UOB

DMG & Partners Research on 1 Oct2012

AUGUST business loans' growth of 3 per cent month-on-month is more than double that of consumer's 1.3 per cent. This is largely the consequence of an unexpected 21 per cent month-on-month surge in manufacturing loans, which account for 6 per cent share of total loans. Consumer loans, on the other hand, recorded 1.3 per cent month-on- month growth, in line with its 1 to 1.4 per cent range over the past five months. Despite the strong August performance, we expect loan momentum to slow in the subsequent months, in line with the recent and expected future weakness in non-oil domestic exports.

UOB's YTD share price outperformance has yet to fully factor in its more robust balance sheet strength. UOB ("buy", our best pick) has the highest provisioning-to-loan ratio, and the slowest loan growth over the past 36 months, which reflects its conservative stance, a positive given the current global economic conditions. We are "neutral" on the other two banks, as we expect their loan growth to face headwinds from slower loan growth to China corporates - recall this segment propelled their loan expansion sharply in mid-2011.