United Overseas Bank - UOB Kay Hian 2021-09-28: ASEAN-Centric With Least Exposure To Greater China


United Overseas Bank - ASEAN-Centric With Least Exposure To Greater China

  • UOB has the least exposure to Greater China among the three Singapore banks at 16.1% of total loans. 47% of its exposure to Mainland China is via the banking sector, primarily systemically-important domestic and policy banks through discounted letters of credit. Its exposure to Hong Kong is predominantly wholesale banking for blue chip companies.
  • Loan growth should pick up in 2H21 given the strong pipeline and loan-related fees are on track to hit a new record for the full year in 2021.

UOB presented at SGX-UOB Kay Hian Virtual Singapore Corporate Day.

  • Least exposure to Greater China. UOB (SGX:U11) has the least exposure to Greater China as, unlike its peers, it did not acquire any Hong Kong-based banks. Greater China accounted for 16.1% of UOB’s total loans (DBS: 30.6% - Hong Kong 16.5% and rest of Greater China 14.1%, OCBC: 25.6%) as of Jun 21. UOB has only one branch in Hong Kong. It has a small footprint of 22 branches focusing on Tier 1 cities in China (DBS: 35 branches, OCBC: 18 branches).
  • Exposure to Mainland China predominantly low-risk short-term facilities. UOB has exposure of S$27.3b to Mainland China as of Jun 21, which accounted for 6% of total loans. The exposure comprises of:
    1. UOB has exposure of S$12.9b to the banking sector in China as of Jun 21. They are primarily short-term facilities with maturity of less than one year, of which 70% are exposure to the systemically-important top five domestic banks and three policy banks. Trade finance, predominantly discounted letters of credit, accounted for about half the exposure to the banking sector.
    2. UOB has exposure to state-owned enterprises, large local corporations and foreign investment companies of S$11b as of Jun 21. About half of the exposure is short-term facilities of less than one year, such as working capital loans and trade finance facilities. NPL ratio is low at 0.4%.

UOB has no exposure to Evergrande.

  • UOB does not have exposure to Evergrande, the second largest property developer in Mainland China. It also has minimal exposure to other highly-geared Chinese property developers.
  • Focusing on large blue chips in Hong Kong. UOB has exposure of S$38.2b to Hong Kong, primarily wholesale banking for blue chip companies, as of Jun 21. 60% of its corporate loans have maturity of less than one year. Its exposure to the property market in Hong Kong is primarily through commercial properties, as it does not have exposure to residential mortgages. NPL ratio is low at 0.8%.

More pickup in 2H21.

  • Management guided high single-digit loan driven COVID-19 pandemic in 1H21. UOB was able to generate a growth of 8% for risk-weighted assets with the dividend payout ratio kept at 50%. Management expects contributions from ASEAN countries to recover, driven by higher COVID-19 vaccination rates in 2022. Thus, cost-to-income ratio is expected to improve to 43-44% in 2022.

NIM has bottomed.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-09-28
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000