UOB’s purchase of Citi ASEAN retail assets improves profits, accelerates expansion
It is expected to add S$1b in profits annually, with earnings accretive beginning 2023.
There’s no other path for United Overseas Bank (UOB) but an upward growth trajectory after its acquisition of Citigroup’s ASEAN retail assets in four markets, according to analysts.
Analysts from Moody’s and RHB believe that the acquisition enhances UOB’s long-term growth prospects and will lead to improved profitability, whilst having a manageable capital impact.
RHB approximates that the new assets will add S$1b in annual revenue to UOB, against around S$700m in one-off transactions for the first couple of years. The deal earnings are expected to be reflected beginning end-2023.
In a media note, Moody’s Investors Service vice president Eugene Tarzimanov noted that it will strengthen UOB’s market franchise and retail customer reach.
“Whilst UOB’s core capital ratio will decrease modestly because of the acquisition, the bank is committed to strengthen its capital buffer in the medium term,” Tarzimanov added.
RHB is of the same opinion, saying that the acquisition is of the “right strategic fit” as the two banks have little overlap in customer base and product offerings.
The estimated 80% expansion in UOB’s ASEAN-4 customer base arising from the deal also accelerates UOB’s retail banking’s ambition to double its customer base by five years.
However, RHB warned of risks related to system integration, as well as staff and customer retention.
On the upside, Citi and UOB both operate on a common IT system across the region, which the UOB management believes should reduce the complexity for integration.
UOB intends to absorb all Citi personnel, many of which are sales personnel, whilst Citi’s senior management has valuable experience, which is also a positive for the bank.
Regarding client retention, RHB believes that the minimal overlap in product offerings reduces the risk of customer attrition.