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UOB to ride Asean recovery in 2022, NIM expansion in 2023: UOB Kay Hian

Atiqah Mokhtar
Atiqah Mokhtar10/15/2021 03:04 PM GMT+08  • 3 min read
UOB to ride Asean recovery in 2022, NIM expansion in 2023: UOB Kay Hian
The Fed is expected to commence interest rate hikes in 4Q22, which will have a positive impact on UOB’s NIM.
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UOB Kay Hian analyst Jonathan Koh reports an upbeat outlook for United Overseas Bank (UOB) after it recently presented at the brokerage firm's Asian Gems Virtual Conference 2021.

In an unrated report on Oct 13, Koh highlights that loan growth is expected to pick up in the 2H2021, following the 6.1% expansion recorded for the first half of the year.

The bank is expecting high-single-digit loan growth for 2021, driven by corporate customers seeking to lock in current low interest rates, buoyant sentiment for the residential property market, and UOB’s clientele of large corporations and institutions in developed markets that are carrying out acquisitions of commercial real estate, hospitality properties and new economy assets.

“Loans-related fees were $506 million in 1H2021 and are on track to hit a record for the full year in 2021,” Koh adds.

See: UOB Kay Hian upgrades PropNex to 'buy' on robust Singapore property market

In addition, credit costs have continued to moderate, with Koh stating that the “worst appears to be over” as asset quality has stabilised since Nov 2020. “The bulk of UOB’s non-performing loans are well collateralised and the bank has set aside adequate general provisions. Thus, management expects credit cost in 2H2021 to be lower than the 24 basis points seen in 1H2021,” Koh explains.

UOB's net interest margin (NIM) expansion is anticipated to increase in 2023, in view of the expected interest rate hikes by the US Federal Reserve in 4Q2022. In the meantime, the bank's NIM should remain relatively unchanged at 1.56% in the near term.

The broader recovery of Asean countries in 2022 should also provide tailwinds for the bank. “Management expects contributions from Asean countries to recover in 2022, driven by higher Covid19 vaccination rates,” Koh says.

Koh also highlights that UOB intends to maintain a dividend payout ratio at 50%, which is the highest among the three big banks. This is contingent on UOB maintaining its CET-1 CAR at above 13.5% and achieving return on risk weighted assets at 1.6-1.7%.

“The higher dividend payout ratio also serves to signal management’s confidence in UOB’s asset quality and future outlook,” he adds.

UOB also touched on its new integrated digital platform at the conference. The banks will combine digital bank TMRW with its mobile app UOB Mighty into one integrated platform called UOB TMRW. The bank is planning to invest up to $500 million in digital innovation initiatives to double the number of retail customers it serves digitally to more than seven million across Asean by 2026.

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UOB plans to launch UOB TMRW in another Asean market in the next 18 months.

As at 3.03pm. UOB shares are trading up 24 cents or 0.9% higher at $26.84.

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