UOB braces itself for greater competition in retail term deposits

UOB tapping into lower-cost wholesale market.

Singapore-based UOB expects foreign banks to continue building up their retail deposit franchise ahead of the implementation of the Liquidity Coverage Ratio (LCR) requirement under Basel III.

According to a research note from Nomura, due to stiff competition in the retail space, UOB has opted to tap into the wholesale market which is lower cost.

The bank is able to do this as its LCR is in a comfortable position to take on more corporate deposits.

Management estimates that retail and wholesale deposits are evenly balanced as a proportion of total deposits.

Here’s more from Nomura:

The bank will also continue to leverage on its AA- rating to tap into the Commercial Paper market.

Management is maintaining its guidance for a stable NIM for this year.

Loan growth - still aiming for mid to high single digit this year. Both Thailand and Indonesia are expected by management (and us) to see slower growth this year given the challenging macro and political environments in those countries.

Malaysia's loan growth has been steady while Singapore is also likely to moderate.

UOB continues to see good traction in the regional corporate loans, having hired industry specialists in oil & gas, agriculture, telco, infrastructure and real estate to build up its underwriting expertise in those sectors.

Asset quality looks okay so far. Notwithstanding the headwinds in Thailand and Indonesia, NPL formation is still benign.

Management has been exercising a bit more caution on its tourism, consumer and exporters exposure in Thailand.