UOB - Maybank Research 2023-03-10: Non-Performing Risks Rising; Margins Higher For Longer; Balancing Act

• With risk-rewards more in balance in the medium term, we downgrade UOB (SGX:U11) to HOLD with new target price of S$31.73.
• Slowing global growth could have a spill-over impact on asset quality in ASEAN, which accounts for 70% of UOB’s loan book. While NPLs are currently benign, downside risks are rising going forward. This could drive credit charges higher.
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Slower NIM expansion. Non-interest income growth back-ended

• UOB’s NIMs expanded substantially (+30bps y-o-y 2022) following three-straight years of contraction. While the pressure on Central Banks to keep rates high should ensure NIMs stay higher for longer, we expect the pace of expansion to slow in 2023E as funding costs start to catch up.
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• UOB’s positioning in the mass premium wealth management segment could see a turnaround as the rate environment settles. However, given current attractive fixed deposits rates, motivating this segment towards increasing risk (thus driving higher fees) may take longer than the private wealth segments.
• Nevertheless, we take a bullish view of turnaround based on management guidance and increase 2023-24E non-interest income by 11-12%.

Rising asset quality risks

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Thilan Wickramasinghe Maybank Research | https://www.maybank-ke.com.sg/ 2023-03-10 SGinvestors.io

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