UOB Credit Update: Greater China Property Loan Lifts NPLs, While AUD 2031 Bond Yields 5.71%

Its main strategic distinction from DBS and OCBC is its ASEAN focus, supported by banking subsidiaries in Malaysia, Indonesia, Thailand and Vietnam. Like its peers, UOB is increasingly relying on wealth management, transaction banking and other fee-generating businesses to offset pressure on net interest margins.

Headline Profit Growth Masks Softer Underlying Earnings

Net interest income (NII) declined 2.0% YoY to S$2.3 billion in 2Q2026, as net interest margin (NIM) narrowed 17 bps to 1.74% on margin compression. The impact was partly offset by balance-sheet growth, with average interest-bearing assets rising 7.8% YoY to S$528.0 billion. The compression was concentrated in the loan book, where margins fell 22 bps YoY to 2.05%, dragging NII from loans down 4.9% YoY to S$1.8 billion. Margins on interbank balances and securities were broadly stable at 1.14% and NII from that book rose 11.8% YoY to S$503.0 million as surplus funds were deployed into liquid assets.

Net fee income rose 4.6% YoY to S$665.0 million, driven by strong growth in wealth and fund management activities. Gross fee income rose 5.3% YoY to S$873.0 million, supported by broad-based growth across fee businesses which helped offset softer investment banking activity. Wealth-management fees jumped 29.3% YoY to S$243.0 million, as UOB sustained client engagement and saw healthy demand for investment and advisory solutions. Credit card fees rose 1.4% YoY to S$288.0 million, while other fee income grew 15.9% YoY to S$95.0 million. However, loan- and trade-related fees slipped 10.2% YoY to S$246.0 million, reflecting slower capital market and loan origination activity.

Other non-interest income increased 28.2% YoY to S$632.0 million, though the increase was partly boosted by non-recurring gains from asset divestments, which are unlikely to repeat.

By business income, Global Markets total income was up 11.0% YoY to S$584.0 million, supported by a lower cost of funds and sustained momentum in customer flows and trading activities. Customer-related treasury income increased 3.9% YoY to S$290.0 million on healthy hedging and investment demand, while non-customer treasury income grew 18.6% YoY to S$293.0 million. Global Markets total assets, excluding derivative-related assets, rose 19.0% YoY to S$171.0 billion.

Taken together, total income rose 4.0% YoY to S$3.6 billion, while expenses grew 6.0% YoY to S$1.6 billion on continued investment in talent, technology and strategic initiatives, pushing the cost-to-income ratio up from 44.3% to 45.3%. With costs outpacing income, operating profit before allowances grew only around 2.0% YoY, indicating relatively modest underlying operating leverage. Moreover, income growth was partly supported by non-recurring asset-divestment gains, suggesting that recurring operating earnings growth was softer than the headline figures imply. Net profit nonetheless rose 10.0% YoY to S$1.5 billion, partly supported by lower credit allowances. Overall, underlying earnings growth was more modest than the headline net profit increase suggests.

For 1H2026, net profit rose 3.0% YoY to S$2.9 billion. NII fell 3.0% to S$4.6 billion, and net fee income eased 2.0% to S$1.3 billion from a high base a year earlier. Other non-interest income rose 4.0% to S$1.1 billion. Expenses grew 2.0% to S$3.2 billion, resulting in a cost-to-income ratio of 44.9%.

UOB's outlook became more cautious, with fee income guidance cut to low single-digit growth, from high single digits previously. Other targets were unchanged, including low single-digit loan growth, a full-year NIM of around 1.75 to 1.80%, low single-digit cost growth and total credit cost of 25 to 30 bps.

1H2026 NIM averaged around 1.78%, near the lower end of management’s target range, while the July exit NIM fell further to 1.71%. This points to continued margin pressure in 2H2026, although balance-sheet growth and stabilising benchmark rates could provide some support to absolute NII.

