BankBazaar Singapore – January 12, 2018
Singapore: According to the latest predictions made by DBS Equity Research, UOB, one of the largest commercial banks in Singapore, is expected to register a better loan growth in 2017 than market analysts expected.
While the market, including DBS Equity, had expected the bank to post a 6.2% y-o-y growth in Singapore, an upbeat domestic property market is now expected to push loan growth to a higher trajectory.
A report cited by Singapore Business Review also suggests that UOB’s income through loans is expected to grow at 7% y-o-y in 2018-19 against the 6% projected earlier. Speaking to the business magazine, Sue Lin Lim, a DBS equity analyst, conceded that UOB needed to be more aggressive in its approach vis-à-vis competitors in the domestic loan market.
As a purely commercial bank with very little exposure to the capital markets, UOB is dependent on loan income to improve its net interest margin (NIM), a key contributor to the net interest income (NII). NIM is the difference between the interest income generated by a bank on its assets and the interest it pays on its liabilities.
According to the news article, Lim also felt that UOB is positioned to grow comfortably in the wealth management space, even with a comparatively small private banking business. It also said that NIM, despite improvement, may stay a little subdued during the period due to steep competition.
It needs to be noted here that the company had posted a 10.5% ROE (return on equity) for Q3 2017 based on loan expansion and higher NIM, despite marginally higher provisions towards NPAs. During this period, the bank had also managed to improve its NII by 14% y-o-y.
According to DBS, the NIM for 2017 could improve by six basis points y-o-y to 1.77%. The internationally-recognised equity market research division of DBS has also forecasted an improvement in NIM for the bank by four basis points in 2018 and 2019.
The jump in UOB’s net interest margin will mainly be driven by the excellent NIM that it had registered in the third quarter of 2017. NIM for Q3 2017 stood at 1.79%, a growth of four basis points on a sequential basis.
The improvement in property market sentiments from the beginning of Q3 last year is especially beneficial for UOB because it has the largest exposure to property loans. Property-related loans constitute half its total loans.
Historical data shows that there has always been a correlation between the property price index and UOB’s share price. Improvement in property prices and better loan recovery is expected to improve the 2017 NII for UOB as well as improve its share rating.
Many brokers like Phillip Capital had upgraded UOB shares to “accumulate” from “hold” after its Q3 2017 performance. Better market outlook for 2018 and 2019 is expected to make investors more enthusiastic about its prospects.