UOB posted 1Q16 net earnings of S$766m this morning, down 4.4% YoY and 2.8% QoQ. This is in line with a Bloomberg poll of S$767m. The main reasons for the YoY and QoQ declines were a drop in Fee Income, lower income from Investment Securities, lower Trading Income (QoQ) as well as losses from Associates.

Allowances came off from S$169m in 1Q15 and S$190m in 4Q15 to S$117m in 1Q16. Net Interest Margin (NIM) came off QoQ from 1.79% in 4Q15 to 1.78% in 1Q16. NPL ratio was stable QoQ at 1.4%. Total exposure to China amounted to S$19.5b or 5.9% of total assets.

Of the nonbank exposure in China, the NPL ratio is at around 0.9%. Total exposure to commodities amounted to S$21.8b as of March 2016. Of the outstanding loans, about 4% of total loans are to the Oil & Gas sector. We will provide more details after the analysts’ briefing. Since our last report, UOB has done well and gained some 6%. We will review our earnings projections, fair value estimate and rating post the analysts’ briefing.

Source: OCBC Research - 28 Apr 2016