CGS International Securities
August 8, 2025

United Overseas Bank (UOB) Outlook 2025: Navigating Uncertain Waters in Singapore Banking

Overview and Key Takeaways

United Overseas Bank (UOB), one of Singapore’s leading banks, faces an uncertain macroeconomic outlook for the remainder of 2025. CGS International Securities has downgraded its rating on UOB from “Add” to “Hold,” reflecting tempered expectations for earnings growth and asset quality amidst regional volatility. The latest target price is set at S\$38.30, down from S\$38.60, representing a modest 7% upside from the current price of S\$35.81.

• Active cost of fund management may ease NIM compression in 2H25, with prospects of a rebound following recent rate cuts.
• EPS forecasts for FY25-27 have been revised down by 2.5%-5.8% due to softer loan growth and NIMs.
• Credit costs are expected to remain elevated in 2025 before moderating in 2026.
• Consensus ratings: Buy 9, Hold 9, Sell 0.
• Major shareholders: Wee Investments Pte Ltd (7.7%), Wah Hin & Co Pte Ltd (5.0%), Vanguard Group (2.0%).

Financial Performance and Outlook

UOB reported a decline in net interest income (NII) of 2.7% year-on-year and 3.0% quarter-on-quarter to S\$2.34 billion in 1Q25, driven by a 9bp drop in net interest margin (NIM) to 1.91%. The bank’s strategy to align asset and liability growth resulted in average interest-bearing assets and liabilities both growing around 4% year-on-year for 1H25.

Management anticipates a NIM rebound in 2H25, following two interest rate cuts on the flagship UOB One Account in May and August 2025. However, the lag in funding cost savings necessitates caution in projections.

Credit Costs and Asset Quality

Total allowances in 2Q25 reached S\$274 million, translating to a credit cost of 32bp, almost entirely comprising specific provisions. The FY25 guidance for net credit costs is maintained at 25-30bp, with a preference for general provision buffer enhancement. There is potential for a writeback from a single US commercial real estate account, pending asset sales.

Credit quality in Thailand has improved, with increased business volumes across sectors, excluding mortgages.

Guidance and Revised Expectations

Loan growth expectations for FY25 have been revised to low single-digits (previously high single-digits), reflecting a more cautious stance. Fee growth is also guided to high single-digits, down from double-digit growth, as customers pivot toward conservative wealth solutions. The cost-to-income ratio is expected to trend above the previously guided 42% due to ongoing IT investments.

• FY25F EPS: -5.8%
• FY26F EPS: -2.5%
• FY27F EPS: -3.1%
• Credit costs: Elevated at 35bp for FY25, tapering to 25bp in FY26.

Upside risks include lower funding costs and stronger loan growth, while downside risks center on weaker ASEAN currencies and deteriorating credit quality.

Comparative Sector Analysis: Singapore, Indonesia, Malaysia, Thailand

Singapore’s banking sector shows mixed performance, with UOB trailing its peers in ROE and price-to-book value. Below is a comparative table highlighting key metrics for major banks in Singapore, Indonesia, Malaysia, and Thailand:

Singapore banks average a 2.7% 3-year EPS CAGR and 13.4% ROE, while Indonesian banks display superior growth and return metrics. Malaysia and Thailand present mixed metrics, with Malaysia showing relatively stable ROEs and Thailand characterized by lower price-to-book values and yields.

ESG Performance: UOB’s Sustainability Commitment

UOB achieved a B+ combined ESG score from LSEG in 2024, with marked improvements in Social (A-) and Environmental (A) pillars. The bank’s commitment shines through its Responsible Financing Policy, prohibiting financing for companies involved in forced or child labor, and supporting indigenous rights.

• UOB’s “Better U” learning and development program emphasizes upskilling employees.
• Included in the Bloomberg Gender-Equality Index for diversity efforts.
• Recent product responsibility controversy (2021) was addressed with tighter internal controls.
• Consistent improvements in human rights, management, and CSR categories.

These ESG efforts position UOB favorably among peers and may attract ESG-mandated capital as market standards evolve.

Balance Sheet and Key Ratios

Key ratios show modest growth in assets and loans, a stable NIM, and resilient capital buffers. The cost-to-income ratio rises slightly due to ongoing investments.

Stock Ratings and Recommendation Framework

• Add: Total return expected to exceed 10% over 12 months.
• Hold: Total return expected between 0% and 10% over 12 months (current rating for UOB).
• Reduce: Total return expected to fall below 0% or more over 12 months.

Sector ratings range from Overweight to Underweight based on market-cap weighted recommendations.

For the quarter ended June 30, 2025:

• Add: 70.6%
• Hold: 20.5%
• Reduce: 8.9%
• Investment Banking Clients: Add 1.1%, Hold 0.5%, Reduce 0.5%
• Coverage universe: 561 companies

Conclusion: Near-Term Uncertainty, Long-Term Opportunity

UOB enters 2H25 with a cautious outlook, navigating margin pressures and conservative loan growth, but maintains a robust balance sheet and strong ESG credentials. While immediate earnings upside is limited, strategic cost management and ESG leadership may position the bank for future premium valuations.

Investors should monitor funding cost trends, regional currency movements, and credit quality developments as key drivers for UOB’s performance in the coming quarters.