This brings 1H18 earnings to a record high of $2.05 billion, up 24% from a year ago.
The bank’s net interest margin (NIM) for the quarter was 1 basis point (bp) narrow q-o-q, but 8bp wider y-o-y. UOB is also priced competitively, resulting in 4% q-o-q loan growth.
In addition, the bank’s efforts to increase deposits – ahead of the expected interest rate hike – have led to higher funding costs.
Going forward, the group’s management expects NIM to continue rising, with the extent depending on when federal fund rate (FFR) hikes occur.
In a Friday report, analyst Leng Seng Choon says, “We are forecasting 2018 and 2019 NIMs of 1.85% and 1.92%.”
The management also expects 2018 y-o-y loan growth to be in the high single digits after the 6.1% YTD loan expansion.
It also saw little impact on 2018 loan growth following the recent property cooling measures, but this impact should be felt later on.
The analyst forecasts 2018 and 2019 loans growth of 8% and 6.5%, respectively.
Meanwhile, the bank during its results briefing announced the introduction of a digital bank for ASEAN “mobile first” and “mobile only” customers, which is designed to comprehensively address the entire customer life cycle.
UOB aims for this digital bank to see a customer base of about three to five million over the next five years, operating at a cost-income-ratio (CIR) of 35%.
During the quarter, UOB declared an interim dividend of 50 cents. Its commitment is for a dividend payout ratio of 50%, subject to a minimum CET1 capital adequacy ratio (CAR) of 13.5% and sustainable financial performances.
2Q18 saw a CET1 CAR of 14.5%, which was significantly higher than DBS’ 13.6%. The analyst says that this points towards the bank’s potential to pay out more dividends moving forward.
On the other hand, the stock has been trading at an average price-to-book ratio of 1.24 times.
“We believe the higher P/BV target is reasonable, given the improving NIM environment,” says Leng.
As at 4.09pm, shares in UOB are trading 3 cents higher at $26.73 or 1.14 times FY18 book with a dividend yield of 4.3%.
