- UOB held an analyst briefing on 30 April 14 for its results. The key takeaways from the briefing are as below.

- For the Indonesian market, the company reckons that there may be intensifying competition for deposit ahead.

- The challenges are due mainly to funding structure, as growth for the industry was previously funded by time deposit.

- Thus, the Industry will likely see more focus on CASA funding. Smaller players are likely to see greater funding challenges.

- UOB’s NIM in Indonesia is about 4.66% currently, and is expected to decline to about 4.50% by year-end. This is already much lower than the 5%-6% level in the past.

- As for the other Southeast Asian (SEA) markets, the issues are similar to Indonesia’s. Generally, the industry in Malaysia has been relying on wholesale funding for growth - a common trend for all of SEA countries.

- Note that for Malaysia, individual deposits make up 35% of total deposits, while business deposits make up another 35% of total deposits. Financial institutions’ deposits contribute another 18% of total deposits, while federal and state government deposits contribute the remaining 12%.

- UOB expects NIM to come off for most of the SEA markets, except for Singapore. It expects its Singapore NIM to be stable given the stable USD funding.

- However, it expects cost of funds to move up for the other SEA countries it is operating in, due mainly to intensifying competition for deposit.

- UOB expects its overall NIM to perhaps drift sideways with a slight downward bias, as Singapore is still stable and comprises the bulk of its operations.

- The downward bias is expected to come from other markets excluding Singapore.

- This reinforces our view of a new uncertainty over NIM compression for Indonesia, based on CIMB Niaga’s and BII’s latest results.

- Overall, this supports our view of a possible increase in cost of funds for the sector.

- Maintain NEUTRAL on sector.

Source: AmeSecurities