UOB: Management reinstated FY25F guidance, revising all guidance downwards except for credit costs
Related Stories
- 2Q25 revenue and net profit missed consensus by 3% and 9%, respectively
- Net interest margin narrowed by 9bps q/q due to lower asset yields amid declining benchmark rates
- Higher new NPA formation driven by a single US commercial real estate exposure; SPs still elevated at 32bps (1Q25: 19bps)
- Maintain HOLD, TP SGD33.90
2Q25 revenue and net profit missed consensus. Revenue came in at SGD3,465mn (flat y/y, -5% q/q), while net profit was SGD1,338mn (-6% y/y, -10% q/q). Net interest income (NII) moderated to SGD2,336mn (-3% y/y, -3% q/q) as asset growth cushioned effects of sharp decline in benchmark rate. Net interest margin (NIM) declined 9bps q/q to 1.91% (1Q25: Stable q/q at 2.00%) on lower asset yields amid declining benchmark rates. Operating costs improved modestly to SGD1,535mn (flat y/y, -2% q/q), resulting in a cost-to-income (C/I) ratio of 44.3% (1Q25: 42.6%).
Non-interest income rose 5% y/y but declined 10% q/q. Net fee income stood at SGD636mn (+3% y/y, -8% q/q), normalising from last quarter’s record high, as wealth fees was affected by investors’ cautious approach amid macroeconomic uncertainties. Other non-interest income of SGD493mn (+8% y/y, -11% q/q) was driven by lower trading and liquidity management activities.
Lower credit cost of 32bps; NPL stable at 1.6%. 1Q25 credit cost was 32bps, inclusive of a higher specific allowance q/q pertaining to the marking down of collateral valuations. Total loan provisions amounted to SGD274mn, 32bps (4Q25: SGD289mn, 35bps), including general provisions (stage 1+2): SGD1mn, 0bps (1Q25: SGD133mn, 16bps) and specific provisions (stage 3): SGD273mn, 32bps (1Q25: SGD156mn, 19bps). New NPA formation was higher q/q at SGD472mn due to a single US CRE exposure, where pre-emptive GPs have been set aside (1Q25: SGD400mn, average of SGD391mn for last four quarters). NPL ratio remained stable at 1.6%.
Management has reinstated FY25F guidance, revising all guidance downward except for credit costs. Management has guided for FY25F NIM in the range of 1.85%–1.90% (previous: Maintain NIM at ~2%), low single-digit loan growth (previous: high single-digit loan growth), and high single-digit fee income growth (previous: double-digit fee income growth). Management projects flat operating expenses for FY25F (no prior guidance), reduced its prior guidance for total income, and maintains credit cost guidance at 25-30bps, while adding that it expects to top up the general provision buffer.
Takeaways from management briefings
NIM: Exit NIM was 1.84%. Management assumes three Fed rate cuts totalling 75bps and expects the 3M SORA to land at 1.7% by year-end, deriving its full-year NIM guidance of 1.85%-1.90%. The NIM decline has been mitigated by ongoing proactive management, including repricing fixed deposits and saving account rates and a change in the asset-liability mix. Management anticipates less severe movement in SORA during 2H compared to 1H. It remains hopeful of maintaining asset yields in 2H, particularly due to intense competition in 1H, where everyone pursued higher quality loan assets. In Hong Kong, funding is primarily conducted via swaps rather than deposits, which will be reflected in markets revenue rather than NIM. While management has levers at its disposal to manage NIM, it acknowledges the need to balance this with the impact on customer relationships and franchise value. The focus remains on maximising both NII and NIM.
Loans: 1.3% of loans are related to major exporters to the US (>25% of exports to US), although the second-order impact, particularly from tariffs on growth and consumer sentiment, remains difficult to guage. Loan momentum in 2H is expected to continue, specifically in mortgages, trade loans, and large corporates. The overall loan book comprises 80% floating-rate loans. US CRE loans make up 0.8% of the total loan book, with most exposures pertaining to network customers investing in gateway cities.
Asset quality: New NPA formation was higher due to single US CRE exposure, where pre-emptive GPs have been set aside. Special provisions (SPs) were primarily related to markdowns of collateral valuations, with some valuations having crashed by as much as 80% from their peak. Credit costs at Citi have normalised. In Thailand, SPs remained elevated in 1H, partly due to a fraud case. Additionally, there was a slight uptick in mortgage NPLs from 1.1% to 1.2%, driven by Thai mortgages. Regarding the GP buffer, management is gradually building it towards 0.9% over the medium term, with an expectation to reach slightly higher than 0.8% by the end of this year.
Non-interest income: Net new money in 2Q25 stood at SGD3bn (1Q25: ~SGD1.5-2bn). Approximately 60% of overall wealth management funds are in fixed deposits, with much of the past year’s growth in assets under management (AUM) originating from deposits; the deposits-to-investment ratio has remained largely constant. Post 1H, customer risk appetite has returned, leading to them making switches from deposits into investments.
Dividends, capital, ROE: Management revised down its medium-term ROE target from 14% to 12%-13%. It guided for an optimal liquidity coverage ratio (LCR) of 120%, and UOB is increasing its high-quality liquid assets (HQLA) to increase its LCR. Regarding dividends, the quantum of dividends is reviewed consistently and regularly. For now, management will stick to its 50% dividend payout ratio and commitment to returning capital. As the current share buyback programme concludes, management will assess the suitability of initiating another tranche.
Quarterly / Interim Income Statement (SGDmn)
FY Dec | 2Q2024 | 1Q2025 | 2Q2025 | % chg y/y | % chg q/q |
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Net Interest Income | 2,401 | 2,409 | 2,336 | (2.7) | (3.0) |
Non-Interest Income | 1,075 | 1,248 | 1,129 | 5.0 | (9.5) |
Operating Income | 3,476 | 3,657 | 3,465 | (0.3) | (5.3) |
Operating Expenses | (1,459) | (1,566) | (1,544) | 5.8 | (1.4) |
Pre-Provision Profit | 2,017 | 2,091 | 1,921 | (4.8) | (8.1) |
Provisions | (232) | (290) | (279) | 20.3 | (3.8) |
Associates | 31.0 | 22.0 | (3.0) | nm | (113.6) |
Exceptionals | (64.0) | 0.0 | 0.0 | nm | nm |
Pretax Profit | 1,752 | 1,823 | 1,639 | (6.4) | (10.1) |
Taxation | (327) | (333) | (301) | (8.0) | (9.6) |
Minority Interests | 0.0 | 0.0 | 0.0 | nm | nm |
Net Profit | 1,425 | 1,490 | 1,338 | (6.1) | (10.2) |
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Growth (%) |
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Net Interest Income Gth | 1.7 | (1.7) | (3.0) |
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Net Profit Gth | (4.2) | (2.2) | (10.2) |
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Key ratio (%) |
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NIM | 2.1 | 2.1 | 2.0 |
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NPL ratio | 1.5 | 1.6 | 1.6 |
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Loan-to deposit | 83.4 | 84.0 | 83.7 |
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Cost-to-income | 42.0 | 42.8 | 44.6 |
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Total CAR | 15.9 | 18.2 | 17.9 |
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Source of all data: Company, DBS
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