UOB's fees and commissions to grow at 17% in 2013

That'll be 65% of total non-interest income.

According to CLSA, UOB’s material NIM compression appears to have largely ended as of 2Q13.

Here's more from CLSA:

We expect slow and steady margin recovery, which, coupled with support from growing fees and commissions, will allow it to retain its superior ROA position and propel the stock towards fair value. The bank is our top sector pick; and following the recent share-price correction, we upgrade from Outperform to BUY.

Signs of stabilisation
NIM stabilisation is crucially important to UOB’s share price. Between 1Q09 and 1Q13, its NIM narrowed by 71bps, with 28bps of this contraction occuring between 2Q12 and 1Q13.

However, in 2Q13 its margin expanded by 1bp. While NIM could oscillate by a few basis points, the sizeable sequential contractions appear to be over. We view this as an important inflection point.

Superior ROA profile
Aside from margin stabilisation, fees and commissions shoul continue to grow at a robust pace. The bank’s focus on wealth management, capital-market capability and transaction banking has triggered double-digit growth in related fee income.

We forecast fees and commission to grow at 17% in 2013 (against loan growth of 12%) and to account for 65% of total non-interest income, versus 58% in 2012. This should help drive UOB’s sector-leading ROA of 1.04%, versus 0.85% at OCBC and 0.95% at DBS.

Dividends could surprise on the upside
Alongside its final 2012 dividend, UOB declared a special dividend of S$0.10/share. We expect the bank to step up its dividends next year, but we would not be surprised if it decided to start the process in 2013.

As of 2Q13, UOB had a fully loaded BIS3 core Tier-1 ratio of 12.3% and it is the only bank in Asia that has started to replenish its non-equity capital basis with BIS3-compliant paper.

This gives it more flexibility to manage its dividends. If UOB delivered a S$0.10 special dividend in 2013, it would take its yield from the current 3.3% to 3.8%.