UOB's loan growth for 2017 poised to hit 6.2%

The recovery of the property market may help loan growth as well.

UOB's loan growth is expected to beat the forecast of 6.2% for 2017, DBS Equity Research said.

According to a report, loan growth forecasts for 2018-2019 also rose to 7% per year from 6%, thanks to a better operating environment.

"UOB operates almost purely like a commercial bank (less reliant on capital markets), and it would need to compete in the loan space more aggressively vs peers," said DBS analyst Sue Lin Lim.

Similarly for its wealth management business, which unlike peers, UOB targets the mass affluent space.

"Although its private banking business is small, we believe UOB will still be able to grow comfortably in the wealth management space," Lim added.

However, with competition a key consideration, net interest margin (NIM) uplift, although should be expected, may be dampened.

Even then, 9M2017 NIM has done well. The bank is expected to end 2017 NIM at 1.77%, which is higher by 6bps YoY. NIM is projected to rise by 4bps each in 2018 and 2019.

Here's more from DBS Equity Research:

The property market recovery also bodes well for UOB as it is perceived to be a proxy - UOB has the largest proportion of property-related loans vs peers; this saw loan growth improve from as early as 3Q2017.

UOB has the largest proportion of its loans related to mortgages, at 27% of total loans. Inclusive of building and construction loans of another 23%, UOB’s total property-related loans make up 50% of total loans.

Historically, UOB’s share price has been correlating well with the property price index.

The deviation in 2017 is due to the stronger influence of interest rate movements.