UOB 3Q26: Fairly valued after the pullback, with dividends the main return until margins turn

UOB’s 3Q26 results reinforce our 1H26 caution that the headline earnings recovery has yet to translate into stronger underlying operating momentum. Net profit fell 15% quarter-on-quarter to SGD 1.25 billion, about 9% below consensus of approximately SGD 1.37 billion. Total income declined 6% to SGD 3.38 billion as other non-interest income fell 41% quarter-on-quarter to SGD 370 million, reflecting the absence of divestment gains and a 33% year-on-year decline in trading and investment income. Operating profit consequently fell 8% quarter-on-quarter to SGD 1.81 billion. While 9M26 net profit rose 27%, the increase largely reflects the base effect from pre-emptive provisioning taken in 3Q25, rather than an acceleration in underlying earnings growth.

Beneath the headline, fee income was the only major income contributor to record growth both quarter-on-quarter (10%) and over nine months (5%), providing some offset to weakness elsewhere. Net interest income was broadly stable sequentially but remained 2% lower over nine months. Taken together, the results point to an earnings base that is stabilising, but has yet to establish a more meaningful growth trajectory.

Table 1: UOB 3Q26 financial performance summary

Line Item	3Q26	YoY %	QoQ %
Net Interest Income	SGD 2.28b	1%	-1%
Net Fee Income	SGD 733m	19%	10%
Other Non-Interest Income	SGD 370m	-29%	-41%
Total Income	SGD 3.38b	0%	-6%
Net Profit	SGD 1.25b	182%	-15%
Net Interest Margin	1.68%	-14bps	-6bps
NPL Ratio	1.50%	-0.1pt	-0.1pt
Credit Costs (bps)	24bps	-110bps	-4bps
Source: UOB Data as of 30 September 2026

Net interest income pressure is easing, but margin recovery remains gradual

Net interest income remains under pressure, although the underlying revenue drivers are becoming more supportive. SORA has continued to firm since our last update, providing support for the repricing of SORA-linked loans, while loan growth adds volume to the interest-earning asset base. Gross loans grew 3% quarter-on-quarter in 3Q26, helping to keep net interest income broadly stable at SGD 2.28 billion despite a further 6 basis-point contraction in NIM to 1.68%.

Despite these tailwinds, margins continued to contract as higher funding costs became the main drag. Higher deposit costs accounted for a 7 basis-point reduction in NIM, while the CASA ratio slipped to 54.6% from 55.6% in 2Q26 amid continued deposit competition. At 1.75%, 9M26 NIM is already at the lower end of management’s 1.75%–1.80% guidance. Assuming 4Q26 NIM remains around the 3Q26 level of 1.68%, full-year NIM would average approximately 1.73%, below the guided range.

Nevertheless, the pace of margin compression is moderating. NIM declined 14 basis points year-on-year, compared with 17 basis points in 2Q26 and 18 basis points in 1Q26. The sequential contraction also narrowed to 6 basis points from 8 basis points in the previous quarter. This suggests that the earlier drag from declining asset yields is gradually easing, although higher funding costs continue to delay the formation of a more meaningful NIM floor.

Looking ahead, management expects margin pressure to ease as benchmark rates firm, although the benefits are likely to flow through with a lag of one to two quarters. It also guides for 2027 net interest income to exceed 2026 levels, supported by mid-single-digit loan growth. The next leg of NII growth should therefore be driven primarily by balance-sheet expansion, with margin recovery providing additional support further ahead. A further decline in the CASA ratio would prolong funding-cost pressure and delay the recovery.

Record fee income supports growth, but wealth inflows remain behind peers

Non-interest income provided a more encouraging contribution in 3Q26, with net fee income reaching a record SGD 733 million, up 19% year-on-year on stronger wealth, card and loan-related activity. Management guides for net fee income to grow at a mid-to-high single-digit pace in 2027, an improvement from the low-single-digit growth guided for 2026.

However, stronger fee income has yet to translate into a comparable improvement in UOB’s competitive position against its local peers. Its AUM of SGD 204 billion, up only 3% year-on-year, remains well below DBS’s SGD 516 billion and OCBC’s SGD 350 billion as at 2Q26. This reflects the difference in franchise scale, which one quarter of stronger inflows is unlikely to close. UOB’s wealth income growth also moderated to 13% over 9M26 from 16% in 1H26, suggesting that the pace of growth remains relatively measured.

Management is stepping up investment to strengthen its wealth franchise, with plans to invest approximately SGD 800 million over five years and add 50 private bankers annually. These initiatives should broaden its advisory capabilities and support future AUM growth. The investment cycle will take time to bear fruit, while the gap with DBS and OCBC is likely to remain a constraint on UOB’s ability to capture a larger share of regional wealth inflows in the near term.

Greater China credit, the risk we flagged, continues to deteriorate

Asset quality improved at the group level, but the underlying credit risks in Greater China continued to deepen. The group NPL ratio eased to 1.5%, while credit costs of 24 basis points were below management’s 25–30 basis-point guidance, which it has maintained for 2027. Beneath this headline improvement, credit quality in Greater China deteriorated further, with the NPL ratio rising to 5.0% from 4.8% and NPA coverage declining to 40% from 42%. Non-performing assets in the portfolio also increased to SGD 2.46 billion.

Management expects the recovery in Greater China to be slower than in its US portfolio, with NPLs likely to decline only gradually. While group NPA coverage of 86% remains adequate, the deterioration in Greater China warrants continued monitoring into 2027, particularly given the combination of a higher NPL ratio and thinner coverage. As highlighted in our 1H26 update, this remains UOB’s largest residual credit risk and an important consideration in assessing the quality of its earnings recovery.

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

Capital remains adequate, but a thinner buffer limits upside

UOB’s capital position remains adequate, although the buffer has narrowed since 1H26. The CET1 ratio declined 0.8 percentage points to 14.6%, while the fully loaded ratio eased to 14.0% from 15.0%, following the interim dividend payout and an SGD 5 billion increase in risk-weighted assets. Return on equity also moderated to 10.1% from 11.8% in 2Q26, reflecting the weaker quarterly earnings performance.

We lower our target price to SGD 38.2 from SGD 42.2, based on our adjusted 2028 estimates. Following a decline of approximately 5% after the results, UOB shares are now trading close to our revised target price. The forward dividend yield, averaging around 4.7% over the next three years, therefore remains the main source of prospective shareholder returns. Further share price gains will depend increasingly on a firmer NIM, sustained fee growth and continued containment of Greater China credit risks. For investors yet to build a position, waiting for clearer evidence that funding costs have peaked may be a more prudent approach given the limited valuation upside at current levels.

Table 2: Valuation table for UOB

	2025A	2026E	2027E	2028E
EPS	2.8	3.3	3.5	3.9
EPS Growth	-26.3%	19.2%	7.2%	10.8%
P/E Ratio (X)	14.0	11.7	10.9	9.9
Book Value/Share	30.2	30.5	32.2	34.0
P/B Ratio (X)	1.1	1.3	1.2	1.1
Dividend Yield	5.9%	4.3%	4.6%	5.1%
Target Price (SGD)				38.2
Upside Potential (Excluding dividends)				-0.7%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 4 Nov 2026

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

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.