UOB’s proposed Citi Asean-4 deal is a positive: OCBC

UOB logoPhoto by Leslie Shaffer

UOB‘s proposed acquisition of Citigroup‘s consumer banking business in Indonesia, Malaysia, Thailand and Vietnam is a positive, OCBC Investment Research said in a note Friday. 

“We view this announcement positively, which should help deepen its Asean franchise and double its Asean-4 scale, adding to rate tailwinds already underpinning the bank’s growth outlook,” OCBC said.

The cash consideration for the proposed deal will be a premium of S$915 million plus the net asset value of Citigroup’s consumer business, which was around S$4.0 billion as of end-June 2021, UOB said in a filing to SGX Friday. 

That included around S$9.1 billion of loans, S$6.2 billion of deposits and around S$6.7 billion in assets under management, the filing said.

Citigroup’s consumer business had a customer base of 2.4 million as of end-June 2021 and generated income of around S$500 million in the first half of 2021, the filing said.

OCBC noted UOB has been looking to capture growth in Southeast Asia, and the acquisition of Citi’s regional consumer assets largely won’t change the Singapore bank’s pro forma first half of 2021 geographical loan mix, with the city-state to still anchor the majority of group loans.

The note said OCBC recently issued a Buy call on UOB’s shares. 

“The bank is expected to see an improved outlook this year in tandem with the brighter regional economic outlook as vaccinations progress, with recent FY21E guidance reiterated for high single-digit loan growth target (driven by its wealth management franchise, improving Asean/Greater China connectivity flows and digital strategy expansion across Asean) and double-digit growth in non-interest income,” OCBC’s note said.

OCBC added that Singapore’s banks have a relatively high mix of floating rate assets, which should be repriced higher as interbank rates increase, as the U.S. Federal Reserve is entered a new rate hike cycle this year.

UOB’s fair value is set at S$34.80, the note said.

“We continue to see scope for UOB’s share price to gain ground, with potential catalysts from improving fee income momentum, loans growth recovery, stabilizing NIMs and easing concerns in its ASEAN loan book,” OCBC said.

Shares of UOB were up 2.30 percent at S$29.85 at 2:21 p.m. SGT.