UOB

UOB: UOB Kay Hian today released an unrated report on UOB.

Management lowered guidance for loan growth, heading towards mid single-digit. Management intends to focus on improving pricing for loans. The bank will pace and control loan growth to ensure NIM remains firm.

Management expects growth to be derived primarily by corporate loans in SG and MY, with opportunities to lend for infrastructure projects in SG, such as Thomson MRT lines. There is also on-going demand to finance property developers as they replenish their landbank through government land sale. GDP growth in MY remains resilient despite the slew of negative publicity surrounding 1MDB. There would be a continued drawdown of corporate loans for pre-committed projects. Management is confident of a recovery in Thailand. There is growth up-country, especially at provinces neighbouring Myanmar and Laos.

UOB currently has excess liquidity with US$ LDR at 58.4% and it plans to replace high-cost US$ fixed deposits with low-cost US$ current accounts from non-bank financial institutions, such as central banks and insurance companies.

UOB is a beneficiary of the higher interest rates in SG as it has the highest proportion of loans denominated in S$ at 53.2%. it has also increased its board rate for housing loans by 30bp in April (housing loans pegged to board rate 50%, SIBOR plus packages 40% and fixed rate housing loans 10%). 60-70% of its loans were already repriced in 1Q15.
Management expects a slight improvement in NIM for 2Q15 and estimated that NIM would improve by 3-4bp for every 25bp increase in 3-month SIBOR.