UOB margins set to finally move higher: Maybank KimEng

Singapore UOB bank branchSingapore UOB bank branch

UOB’s net interest margin (NIM) disappointed in the first quarter, falling by 5 basis points, but it may finally begin to see positive momentum ahead, Maybank KimEng said in a note last week.

Earlier this month, UOB reported its first quarter net profit increased 8 percent on-year to S$1.05 billion as strong loan growth of 12 percent offset a drop in its net interest margin. Its NIM, or the difference between the interest rate banks charge to lend and their cost of funds, dropped 5 basis points to 1.79 percent.

Maybank KimEng said the drop in NIM was due to the bank “pre-funding” to mitigate expected increases in interest rates, which pushed its first quarter funding costs up 49 basis points on-year. That was due to an 8.4 percent on-quarter increase in higher-cost fixed deposits, compared with a 1 percent rise on-quarter in lower-cost CASA (current account savings account) deposits, the brokerage said.

“With the current interest rate outlook more benign we don’t expect a repeat in the second quarter of 2019. In fact, management claims it has sizeably reduced new deposit acquisitions so far this quarter,” the brokerage said.

It estimated UOB’s overall NIM should rise 4 basis points on-year in 2019.

Maybank KimEng was also positive on UOB’s launch of its branchless digital bank TMRW in Thailand in the first quarter, with management saying the app had been downloaded 290,000 times with “significant customer engagement.”

“We believe a successful execution of this platform will enable UOB to scale in other, similar under-banked markets, such as Indonesia and Vietnam quickly and effectively providing a new avenue for revenue generation at a lower cost base,” the brokerage said.

The brokerage lowered its 2019-21 earnings forecasts for the bank by 1 percent to 2 percent on adjustments for the first quarter results and on expectations for higher provisioning costs ahead.

It also trimmed its target price to S$28.97 from S$29.71, but kept a Buy call.

Shares of UOB ended Friday down 0.72 percent at S$24.98; Singapore’s markets were closed for a public holiday Monday.


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