Net interest margins (NIMs) are also likely to remain “fairly stable” at 2.02% in the 1QFY2024, unchanged from 4QFY2023, as funding cost reduction efforts start materialising. To do so, the bank has raised its wholesale current account, savings account (CASA) and cut its fixed deposit (FD) rates of this segment since late 2023. The efforts will probably offset weaker asset yields which are due to the stiff competition for high-quality corporate credits and softer mortgage pricing.
UOB, which will be lowering its interest rates for its UOB One Account from May 1 onwards, will see material effects from the 3QFY2024 onwards, estimate Choong and Lim. The bank will also introduce two new balance tiers to the same account, also effective on the same day.
Non-interest income on the whole should also see sequential improvement coming off from the seasonally weaker 4QFY2023, the analysts write.
On the other hand, credit card fees for the 1QFY2024 may moderate from a pull-back in travel spending, although the analysts see that the risk-on sentiment may continue to improve, leading to continued recovery wealth management income and loan-related fees.
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Treasury income may also benefit from continued customer flows, they add.
“In all, we think the stronger non-interest income may more than offset the weaker net interest income (NII) from subdued loan growth as repayments continue further,” they write.
“Asset quality likely stayed benign in 1QFY2024 — we expect credit costs contained at 22 basis points (bps),” they add.
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“Beyond NIM commentary, we expect [all three banks’] managements to focus on business growth prospects and capital management plans. A quicker pick-up in wealth management fees is a potential re-rating catalyst,” say Choong and Lim. DBS will report its 1QFY2024 earnings on May 2 while Oversea-Chinese Banking Corporation (OCBC) will announce its results on May 10.
“Asset quality deterioration as a result of the elevated interest rate environment is a downside risk… With its integration of the newly-acquired Citi franchise in Malaysia, Indonesia, Thailand and Vietnam underway, we look forward to earnings synergies between the two franchises,” they add.
Shares in UOB closed 11 cents lower or 0.36% down at $30.41 on April 26.
