Loan growth has decelerated but margins should expand in 2Q15
. We are gratified to
see that there is discipline in improving pricing for loans. NPL ratio and credit costs
are expected to be relatively unchanged compared with last year despite NPL
formation in Indonesia.
■ 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
■ 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
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