Soft global economy to deluge UOB with nonperforming loans in H2

While net interest margin remains narrow.

UOB’s non-performing loans are expected to spike through the second half of 2016 on back of the weak economy, according to a report by RHB. This is despite Q2’s asset quality remaining unchanged sequentially—NPL ratio for the quarter came in at 1.4%.

Meanwhile, net interest income contracted 5.1% QoQ, as sequential net interest margin (NIM) narrowed by 10bps due to a declining interest rate environment. As such, RHB sees NIM remaining tapered in the near term.

On the flip side, RHB predicts stable credit cost for UOB.

“UOB recorded 2Q16 credit cost of 32bps, unchanged from 1Q16. New non-performing assets (NPAs) increased by SGD802m in 2Q16, compared with 1Q16’s SGD344m. Management indicated that the new non-performing assets in 2Q are mainly from the oil and gas sector. It sees the charge-off rate remaining at close to 32 bps for 2H16,” RHB notes.