How UOB lost out to DBS, OCBC in 1Q's earnings race

Its ASEAN market slowed.

UOB’s 1Q14 results were relatively staid compared to the better-than-expected results of its peers announced earlier.

CIMB noted that as its two rival banks saw the rising spreads from China-related loans boosting NIMs by 5-6bp, UOB flat NIMs looked pale in comparison. Management sees headwinds in its regional markets.

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Margins flat, cautious guidance on regional markets NIM fell 1bp as margins in regional markets contracted, dousing the effect of the stable-to-rising margins in Singapore.

A deposits war has broken out in Indonesia and UOB expects its margins there to contract from 4.66% to 4.50% this year. CASA competition in Malaysia is also heating up, and Bank Negara’s hiking of GP requirements will pose as earnings headwinds too.

In Thailand, the economy is at a standstill, necessitating some caution in watching out for emerging NPLs in certainindustries. The sheltered region is the home market, where rising spreads will compensate for falling spreads in the region.

Non-interest income did not fire up UOB’s 1Q14 fee income (-5% qoq) was disappointing. Various fee streams saw qoq declines. Treasury income did not spring a positive surprise either. Whilst its peers saw treasury, trade and loan fees bloom on the back of China-related activity, UOB’s coyness with China trade loans left it shy of a non-NII driver in 1Q, when ASEAN customer flows slowed, and provided no compensating boost.

Not impressive PPOP was within expectations. Provisions were 13% higher, but tax writebacks brought net profit back in line. In a quarter where no China asset quality issues cropped up and peers all had non-NII delivery, UOB’s results look pale in comparison. After ytd outperformance, we reckon it will now lag.