All three Singapore banks have released results earlier this month.
What caught my attention was while both DBS and OCBC shares went up, UOB shares fell.
Year to date, UOB shares have fallen ~7%.
Like I’ve written about Singapore banks here before, I don’t have a good feeling about Singapore banks.
With UOB’s 3Q2025 net profits tumbling over 72%, would I sell my UOB shares?
Well, let’s break down below.
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UOB 3Q2025 net profits fall – what happened?
UOB 3Q2025 net profits plunged 72% y/y. Over the nine months period, UOB’s net profits fell 28% y/y.
At first glance, this doesn’t look good. But management pointed out it was because of its higher “profit provisions.”
Now, UOB has decided to set aside a higher amount of its profits last quarter as a “provision.”
A bank makes a provision by setting aside funds from its profits, known as loan loss reserves.
This protects the bank from potential losses from potential defaulted loans that cannot be repaid. But it could reduce a bank’s profits in the current period.
A bank normally does this in case it expects more loans to go sour. This helps cushion the impact of defaulted loans if the economy crashes.
Put it this way, it seems like UOB is more cautious about its economic outlook.
Management said: “Net profit for 3Q25 stood at S$443 million, as the Group took proactive steps to shore up pre-emptive general allowances to strengthen its provision coverage amid ongoing macroeconomic uncertainties and sector-specific headwinds.
This brought performing loan coverage to 1%, NPA coverage to 100% and 240% including collateral.
Total credit costs are expected to normalise following this exercise.”
Am I worried about this?
Not really.
First things first, UOB’s current non-performing loans are one of the lowest amongst global banks.
Yet, management still raised its profit provisions because of uncertainties.
Next, UOB focuses on regional loans. In ASEAN economies, a slowdown or credit stress will show up in higher non-performing loans.
You see, lower net profits due to higher profit provisions is a way management is telling us they are being more careful.
The way I see this, it can be a good thing. Especially when interest rate cycles are changing.
However, this also brings me to my next critical point…
The bigger UOB issue – falling net interest income
If you look closer, UOB’s net interest income has continued to fall. This is what I’m concerned about.
As I’ve written earlier, when interest rates fall, we should see a surge in loan demand.
And banks’ profits during low interest rate cycles should be compensated by a proportionate rise in loan volumes.
However, loan growth takes time to respond. Like I’ve said, you can’t expect the stock market to follow textbook rules.
Loans don’t adjust immediately to interest rate changes.
What’s more, the government cuts interest rates because they see a weaker outlook. And companies might not readily take loans despite cheaper borrowing costs.
I believe that’s why UOB started setting aside more profits to provision for potentially more bad loans.
I know, UOB’s non-performing loan ratio is solid. But I also believe UOB knows what’s exactly going on during interest rate cycle shifts.
So… Would I sell all my UOB shares today?
For Singapore banks, it depends on what price you paid. It’s not the same for different investors.
I’ll explain.
If I had bought UOB shares closer to peak in recent months, I’d have a much lower, riskier margin of safety.
Why?
Net interest income peaking. More “profit provisions” are made.
You see, this is what’s different for me: I bought UOB shares when it was comfortably below S$21.
At that price range, I believe I’ve gotten a sufficient margin of safety – and a good dividend yield.
This allows me to collect a high dividend yield on cost for my UOB shares. As a dividend investor, I want to keep growing this passive income for retirement.
Of course, I’d sell my UOB shares immediately if I knew I’d overpaid for a business.
Even though UOB shares still trade closer to its peak, even though its P/B ratio is trading at a more modest valuation, in my view it’s not considered massive overvaluation – yet.
In fact, today UOB’s P/B ratio trades around its historical average.
Then… Would I buy more UOB shares for dividend?
UOB shares currently trade at 5.2% dividend yield – assuming I exclude its special dividends paid out in 2024 (see red box below).
This means, over the last 12 months, UOB paid ~S$1.77 per share dividends.
This is also somewhere in-between DBS and OCBC dividend yield.
The thing is you might be happy to lock in UOB shares at a 5% dividend yield today.
Sometimes, you prefer a 4% dividend yield for UOB. To each his own.
But my thesis is simple – I want to pick stock prices with a reasonable margin of safety.
Of course, if shares of a Singapore bank trades at a reasonable price, it doesn’t necessarily mean I must be aggressively buying.
A “dip your toes in the water” is absolutely fine.
Diligence members will know I only want to buy more when shares of high-quality businesses reach a substantial margin of safety – which is below My Right Price Gauge.
Otherwise, I could be trapped in a “no-man’s land” – buying high-quality assets at a wrong price.
What’s more, with interest rates dropping, I’d demand a much higher margin of safety . This means I want to capture it when it’s trading at a much lower price point.
What about UOB wealth management?
That’s the thing, UOB’s wealth management isn’t as big as DBS’s and OCBC’s wealth management.
UOB’s wealth management fees account for less than a quarter of its fee income. So much of its potential earnings growth still relies on the traditional loans business.
When the loans business is in between interest rate cycles, I expect UOB’s net profits will be impacted more than the other two Singapore banks.
My final thoughts
UOB’s net profits have stumbled – shares have dropped. But I wouldn’t sell UOB shares today.
I also don’t see a massive bargain in its shares. Of course, if you target a 5% yield for your portfolio, it’s perhaps a starting point to accumulate, especially when I expect Singapore banks to get hit by interest rate cycles.
Again, this is going to impact how banks grow their profits.
And UOB is jumping ahead to start provisioning some of these potential non-performance in view of a weaker economic outlook.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