Asset Quality Softer, Buffers Intact

UOB's group non-performing loan (NPL) ratio was unchanged YoY at 1.6% in 1H2026, though this masked divergent trends across geographies. Greater China NPLs rose 76.9% to S$2.3 billion from S$1.3 billion a year earlier, driven mainly by the downgrade of a single real estate account. Excluding Greater China, asset quality improved, with the NPL ratio easing to around 1.1% from 1.4%, supporting management's view that the deterioration is name-specific rather than broad-based. The downgrade pushed specific credit costs up to 34 bps from 26 bps a year earlier. Total credit costs nonetheless fell to 27 bps, as general allowance write-backs offset much of the increase in specific provisions.

The group’s NPA coverage remained unchanged at 88%, while coverage after collateral rose sharply to 306% from 209% a year earlier. Although the higher collateral-adjusted coverage provides some comfort, it remains dependent on property valuations holding up. Management indicated that the Greater China real estate exposure had been adequately provided for and reiterated its expectation that total credit costs would remain within the 25 to 30 bps guidance range.

Solid on All Fronts: Strong Capital, Funding and Liquidity

Capitalisation remained strong, with UOB’s fully phased-in Common Equity Tier 1 (CET1) ratio at 15.0%, broadly stable from 15.1% a year earlier. UOB has completed about 40.0% of its S$2.0 billion capital return plan, or S$794.0 million, and remains
committed to finishing it by end-2027. While returning capital reduces CET1, the remaining S$1.2 billion would have only a modest impact on a ratio already well above regulatory requirements, leaving buffers comfortably intact. Separately, UOB agreed to sell UOB Asset Management to Allianz Global Investors for S$555.0 million as part of a strategic partnership. The deal is expected to close in 2027, subject to regulatory approval. UOB expects a pre-tax gain of about S$330.0 million and a CET1 uplift of around 14 bps, which would add to already strong capital buffers.

Funding and liquidity also remained comfortable. Total customer deposits grew 7.9% YoY to S$437.2 billion, outpacing the 5.4% increase in gross customer loans to S$361.4 billion and lowering the loan-to-deposit ratio to 81.7% from 83.7%. Group current account and savings account (CASA) balances rose 6.1% YoY to S$243.0 billion, though fixed deposits grew faster at 10.2%, easing the CASA mix to 55.6% of customer deposits from 56.5% a year earlier. At over half the deposit base, CASA still underpins a relatively stable and low-cost funding profile, though the shift towards fixed deposits points to some upward pressure on funding costs. The average all-currency liquidity coverage ratio (LCR) improved to 152.0% in 1H2026 from 142.0% a year earlier, while the net stable funding ratio (NSFR) eased to 114.0% from 118.0%. Both remained comfortably above the 100.0% regulatory minimum.

Overall, UOB's credit metrics remain resilient, supported by strong capitalisation and liquidity. The key near-term credit risk is the deterioration in the Greater China real estate account, particularly if weakness spreads to other borrowers.

USD Bonds: Fairly Priced Against Peers

As shown in Table 1, within senior bank bonds by Singapore banks, UOBSP 4.401% 02Apr2028 Corp (USD) yields 5.01% with 1.52 years to maturity, a pickup of around 30 bps over comparable Treasuries. Against peers, it yields 1 bp less than DBSSP 4.403% 21Mar2028 Corp (USD) at 5.02%, despite a near-identical tenor and the same AA- rating, with DBS offering a marginally wider spread of 32.7 bps against Treasuries.

For subordinated exposure (Tier 2 bonds), UOBSP 3.863% 07Oct2032 Corp (USD) is currently priced to its first reset of 07 Oct 2027 (1.03 years away), with a yield to worst of about 5.41%. On that basis, the issue offers a pickup of around 90 bps over comparable Treasuries, materially wider than the senior 2028 issue. This reflects the subordinated ranking and hence its lower bond rating, two to four notches below that of its senior unsecured bonds. Against OCBCSP 4.602% 15Jun2032 Corp (USD), another Tier 2 subordinated bond, the UOB issue yields 2 bps more over a marginally longer time to reset, though OCBC's spread of 97.1 bps is the wider of the two.

Overall, we view UOB's USD bonds as fairly priced, offering no compelling relative value over peers.

