"Our buffers that we have put aside allow us to navigate these potential hotspots and stay within our guidance of credit costs between 25 to 30 bps (for 2026),” he adds.
However, when asked about management overlay, Leong is reluctant to give a figure, although he alludes to a general provision buffer that has been raised to 1% in Q3, and which, as of Q4, remains at 1% and is deemed enough to support UOB's unsecured portion.
"It’s something very important to note, the unsecured number. When you look at credit costs, there are quite a number of metrics to look at. The unsecured number is, after taking collateral into account, at 254%, we are actually very well covered,” he elaborates, referring to the unsecured NPA coverage.
Despite this assurance, some analysts remain cautious on UOB. JP Morgan, for one has retained its "underweight" rating and a negative comment that might have caused UOB's share price to fall.
In a flash note issued after the results were released but before the analysts' briefing, JP Morgan points out that asset quality trends were unclear, and the data can be interpreted in many ways. Gross NPL formation was high at $599 million but net NPL formation was negative on the back of upgrades, recoveries and write-offs.
"Looking at US and Greater China disclosures, it appears that formation was higher in Greater China with coverage at 60%, declining closer to 2Q25 levels, while US appears to have had a higher share of upgrades, recoveries and possibly write-offs in conjunction with higher GP allocation.”
“Overall, we expect negative revisions from the Street post 4Q2025 results and 2026 guidance."
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JP Morgan is of the view that the stock is cheap versus peers, but still above what it considers fair value for the next 12 months due to concerns on asset quality and costs at the bank.
"Hence, we stay with our underweight rating and recommend investors switch to DBS and SGX within the sector,” JP Morgan adds.
Citigroup Research has a somewhat similar view.
“While UOB managed benign provisions (the outcome), the market was likely disappointed with elevated NPA formation while movement in provision balances between Greater China and the US saw mixed investors' reactions. Given DBS/UOB dividend yield spread at 1.2%, we expect DBS to see relative outperformance," adds Citi.
In an update, OCBC Group Research notes that “despite the challenging market conditions in 2025, it is heartening to note that the NPL ratio stayed at the 1.5% level.
"Specific allowances amounted to $1,332 million, down from $1,652 million in FY2024. General allowances went up from $2,733 million in FY2024 to $3,557 million in FY2025. General allowance coverage moved up from 0.8% in FY2024 to 1.0% in FY2025," notes OCBC.
UOB’s Common Equity Tier 1 Capital Adequacy Ratio (CET1 CAR) was at 15.1%, with fully loaded CET1 at 14.9%.
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For 2026, Group CEO Wee Ee Cheong guided for low single-digit loan growth, net interest margins of 1.75%-1.80%, high single-digit fee growth, low single-digit operating cost growth and total credit costs at 25-30 basis points.
Citi has lowered its price target from $39 to $37.40 with a "neutral" rating, while OCBC raised its price target to $41 from $38.20, while keeping the "hold" rating.
Based on its historic ordinary dividend of $1.56, which represents a payout ratio of 50%, UOB trades at a yield of 4.2%. However, this excludes the special dividend of 25 cents, which takes its total dividend to $1.81. Based on its Feb 24 closing price, UOB is trading at a price-to-book ratio of 1.26x.
UOB shares closed at $37.2 on Feb 24, down 4.12%.
