- At United Overseas Bank Ltd’s (UOB) recent analyst briefing for its 3Q results, the company alluded that loans growth outlook remains challenging across the region.

- It indicated that the Singapore market is generally holding up well, despite a slowdown in the mortgage segment. As for its regional operations, it indicated a softer economic outlook for Malaysia, with borrowers generally cautious in terms of capex spending due to macro uncertainty.

- In terms of the recent asset quality trend, there was a rise in Singapore’s gross nonperforming loans (NPL) to SGD1,046mil in 3QFY15, from SGD931mil in 2QFY15, due mainly to some working capital lines extended to trading businesses, which are now facing some cash flow issues due to regional slowdown. The Singapore operations thus recorded higher gross NPL ratio of 0.9% in 3QFY15 from 0.8% in 2QFY15.

- As for Malaysia, gross NPL had seemingly declined to SGD378mil in 3QFY15 from SGD423mil in 2QFY15, but this is due mainly to translation effects from the Ringgit depreciation. With the forex movement impact, NPLs was flattish on a QoQ basis, with gross NPL ratio for Malaysia at 1.6% in 3QFY15 (2QFY15: 1.7%).

- UOB believes its operations in Malaysia will likely remain resilient as it is not in the mass market segment. Based on its internal stress tests, it does not expect a spike in NPL.

- Its NPL in Indonesia continued to rise to SGD372mil in 3QFY15, from SGD335mil in 2QFY15, taking the gross NPL ratio to 3.4% in 3QFY15 from 3.1% in 2QFY15.

- It said that the increase in Indonesia NPLs came from trickle-down effect from the softer commodity segments, which have now started to impact the secondary services supporting the commodity segments such as transportation and services.

- While the company remains cautious in terms of its Indonesia operations, we get the sense that the company seems to be more cautious for Singapore and Malaysia, compared to three to six months ago, when UOB hinted at stronger growth prospect for Singapore and that it was comfortable with its Malaysian portfolio and asset quality.

- The latest indications reinforce our view that Indonesia may remain generally muted in the months ahead. We remain NEUTRAL on the sector.

Source: AmeSecurities Research - 2 Nov 2015