UOB's 1H14 net profit crept up 6% to S$1.59b

Thanks to a 2Q one-off gain.

United Overseas Bank (UOB) recorded a 1H14 net profit of SGD1.59bn (+6%y-y), which was 53% of Nomura's full-year forecast and 51% of consensus for 2Q.

According to a research note from Nomura, the outperformance was due to a one-off gain on investments/revaluation worth SGD90-100mn during the quarter.

Loan growth continues to be driven by the greater China business, largely led by the trade finance business.

Housing loan growth was stable at ~8%, aided by the strong pipeline over the past two years.

However, as new bookings ease, Nomura expects the housing loan growth to slow further in FY15F.

Here’s more from Nomura:

NIMs dipped slightly q-q (-2bp) due to Indonesia’s competitive funding market and in the Singapore ACU business.

NIMs are stable in Singapore DBU, Malaysia and Thailand. On a y-y basis, NIMs improved by 1bp.

Interestingly, the SGD LDR has risen to 100% from 95% in Jun-13.

According to management, it will be focusing on the liquidity capital ratio requirement under Basel III, which is a more relevant measure of liquidity rather than the LDR.

UOB’s ratio is well above the minimum level at both the SGD and group levels, so it can afford to be more aggressive in releasing expensive SGD deposits in favour of cheaper USD funding, in our view.

There was an uptick in NPLs during the quarter from Singapore (mortgages), Thailand (one large account) and Indonesia (two accounts).

Management believes that the overall portfolio remains healthy and these are isolated NPL incidents.

Management retained its earlier guidance of high single-digit loan growth and is encouraged by the recovering US economy, the stimulus measures in EU and Japan, and the resilient China economy.

NIMs may deteriorate due to funding competition (especially in Indonesia) but management does not expect it to be significant.

Asset quality – no major issues anticipated on a systemic basis.