CEO says that while takeovers and tie-ups remain a key plank, acquisitions are becoming more pricey
THE next stage of transformation of United Overseas Bank (UOB) will be driven by organic growth, as acquisitions get more pricey, says chief executive Wee Ee Cheong.
Acquisitions are 'opportunistic', especially since prices of regional assets have 'gone up multiple times' in recent years, he noted.
'So it makes sense to grow organically as it is cheaper.'
In his first interview with The Straits Times three months after taking over the top post in UOB from his father Wee Cho Yaw, Mr Wee laid out the bank's plans to diversify its earnings abroad by building up its talent and franchise in regional markets.
It has acquired bank stakes in Indonesia, Thailand and Vietnam, as well as built up a strong Malaysian franchise, so the bank is now focusing on consolidating its regional operations.
Mr Wee expects these markets with 'strong long-term potential' to be key drivers of the overseas earnings contribution to the group, which is targeted to reach 40 per cent of total income by 2010.
Three months into the job, he noted that 'nothing major has changed so far'.
But change in the economic landscape is inevitable - UOB faces stiff competition from both domestic and foreign players at home, and is girding itself to 'weather short-term volatilities and ride through the ups and downs in business cycles'.
Meanwhile, shareholders and investors are demanding efficient use of capital these days, observed Mr Wee.
'Where can we get the best returns on the same capital? If the business model is not right, then there is a need to relook and reallocate resources.
This is why UOB needs to 'get the strategy right' as it grows organically.
This entails gradual development from within, as opposed to growth through acquisitions.
'What we need to do now is to invest in infrastructure, talent and knowledge, so that we can easily scale up when the volume surges in the future,' said Mr Wee.
The bank emphasises that organic growth, mergers and alliances are all part of its expansion plans and it does not have any preferences for a particular method, since the choice depends on market conditions and regulatory constraints.
But still, even in the red-hot China market, where foreign players have been snapping up stakes in domestic banks, UOB is 'not in a great hurry' to nail down an acquisition deal, as the bank 'already has its organic growth plans in place'.
The bank expects to receive its licence for local incorporation by the fourth quarter of this year.
Mr Wee, whose first day on the job as CEO was marked by the signing of a letter of intent to buy a strategic stake in Evergrowing Bank, said UOB is pursuing a 'romance' with Chinese lender Evergrowing.
Asked why it was taking this long to seal the deal, he responded: 'It is not how you start, but how you finish that counts.
'When you are a minority shareholder with a stake of less than 20 per cent, you are not in control of the situation. So if you select the wrong partner, the cost can be high,' he explained.
He disclosed that UOB had spoken to 'quite a number of banks over the past five years', but it had not found the right fit for reasons such as pricing and strategic direction.
He noted that Evergrowing Bank not only fits the bank's criteria, but also enables UOB to tap its branch network.
UOB may also be able 'to replicate its own products for the mass-affluent segment and corporate customers' in partnership with Evergrowing, he added.
At the same time, the bank is wooing Vietnam's Southern Commercial Bank, with an eye to raising its stake from 10 per cent to 20 per cent.
'UOB opened its first branch in Ho Chi Minh City in the early 90s, way before any other Singapore bank decided to make inroads into the Vietnamese market.' noted Mr Wee.
'I was personally involved in getting things going. When I was in university, I mingled with a lot of Vietnamese friends, who were all very hardworking, very smart. So I planted the seed for UOB in Vietnam very early on,' he recalled.
Indeed, he has been at the forefront of the bank's regional expansion and acquisition activity over the past few decades.
'The bank itself was created through five acquisitions since the 1970s, the most recent being Overseas Union Bank in 2001,' said Mr Wee.
'At that time, during the Asian financial crisis, we realised that our risk was too concentrated in Singapore, so we started to diversify abroad,' he said.
So UOB acquired Thailand's Bank of Asia and a stake in Bank Buana Indonesia, now renamed UOB Buana. This has given it access to a combined population more than 70 times that of Singapore.
Mr Wee is optimistic that the earnings contribution of UOB's Indonesian subsidiary and UOB Buana to group profits may rise from about 5 per cent currently to 'perhaps 10 to 12 per cent' in the coming years.
While he acknowledged that the current 'situation in Thailand is challenging' as the outlook remains uncertain and UOB had to swallow impairment charges on its Thai unit recently, he also sees 'good opportunities to initiate a lot of activity' there.
To attract the right talent to build UOB into a regional bank, he plays a hands-on role as 'chief headhunter' to make UOB 'exciting and attractive to the younger generation across the region'.
'We are in the people business. The banking business is strictly regulated and can be quite boring, but my task is to challenge young people from Singapore, Indonesia, Malaysia and across the world to join a Singapore bank like UOB,' he said.
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