United Overseas Bank - UOB Kay Hian 2019-05-06: 1Q19 Robust Loan Growth But Narrower NIM


United Overseas Bank - 1Q19: Robust Loan Growth But Narrower NIM

  • UNITED OVERSEAS BANK LTD (UOB, SGX:U11) reported net profit of S$1,052m for 1Q19 (+8% y-o-y), which is above consensus estimate of S$1,000m.
  • Loan growth was robust at 12% y-o-y, driven by building & construction, and manufacturing. Net trading income also increased 39% y-o-y to S$243m. Management expects loan growth to moderate in subsequent quarters.
  • Expensive fixed deposits would run off, which should result in a recovery for NIM.


  • UOB reported net profit of S$1,052m for 1Q19, up 8% y-o-y and above consensus estimate of S$1,000m.

Pick-up in loan growth.

  • Loans expanded by a robust 12% y-o-y and 3% q-o-q in 1Q19, driven by building & construction (+22.3% y-o-y) and manufacturing (+17.2% y-o-y). The expansion in building & construction arose from developers drawing down credit facilities approved before the government imposed cooling measures on private residential properties in Jul 18.
  • By geographical region, loan growth was dominated by Singapore (+8.3% y-o-y), Thailand (+12.5% y-o-y) and Greater China (+26.6% y-o-y).
  • NIM narrowed 5bp yoy and 1bp qoq to 1.79% due to higher cost of deposits. Fixed deposits increased 18% y-o-y while CASA ratio deteriorated 3.1ppt y-o-y to 42.7%. Loan/deposit ratio receded 1.6ppt q-o-q to 86.6%. Management explained that surplus deposits were parked in low-yielding short duration instruments, resulting in the downward pressure on NIM. Net interest income grew 8% y-o-y.

Sequential recovery from wealth and loans related fees.

  • Wealth management fees rebounded 19% q-o-q as market sentiment recovers but remains 17% lower on a y-o-y basis (high base in 1Q18). Loans related fees grew 9% y-o-y, but contribution from fund management declined 24% y-o-y.
  • Overall, fees grew 2% q-o-q but were down 7% y-o-y.

Normalisation in other non-interest income.

  • Net trading income increased 39% y-o-y to S$243m on improved customer flows and higher trading income. It recorded gain from investment securities of S$28m, compared to losses of S$59m in 4Q18.

Asset quality largely stable.

  • NPL balance increased marginally by 1.5% q-o-q. NPL ratio eased 3bp q-o-q to 1.50%, aided by strong loan growth. Credit costs were largely stable at 14bp. Specific provisions were mainly for NPLs Singapore and Thailand. There was a write-back in specific provisions of about S$12m for Greater China.


  • UOB will stay disciplined in pursuing sustainable growth as global uncertainties persist. It will maintain a risk-focused approach while training its staff to prepare for and seize future opportunities.

Loan growth moderating.

  • Management maintained guidance of mid single-digit loan growth for 2019. Management expects loan growth to moderate in subsequent quarters, particularly for Hong Kong.
  • For Malaysia, corporate customers remain cautious due to political uncertainties. Management is optimistic on Thailand as the election is already over and business sentiment should gradually recover.

Management expects NIM to remain unchanged

  • at about 1.82bp in 2019 (2018: 1.82%, 1Q19: 1.79%). For commercial banking, UOB is able to pass on the higher cost of deposits to customers.
  • For wholesale banking, the competition to serve high-grade corporations remains keen. Management will allow expensive fixed deposits to run-off, given than loan growth is expected to moderate in subsequent quarters.

Renewed competition for residential mortgages.

  • Management sees a slowdown in new launches and competition for refinancing. Thus, a slowdown in residential mortgages is anticipated.
  • Management observed renewed competition for residential mortgages. It will defend its market share provided that pricing is rational.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-05-06
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000