largest lender by assets, set out his key priorities at the bank's recent annual Corporate Day from the penthouse suite atop the tower that bears his bank’s name. With a well-timed jab towards the ongoing arm wrestling that constitutes the recent US-China trade negotiations, Wee said it was essential that his bank should now concentrate its efforts on a trio of key priorities. 

The precedence for UOB going forward will be regional connectivity, ecosystem partnerships, and a strong balance sheet and quality earnings. In order to achieve this testing trio of goals, Wee and his management team will have to get the bank to reinvent and reshape itself. A challenge that if attained, could secure it a significant and enduring regional position.

But the contest that lies ahead for UOB is not as easy as plugging in the tried and tested Singaporean model in other jurisdictions. The neighboring playing fields, attractive and laden with potential as they undoubtedly are, are not always as fair and equable as the domestic arena.   

The uncomfortable truth facing the triumvirate of home-grown Singapore banks UOB, DBS and OCBC is that the local market is sated. And squeezing more out of the city-state’s overbanked customers is becoming a harder act to accomplish and report each quarter.  

As well as the local trinity of DBS, OCBC and UOB, international banks like HSBC, Standard Chartered, Malaysia’s Maybank, and US giant Citi have also joined the battle for Singaporean clients. The increasing appeal of fintechs to younger customers adds another layer to the erosion of the influence of the traditional lenders.

Southeast Asia is currently home to more than 650 million people and growing, a glittering prize for the banks and financial services firms which manage to get the blend right. That task is not so easy as local rival DBS found out. The bank, after protracted negotiations, failed in its bid to acquire Indonesian lender Bank Danamon once Jakarta regulators intervened.

Since then DBS has turned to consumers in India with its mobile only “Digibank”and wealthier clients in the Middle East and London.

Adding to Southeast Asia’s attraction is it is now seen as the most likely place of refuge for manufacturers seeking to deflect the influence of a prolonged trade dispute. Supply chains are already being embedded throughout ASEAN in the likelihood that the Sino-US trade spat develops into a deeper and longer fight. 

To the north, Greater China is full of promise for Singaporean banks, and all three are expanding their presence in the Greater Bay Area. That conurbation comprises nine Pearl River Delta cities in Guangdong province, together with Hong Kong and Macau, and is expected by 2030 to be home to more than 88 million. And beyond that, there is the rest of China. Paltry by comparison, the Lion City’s domestic population of 5.8 million, though the wealthiest in its region, is inundated with banking products and services, and room for significant growth is minimal.

Based on its latest numbers Wee’s strategy looks right. At present more than 40 percent of UOB’s total group operating profit is derived outside of Singapore. Out of that, close to 80 percent comes from the firm’s operations in the ASEAN region and Greater China.

ASEAN is the fifth-largest economy in the world and its gross domestic product is expected to more than double by 2030, according to Macrobond, UOB Global Economics and Markets Research. With UOB embedding itself in the major Southeast Asian hubs, Wee expects these numbers to increase soon meaning the majority of its earnings will come from outside of Singapore. This could be realized as soon as this year.

A key component in overseas business growth is UOB’s mobile-only bank called TMRW. Having launched TMRW in Thailand in February this year, the bank will launch TMRW in other ASEAN markets by the second half of the year. Indonesia and Malaysia are the next potential sites. TMRW aims to build a customer base of up to five million in the next five years, almost the same as Singapore’s population.

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