The bank’s SGD loan-to-deposit ratio remains the highest amongst its peers.
United Overseas Bank (UOB) can expect its net interest margin (NIM) to expand 3bps in FY19 as it continues to witness pressure from deposit costs, according to a report by DBS Equity Research. NIM in FY18 improved by 5 bps at 1.82%.
The bank is expected to see further NIM improvement from mortgages amidst the challenging market as regional markets’ margins continue to face pressure from higher cost of funds.
UOB’s SGD loan-to-deposit ratio is reportedly the highest amongst its peers, and that itself could pressure SGD funding costs, given that SGD deposits form close to half of the bank’s total deposit base.
“Our sensitivity analysis indicates that for every additional 25-bp increase in Singapore Interbank Offered Rate (SIBOR), UOB’s NIM will rise 1bp, holding other variables constant, and this would lead to a further approximate 1% uplift to earnings,” DBS’s analyst Rui Wen Lim said in the report.
In 2018, loan growth momentum continued, coming in at 3% QoQ and 11% YoY, whilst NIM for Q4 was 1bp lower QoQ due to higher cost of funds, the report revealed.
UOB’s FY18 profits jumped 18% YoY to $4.01b amidst strong performance in loan-related, credit card, trade-related and fund management fees, according to its financial statement.
“UOB has lowered its loan growth guidance from mid-to-high to mid-single digit, in view of macroeconomic conditions,” Lim added. “Cost-to-income ratio is expected to remain stable at 44% in the near term as it continues to drive cost-to-income ratio lower on digitalisation and cost efficiencies.”
Meanwhile, a separate report by Jefferies noted that the margin may disappoint as mortgage refinancing may see a price and volume trade off. “We price in 1bp increase in margin for FY19,” Jefferies’ analyst Krishna Guha said. “We maintain the view that credit cost will continue to normalize and come in at higher end of the guidance range. That said, it is unlikely to exceed 30bps that we saw in 2017.”
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