Malaysian invasion: UOB makes commercial banking sphere its comfort zone

But is it threatened by cost-to-income ratio?

UOB’s competitive strategy has always been to expand with its clients across the region, and UOB Malaysia’s is no different. In a market where it is difficult to compete against local and global banks, UOB Malaysia has found a niche in
the SME space – an area in which it still sees growth potential.

According to CIMB, UOBM has found a niche in the SME (commercial banking) space where the bank’s long-standing client relationships continue to drive deal flow.

Here's more from CIMB:

UOBM estimates that it has 10% penetration of its target market in commercial banking, which still leaves room for growth. Another potential growth area is the cross-selling of cash management and other treasury services to its wholesale banking clients, which would boost the proportion of fee income from 29.1% closer to the group’s level of 38.6%.

That said, UOBM is not without its challenges. Cost-to-income ratio is expected to rise from the current 39.1% as UOBM invests in infrastructure and moves towards fee-based businesses which typically incur higher staff cost.

The growth in its network is limited by branch licences, which are difficult to come by. Funding pressure also remains an issue
in Malaysia, especially with its limited ability to collect retail deposits. UOBM plans to grow its corporate CASA through cash management activities, which should help to ease funding pressure. On the asset quality front, UOBM’s NPL ratio of 1.7% is above the group’s 1.2%, but still remains benign.