Fee growth is also expected to be “high single-digit”, down from “double-digit”. Management observed that customers are shifting to more conservative wealth solutions that are likely to be less profitable, note Tay and Lim.
Credit costs were maintained at 25 basis points (bps) to 30 bps, except the new guidance added that the bank expects to top up its buffer for general provisions.
The bank also omitted to give its guidance for total income and cost-to-income ratio this time. In February, the bank said it expected to see higher total income and maintain its cost-to-income ratio at 42%. “Continued investments in IT infrastructure also suggest UOB’s cost-to-income ratio (CIR) for FY2025 could trend higher than its previously guided [around] 42%,” the analysts write
In the 2QFY2025, UOB’s net interest income fell by 2.7% y-o-y to 3% q-o-q to $2.34 billion as net interest margin (NIM) fell by 9 bps to 1.91%.
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Even though the bank’s exit NIM for the quarter stood at 1.84%, the bank expects its NIM to rebound in 2HFY2025 after its two interest rate cuts on its flagship high-interest savings account, UOB One, with effect from May and August respectively.
In 2QFY2025, the analysts also note that the bank recorded $274 million in total allowances, translating to a total credit cost of 32 bps. Of the amount, $273 million were for specific provisions.
With management’s guidance of topping up its general provision buffer, this suggests specific provisions (SP) could easily bee in 2HFY2025 with the potential writeback of a single US commercial real estate (CRE) account that had seen bidders for its assets.
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“Management also highlighted that its credit quality in Thailand has improved, having observed an uptick in business volumes across sectors apart from mortgage loans,” write Tay and Lim.
Ahead of tempered expectations for 2HFY2025, Tay and Lim have lowered their earnings per share (EPS) estimates for FY2025, FY2026 and FY2027 by 5.8%, 2.5% and 3.1% respectively. This is to account for lower loans growth, as well as lower NIMs to factor in the time lag for funding cost savings to pass through.
The analysts have maintained their elevated credit cost expectations of 35 bps for FY2025, in view of excess buffers undertaken by management, before tapering down to 25 bps in FY2026.
In addition to their downgrade, the analysts have lowered their target price to $38.30 from $38.60.
Shares in UOB closed 11 cents lower or 0.31% down at $35.70 on Aug 8.
