UOB - CGS-CIMB Research 2023-10-27: Going Defensive; 3Q23 Softer NIM Offset By Fees

• UOB (SGX:U11) is turning defensive to protect its liquidity (at the expense of margins) and credit quality (via proactive collateral and impairment management). It aims to keep NIMs steady in FY24F by turning to longer-dated assets and managing funding costs. Wealth management fees may take time to grow.

3Q23 in line with expectations; NIM dip offset by fees

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CEO’s 2024F outlook

• Mid-single-digit loan growth (raised from low to mid-single-digit growth for FY23F).
• Margins to remain at current levels (similar to earlier guidance for FY23F).
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• Stable CTI (one-time costs from Citigroup acquisition to substantially roll off).
• Credit cost at around 25-30bp (raised from ~25bp for FY23F).

Protecting liquidity and managing credit quality is key

• The overarching message from UOB’s 3Q23 earnings briefing was its intent to be more defensive going into FY24F in view of the macroeconomic uncertainties. As strengthening its balance sheet is its key priority, management addressed several deliberate steps it took in 3Q23.
• Among them, UOB sacrificed some margin (by deploying funds into lower yield but more liquid interbank holdings) to maintain a strong liquidity and funding profile (net stable funding ratio: 121%, liquidity coverage ratio: 153%).

Aims to keep NIM steady in FY24F

• Read more at SGinvestors.io.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2023-10-27 SGinvestors.io

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