UOB positions for greater profitability as NIM widens

NIM may hit 1.88% in 2019.

United Overseas Bank (UOB) is piosed for greater profitability in the coming quarters amidst widening net interest margin (NIM) brought about by rising US federal fund rate, according to RHB Research. 

“We forecast further rises in 3-month Singapore Interbank Offered Rate (SIBOR), which will raise lending yields,” RHB analyst Leng Seng Choon said. “Overall, we forecast UOB’s NIM at 1.83% and 1.88% for 2018 and 2019.”

UOB Q3 profits jumped 17% to $1.04b in Q3 according to its financial statement. The higher earnings were due to net interest income (NII) which grew 14% to $1.6b from $1.41b in 2017.

Meanwhile, UOB’s NIM of 1.81% in Q3 was 2bps narrower QoQ, but 2bps wider YoY, which RHB attributed to 5% QoQ increases in fixed deposits to lock in funding ahead of future rises in year-end interest rates.

The report also highlighted how the bank’s 2% QoQ loan expansion was positive, with building and construction loans leading the sequential loan increase. “Overall loans recorded a YTD increase of 8%,” Leng said. RHB projects UOB’s loan growth at 10% and 6.5% for 2018 and 2019.

Additionally, UOB has the potential for more dividends as its Q3 2018 Common Equity Tier 1 (CET1) capital adequacy ratio (CAR) of 14.1% is higher than its other two peers’ 2Q18 average of 13.4%, Leng added.