Meanwhile, industry peers are raking in overseas contributions.
UOB’s growth strategy of sticking close to home is going to give the bank some headaches in 2016, according to a report by DBS.
UOB’s tendency towards conservative growth may have made the market overlook the bank’s lack of fee income differentiation as well as Greater China presence. However, over time, it’s likely that regionalisation beyond ASEAN would need to improve and a stronger traction in non-interest income away from loan-related activities to prompt a re-rating.
This does not bode well for UOB, as it is largely Singapore-centric compared to its industry peers—52% and 48% of its loans and deposits are SGD-based respectively. While this brand of gameplay is not necessarily a weakness, it will still be a point of contention when peers are able to rake in better contribution from overseas operations in the future.
Aside from this, UOB’s prospects in 2016 are not very promising. DBS expects UOB’s loan momentum to stay sluggish and net interest margin to remain flattish, especially with sentiment on further rate hikes has eased.
Further, UOB’s total credit costs are still guided at 32 bps, but in a worst-case scenario, management has hinted that it may spike to 35 to 40 bps. Management has also intimated that there is $3b worth of excess general allowances as a buffer to manage its credit costs. Within the region, Indonesia is anticipated to stay challenging though its operations make up only 3% of total portfolio.
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