UOB beats DBS, OCBC in net interest income growth for three consecutive quarters

Net interest income grew 2.1% in Q1.

According to RHB, UOB’s 1Q17 net interest income QoQ growth of 2.1% outstripped that of peers, contributing to three quarters of outperformance.

"Going forward, UOB’s NIM should widen with the expected hike in US FFR, which would contribute to stronger net interest income. UOB also has robust balance sheet strength. Its loan loss coverage of 117% is higher than its two peers’ average of 102%, acting as a buffer, given asset quality uncertainties from a rising SIBOR and weak domestic economy," the firm added.

Here's more from RHB:

UOB had outperformed in sequential loan growth for three consecutive quarters. UOB’s 1Q17 QoQ net interest income growth of 2.1% was higher than its two competitors’ average of 1.1%.

This follows the preceding two quarters, whereby UOB had also outperformed its peers in sequential net interest income growth. In earlier briefings, UOB management had said that their strategy was not to expand loans at the expense of NIMs, and we believe this could be one reason for its outperformance.

NIMs seen to widen going forward. Both DBS and UOB recorded 1Q17 NIMs that were 3-4 bps wider QoQ. We forecast all three banks to record 2017 NIMs wider than their respective 1Q17 NIMs, on the back of further hikes in the Fed Funds Rate (FFR) driving SIBOR higher. For UOB, we are forecasting 2017 NIM of 1.76%, 3 bps higher than its 1Q17’s 1.73%.

Robust fee and commission income growth. On a YoY comparison, all three banks recorded robust 1Q17 fee and commission income growth. We see continued strength in the subsequent quarters.

UOB has the highest LLC. UOB’s 1Q17 loan loss coverage of 117% towers over its two peers’ average of 102%. In fact, UOB’s loan loss coverage has been the highest amongst peers over the past four quarters.

Even though we saw stabilisation of NPL ratio (with all three banks recording unchanged sequential NPL ratio in 1Q17), the uncertainties persist, driven by impending higher SIBOR, and a relatively weak Singapore economy.