UOB's asset quality stronger than expected so far this year

But 9% milder loan growth offset surprises.

According to Nomura, UOB’s asset quality and treasury/markets related income has been stronger than expected so far this year. We had earlier expected credit costs to average 50bps for FY12F but the current run rate is only 20bps.

Here's more from Nomura:

Markets related income also surprised on the upside, surging 36% y-y in 9M12. Offsetting the positive surprises was a milder loan growth of 9% while NIMs have been trending lower over the past 2 quarters. As such we have raised our FY12F net profit forecast by 10%.

However, we lower our FY13-14F net profit by 3-5% due to a more conservative loan growth and NIM outlook. We expect a loan CAGR of ~9%, while NIMs are forecast to fall about 5bps over the next 2 years to 1.71%.

The weaker NIM is in anticipation of continued loose monetary policies globally. Credit costs are currently near their cyclical lows and we have factored in an increase in the charge-off rate to 37bps by FY14F from ~30bps currently.

Corporate gearing levels in Asean appear to be relatively healthy but in Singapore, our property analyst highlights the risk of a pullback in property prices which would pose a risk to investment property mortgages (estimated at 6% of group total loans). 

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