■ Heading toward mid single-digit loan growth. Management lowered guidance for loan growth to 5% for 2015 (previous: 5-10%). UOB has already achieved loan growth of 2% qoq in 1Q15. The revised guidance implies that loan growth would be rather muted in subsequent quarters. Management intends to focus on improving pricing for loans. The bank will pace and control loan growth to ensure net interest margin (NIM) remains firm.
■ Management expects growth to be derived primarily by corporate loans in Singapore and Malaysia. There are opportunities to lend for infrastructure projects in Singapore, such as the Thomson MRT lines. There is on-going demand to finance property developers as they replenish their landbank through government land sale. GDP growth in Malaysia remains resilient despite the slew of negative publicity surrounding 1MDB. There would be a continued drawdown of corporate loans for pre-committed projects. Management is confident of a recovery in Thailand. There is growth up-country, especially at provinces neighbouring Myanmar and Laos.
■ Slower growth from lending in US$. Unlike peers, UOB was less active in providing trade finance for Chinese customers. Thus, it was able to maintain positive growth of 7.5% qoq for US$ loans in 1Q15 (DBS: -2.1% yoy and OCBC: -5.2% yoy). UOB has excess liquidity with US$ LDR at 58.4%. It plans to replace high-cost US$ fixed deposits with low-cost US$ current accounts from non-bank financial institutions, such as central banks and insurance companies.
■ Benefitting from higher interest rates. UOB is a beneficiary of the higher interest rates in Singapore as it has the highest proportion of loans denominated in S$ at 53.2%. Its corporate loans are re-priced every 2-3 months. It has also increased its board rate for housing loans by 30bp in April (housing loans pegged to board rate 50%, SIBOR plus packages 40% and fixed rate housing loans 10%). 60-70% of its loans were already repriced in 1Q15.
■ Management expects a slight improvement in NIM for 2Q15. Management estimated that net interest margin would improve by 3-4bp for every 25bp increase in 3-month SIBOR.
■ Foresee deterioration of asset quality in Indonesia. NPLs from Indonesia have grown 5% qoq in 1Q15 due to exposure to a manufacturing/textile company. Management is closely monitoring its Indonesian operations and expects one to two more quarters of asset quality weakness. Fortunately, its Indonesian operation is smaller and dwarfed by its sizeable presence in Singapore and Malaysia. Management expects total credit costs to be maintained at 32bp in 2015, similar to last year’s. NPL ratio is expected to stay relatively unchanged at 1.2%.
■ Seizing opportunities in intra-regional trade and investments. UOB plans to strengthen its geographical footprint and integrated platform to support customers as it grows in home markets and expands in the region. It aims to seize the opportunities offered by growth in intra-regional trade and investments and rising affluence in Asia. It will strengthen its wholesale business with specialised industry-driven focus and by providing integrated financial solutions. (Read Report)
Source : UOB KayHian Research