UOB set to gain from NIM widening

The bank's NIM could widen by 1.78% this year.

Singapore banking giant UOB is set to yield from the expected widening of net interest margins (NIM) this year, according to RHB Research.

The firm said this would come as the Singapore Interbank Offered Rate (SIBOR) rises in tandem with the US federal funds rate.

"The 3-month SIBOR has risen to 0.96% (end-Sep 2016: 0.87%). A rising SIBOR ought to raise lending yields, particularly for floating rate loans – such loans account for >80% of UOB's loan book. The increase in the cost of funds is more muted, as SGD fixed deposits account for only half of total SGD deposits," RHB said.

However, the research house argued that the widening NIM would only be partially felt in 2017, as the rise in the US federal funds rate is throughout the year.

"Hence, we have assumed UOB’s 2017 NIM at 1.78%, which is slightly wider than our 2016 estimate of 1.71%. This is to widen further to 1.81% in 2018, in our view," RHB argued.