RHB: UOB set for higher net interest income

UOB logoPhoto by Leslie Shaffer

UOB’s net interest margin (NIM) in the first quarter may be relatively flat on-quarter, but its net interest income is likely to grow, RHB said in a note this week.

That’s because lending yields have been boosted by higher home mortgage interest rates, but that’s been offset by “very strong” competition in the corporate segment, RHB said after speaking with UOB management.

Home mortgages linked to the SIBOR-related board rate were raised by 50 basis points in batches starting from January, a move set to strengthen first-quarter lending yields, the note said.

UOB took in more deposits toward the end of last year, keeping the cost of funds high, RHB said, adding that management was guiding for a “flattish” first-quarter NIM on-quarter. The NIM is the difference between the interest rate banks charge to lend and their cost of funds.

“UOB sees limited room for NIM enhancement in the second quarter of 2019, due to loan competition and UOB’s preference for high-quality, lower yielding loans,” RHB said.

But mid-single-digit loan growth is expected for 2019, with loan expansion in the first quarter likely driven by the construction segment and the progressive drawdown of mortgages, the note said, adding that would likely spur net interest income growth.

RHB raised its target price on UOB shares to S$30.80 from S$29.80, keeping a Buy call.

UOB shares ended Thursday at S$27.04, down 0.29 percent.


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