(Note: Tier 2 bonds are subject to loss-absorption and extension (non-call) risks, which investors should be comfortable with before investing. Nevertheless, we believe there is a strong economic incentive for Singapore banks to call and replace Tier 2 bonds at their first call/reset date, given their strong access to wholesale funding markets and the progressive amortisation of Tier 2 regulatory capital recognition during the final five years to maturity.)

Table 1: UOB USD Bonds Peer Comparison

Issuer	Issue	Bond Rank	Ask Price (USD)	Yield to Worst (%)	Reset / Maturity Date (Years to Reset / Maturity)	Credit Ratings (S&P / Moody’s / Fitch)
United Overseas Bank Ltd	UOBSP 4.401% 02Apr2028 Corp (USD)	Senior Unsecured	99.13	5.01	- / 02 Apr 2028 (- / 1.52)	AA- / Aa1 / AA-
United Overseas Bank Ltd	UOBSP 3.863% 07Oct2032 Corp (USD)	Subordinated	98.48	5.41	07 Oct 2027 / 07 Oct 2032 (1.03 / 6.03)	BBB+ / A2 / A
DBS Group Holdings Limited	DBSSP 4.403% 21Mar2028 Corp (USD)	Senior Unsecured	99.13	5.02	- / 21 Mar 2028 (- / 1.49)	- / Aa2 / AA-
Oversea Chinese Banking Corp Ltd	OCBCSP 4.602% 15Jun2032 Corp (USD)	Subordinated	99.45	5.39	15 Jun 2027 / 15 Jun 2032 (0.72 / 5.72)	BBB+ / A2 / A
Data as of 25 September 2026 Source: Bloomberg and Bondsupermart

UOB AUD Bonds: Higher Yields with Modest Peer Differentials

UOB's AUD senior bonds offer higher absolute yields than its USD senior issues, reflecting the higher yields available on Australian government bonds rather than any difference in credit quality (See Table 2).

The UOBSP 4.670% 16Apr2027 Corp (AUD) yields 5.32% with 0.56 years to maturity, offering a pickup of around 46 bps over the comparable Australian government yield. This issue yields 10 bps more than DBSSP 4.700% 26Feb2027 Corp (AUD) at 5.22%, which is marginally shorter at 0.42 years.

Further along the curve, the UOBSP 5.023% 29Jan2031 Corp (AUD) yields 5.71% with 4.35 years to maturity, offering a wider pickup of around 65 bps over the sovereign, and 3 bps above DBSSP 5.065% 13Feb2031 Corp (AUD) at 5.68% over a near-identical tenor.

Overall, while UOB's AUD bonds offer higher absolute yields than its USD issues, the pickup over both the sovereign curve and comparable peer paper is narrow, and we view them as fairly priced. UOB bonds remain suitable for investors seeking high-quality exposure to a well-established Asian banking franchise with an ASEAN tilt, and who are comfortable accepting relatively limited additional spread. Investors should also consider the foreign-exchange risk associated with USD- and AUD-denominated bonds.

Table 2: UOB AUD Senior Unsecured Peer Comparison

Issuer	Issue	Ask Price (AUD)	Yield to Worst (%)	Reset / Maturity Date (Years to Reset / Maturity)	Credit Ratings (S&P / Moody’s / Fitch)
United Overseas Bank Ltd / Sydney	UOBSP 4.670% 16Apr2027 Corp (AUD)	99.65	5.32	- / 16 Apr 2027 (- / 0.56)	AA- / Aa1 / AA-
United Overseas Bank Ltd / Sydney	UOBSP 5.023% 29Jan2031 Corp (AUD)	97.40	5.71	- / 29 Jan 2031 (- / 4.35)	AA- / Aa1 / AA-
DBS Bank Ltd / Australia	DBSSP 4.700% 26Feb2027 Corp (AUD)	99.77	5.22	- / 26 Feb 2027 (- / 0.42)	- / Aa1 / AA-
DBS Bank Ltd / Australia	DBSSP 5.065% 13Feb2031 Corp (AUD)	97.65	5.68	- / 13 Feb 2031 (- / 4.39)	- / Aa1 / AA-
Data as of 25 September 2026 Source: Bloomberg and Bondsupermart

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds NIL positions and the analyst who produced this report holds NIL positions 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.