Citi upgrades UOB and OCBC

Citigroup upgraded Singapore banks United Overseas Bank to ‘buy’ from ‘sell’ and Oversea-Chinese Banking Corp
to ‘neutral’ from ‘sell’, citing favourable valuations if net interest margins stabilize and macro data improves in the coming quarters.

While low interest rates and the U.S. Federal Reserve’s latest round of quantitative easing will cap improvements in net interest margins, they may help banks generate healthy treasury and markets income, allowing provisions to remain below normalised levels.

Citi prefers UOB, which has experience dealing with balance sheet issues and looks well positioned to capture fee growth opportunities in the region. It raised its target price for UOB to $20.30 from $18.10.

Both OCBC and UOB need to drive higher contributions from its franchises in Southeast Asia to mitigate pressure on net interest margins, Citi said, increasing its target price for OCBC to $9.75 from $9.15.

By 1:47 p.m., UOB shares were up 1.2% at $18.26, and have gained 19.6% since the start of the year. OCBC rose 0.8% to $9.22, and is up 17.8% since the start of the year, against the Straits Times Index’s 13.7% gain.