Mountain of evidence reveals a 12% fall in UOB gains

But loan growth will thrive.

According to DBS Vickers, UOB will register stable loan growth but NIM will remain under pressure. We expect UOB’s 3Q12 net profit to shrink by 12% q-o-q.

Here's more from DBS Vickers:

NIM would likely compress the most among peers as asset yields and deposit costs both exert pressure on NIM regionally.

Loan growth should remain stable around 1.5% q-o-q. Contrary to peers, UOB’s loan growth momentum has already shown signs of moderation in 2Q12.

Fee income should be lower q-o-q as there was a chunky deal booked in 2Q12. Excluding that, fee income remains largely loan-related driven. Trading and investment income could be higher given a healthier capital market environment in 3Q12.

Sticking to its conservative stance, we believe UOB will continue to raise general provisions in these uncertain times. We understand that UOB will continue to gradually reduce its positions in OECD countries, albeit small, and we do not discount the likelihood of higher specific provisions from this exposure.

Earnings cut by 2-5% for FY13-14F on the back of softer GDP growth and NIM compression persisting. We cut loan growth (from 10% to 8%) and lowered NIM by 3-4bps.

With uncertainties ahead, we believe UOB will build up provisions to buffer its positions. As such we raised provision charge-off rates by 4-8bps to 41-43bps.

UOB has historically had the highest provision charge-off rates vs peers mainly from higher general provision reserves; we believe the trend will continue.