Phillip Capital: UOB least exposed to trade war among Singapore banks

UOB branch at Raffles Place, SingaporeUOB branch at Raffles Place, Singapore. Photo taken pre-Covid.

UOB is the Singapore bank least exposed to a global trade war, while the property cooling measures aren’t likely to affect loan growth in the near term, Phillip Capital said in an note on Wednesday.

“Between 10-15 percent of UOB’s loans book is trade related, with the bulk anchored out of South-East Asia,” it said. “Hence we do not expect the trade war to pose significant risks to trade loans growth unless it escalates into an overall global slowdown.”

It noted that UOB has the largest proportion of Singapore loans, at 52 percent of total loans in the second quarter, compared with DBS at 47 percent and OCBC at 41 percent. UOB also has the least exposure to Greater China, with those loans at 15 percent of the total in the second quarter, compared with DBS at 16 percent and OCBC at 26 percent, it said.

Of the three banks, UOB has the largest proportion of property-related loans at 50 percent of the total, compared with DBS’s 42 percent and OCBC’s 42 percent, it noted. Mortgage-related loans are 27 percent of the total, while building and construction were another 23 percent, it said.

“Due to drawdowns of previously approved loans, weakness in the property-related loan market may only be felt next year. Lending to the
property developer market is expected to hold up in the short-term,” Phillip Capital said.

In July, the government introduced a fresh round of property cooling measures, in a move that’s expected to dampen selling volumes and potentially prices.

It estimated that for UOB to miss its full-year loan growth target by 1 percentage point, the property related loans would need to contract by 3 percent to 4 percent.

With the near-term uncertainty over trade and property, Phillip Capital projected laon growth of 8.4 percent and 5.9 percent for 2018 and 2019 respectively.

It trimmed its target price to S$33.70 from S$34.50 on a lower return on equity (ROE) assumption and a lower book value assumption. It raised its dividend forecast to as much as S$1.20 a share, from S$1.05 a share, citing UOB guidance for a 50 percent payout ratio, indicating a 4.5 percent dividend yield. It kept a Buy call.

Shares of UOB were up 0.18 percent at S$27.20 at 11:32 A.M. SGT.

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