SINGAPORE (May 2): RHB Research is keeping its “buy” call on United Overseas Bank (UOB) amid a stabilisation in its asset quality.
UOB reported a stable non-performing loan (NPL) ratio at 1.5% for the first quarter ended March, unchanged from the preceding quarter.
RHB analyst Leng Seng Choon projects that UOB’s NPL ratio could rise to 1.7% by end-2017 due to systemic economic challenges. However, he says the bank’s general provisions-to-loans ratio of 1.1% as at end-March – higher than the peer average – provides scope for writebacks in the future.
UOB last Friday reported 1Q earnings of $807 million, 5.4% higher than a year ago.
Net interest income (NII) grew 2.3% to $1.30 billion, largely driven by broad-based loan growth. Net interest margin (NIM) decreased 5 basis points y-o-y to 1.73%, but rose 4bps compared to the preceding quarter ended Dec 2016.
Total allowances for loans and other assets increase 59% to $186 million, mainly due to a release of general allowances that were no longer required on other assets relating to debt securities in 1Q16.
(See: UOB reports 5.4% rise in 1Q earnings to $807 mil)
“The anticipated US Federal Reserve rate hikes would also bring NIM closer to our 2017 forecast of 1.76% (from 1.71% in 2016),” says Leng in a report on Tuesday. “Together with wider NIMs, we expect NII to grow.”
According to Leng, UOB had rejected loans in 1Q due to low interest rates, which means that the bank’s loans could have expanded even faster if it had granted more loans at lower interest rates.
With UOB’s 1Q17 results in line with expectations, RHB is maintaining its target price $23.90, which implies a FY17F P/BV of 1.2x.
As at 12.45pm, shares of UOB are trading 71 cents higher at $22.51.
