UOB outlook stable despite muted operations: Moody’s

Its recent acquisition will contribute positively to profitability.

United Overseas Bank (UOB) will maintain a stable credit profile over the next 12-18 months, Moody's said. 

The affirmation of the rating is supported by the bank's substantial capital, funding, and liquidity, which will help mitigate any increase in credit costs due to rising asset risks. UOB's profitability is also expected to improve moderately.

In case of need, UOB can rely on a high level of support from the Government of Singapore, resulting in a three-notch uplift above the bank's adjusted Baseline Credit Assessments (BCA). 

However, muted operating conditions in Singapore and UOB's foreign markets may lead to a slight increase in non-performing loans, particularly in the small and medium enterprises and building and construction (B&C) sectors. 

Nevertheless, UOB's conservative risk appetite and regional loan diversification will help mitigate some of the impacts on asset quality.

Moody's also expects UOB to maintain a healthy provisioning buffer of around 100% of problem exposures during the same period.

UOB, along with other major Singaporean banks, has significant exposure to the building and construction (B&C) industry, which accounts for 27% of its gross loans as of year-end 2022.

While the majority of UOB's B&C loans are in Singapore, where credit conditions for borrowers are expected to remain relatively stable according to Moody's, the bank's exposure to the challenging property markets in Greater China poses asset risks. 

ALSO READ: OCBC to remain strong and stable through 2024: Moody’s

However, UOB has minimal exposure to the US real estate market. The bank's strategy of primarily financing robust private B&C companies and state-owned entities helps mitigate potential stress within that portfolio.

Profitability is expected to improve slightly, with a projected return on assets of approximately 1% in 2023. 

While Moody's anticipates a generally stable net interest margin due to nearing peak interest rates, UOB's recent acquisition of Citigroup Inc.'s retail lending business in the ASEAN region will contribute positively to profitability.

UOB's funding will continue to benefit from a robust and stable deposit base in Singapore, reducing its reliance on market funding. Liquidity will remain strong, supported by a substantial share of high-quality liquid assets.