UOB 1H26: Earnings stabilising, but a broader recovery is still needed

• Headline profit rose 3%, but pre-provision profit fell 4%, with earnings growth supported by provision releases, associate income and one-off divestment gains while core earnings remained soft.

• NIM is approaching a floor as SORA firms, but net fee income fell 2% on weaker loan-related and investment-banking activity.

• Greater China remains UOB’s largest residual credit risk, with its NPL ratio rising to 4.8% and NPA coverage thinning to 42%, partly masked by general-provision releases.

• UOB’s 15.0% CET1 ratio and 4.4% average forward dividend yield support shareholder returns, but further upside requires stronger fee growth and continued credit containment.

Headline earnings improve, but underlying momentum remains weak

UOB rounded off the 1H2026 Singapore banks reporting season with a first-half result that was resilient at the headline level, but softer beneath the surface. Net profit rose 3% year-on-year to SGD 2.92 billion, but the underlying operating picture was weaker. Total income declined 1% to SGD 7.02 billion and pre-provision operating profit fell 4% to SGD 3.87 billion. The earnings uplift was driven largely by below-the-line support, including higher contributions from associates, and non-recurring gains from asset divestments. Core revenue drivers remained under pressure, with net interest income declining 3% to SGD 4.62 billion, and net fee income fell 2% to SGD 1.30 billion as record wealth fees were offset by weaker loan-related and investment banking fees.

The second quarter, summarised in the table below, reinforces the same underlying dynamic. Quarterly net profit rose 10% year-on-year and 3% quarter-on-quarter to SGD 1.48 billion, but the sequential improvement was driven largely by non-operating gains. Taken together, the results point to a headline earnings recovery that has yet to be matched by a meaningful improvement in underlying operating momentum.

Table 1: UOB 2Q26 financial performance summary

Line Item	2Q26	YoY %	QoQ %
Net Interest Income	SGD 2.30b	-2%	-1%
Net Fee Income	SGD 665m	5%	4%
Other Non-Interest Income	SGD 632m	28%	37%
Total Income	SGD 3.60b	4%	5%
Net Profit	SGD 1.48b	10%	3%
Net Interest Margin	1.74%	-17bps	-8bps
NPL Ratio	1.60%	Unchanged	+0.1pt
Credit Costs (bps)	28bps	-6bps	+2bps
Source: UOB Data as of 30 June 2026

Net interest income pressure is easing, but non-interest income recovery remains measured

Net interest income remains the main drag on earnings, nevertheless, the rate backdrop is now more supportive as we anticipated in our 1Q26 update. SORA has risen for three consecutive months to around 1.15% at end-July, while the Federal Reserve’s latest projections no longer point to rate cuts as the base case. With 1H26 NIM averaging 1.78%, within management’s guided 1.75%–1.80% range, and the rate drag beginning to moderate, margin pressure appears to be approaching a floor. Balance-sheet momentum also remains healthy, with gross loans up 5% year-on-year and CASA balances continuing to grow, supporting UOB’s low-cost funding base.

The next leg of earnings growth will depend increasingly on non-interest income, although the recovery remains measured. The wealth franchise continued to perform well, with first-half wealth income rising 16% year-on-year and ASEAN-4 wealth income up 30%. High-net-worth AUM reached SGD 204 billion, up 7%, supported by SGD 4 billion of net new money, while fund management fees grew 20%. The Allianz Global Investors partnership should further broaden UOB’s product offering and support the continued development of its advisory-led wealth franchise.

However, stronger wealth performance has yet to translate into broad-based fee growth. Net fee income still declined 2% in 1H26, as a 19% decline in loan-related fees and softer investment-banking activity more than offset record wealth fees. While the wealth franchise provides a structurally stronger earnings base, a broader recovery in capital-market and deal activity is still needed for non-interest income to become a more meaningful growth driver. Management has consequently lowered its full-year fee income guidance to low-single-digit growth, from high-single-digit growth previously.

Greater China credit, the risk we flagged, is becoming more pronounced

Asset quality is where the first half most clearly warrants caution. The group NPL ratio held at 1.6%, while credit costs of 27 basis points remained within management’s 25–30 basis-point guidance. However, this stability was partly supported by a release of general allowances that offset higher specific provisions, while the underlying trend in Greater China — which we identified as the clearest area of credit monitoring in our 1Q26 update — deteriorated materially. The portfolio’s NPL ratio rose to 4.8% from 3.5% in 1Q26, while NPA coverage fell to 42% from 57% following the downgrade of a closely monitored real-estate account. The Greater China portfolio therefore remains UOB’s largest residual credit risk, warranting closer monitoring in the second half given the higher NPL ratio and thinner coverage.

Related article: UOB 1Q26: The earnings base is stabilising, but stronger growth still requires better conditions

Dividend support remains solid, but stronger earnings delivery is needed

UOB trades at the lowest valuation among the three local banks, at around 1.4x forward price-to-book versus roughly 2x for OCBC and 3x for DBS. This discount reflects its lower return on equity, as well as the earnings-quality and credit considerations discussed above. Capital strength remains a clear positive, with a fully loaded Common Equity Tier 1 (CET1) ratio of 15.0%, the highest among the three banks, providing ample capacity to sustain shareholder returns.

We raise our target price to SGD 42.2, based on our adjusted 2028 estimates. With a forward dividend yield averaging around 4.4% over the next three years, UOB continues to offer steady income support. However, with near-term price upside remaining limited and the earnings recovery still gradual, further share price gains will depend increasingly on a firmer fee recovery and continued containment of Greater China credit risks. For investors yet to build a position, a more selective approach on entry valuation may be warranted given the stock’s current premium to its 10-year average price-to-book.

Table 2: Valuation table for UOB

Figure 1: UOB’s share price vs earnings per share

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OCBC 1H26: Record quarter, wealth-led growth shines, but valuation raises the bar

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.