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

• UOB reported a 4% year-on-year decline in 1Q26 net profit as lower interest rates and softer fee activity continued to pressure revenue growth, though part of the weakness was offset by a record quarter from Global Markets.

• Credit costs normalised to 26 basis points from the elevated levels seen in 2025, while NIM compression now appears close to its cyclical floor.

• Non-interest income contributed 32.1% of total revenue in 1Q26, down from 34.1% a year earlier and further from management’s 37% end-2026 target, with capital market activity and investment banking fees still subdued.

• The Greater China portfolio remains the clearest area of credit monitoring. The NPL ratio for the book increased from 2.7% in 1Q25 to 3.5% in 1Q26, while NPA coverage remained comparatively modest at 57%.

• We maintain our target price of SGD 38 based on our 2028 estimates, implying approximately 3.9% upside from current levels, together with a forward dividend yield of around 5%.

Rate pressure continues to weigh on earnings, but underlying resilience is strengthening

UOB reported net profit of SGD 1.44 billion in 1Q26, down 4% year on year as lower interest rates and softer fee activity weigh on revenue growth.

Net interest income (NII) remained the primary drag on earnings. NII fell 4% year on year to SGD 2.32 billion as Net Interest Margin (NIM) compressed 18 basis points to 1.82%, from 2.00% in 1Q25. The decline reflects the continued pass-through of lower interest rates into the loan and securities book, extending the margin compression cycle seen across the sector.

Fee income also softened, declining 8% year on year to SGD 637 million against a strong 1Q25 base. Weakness was concentrated in Wholesale Banking, where transaction banking income fell 18% and investment banking fees declined 23% amid slower deal activity and a more cautious risk environment.

Within the softer headline numbers, several business lines continued to show underlying resilience. Retail wealth income rose 6% year on year to SGD 342 million, supported by a 5% increase in assets under management to SGD 198 billion. Global Markets delivered a record quarter, with total income rising 19% year on year to SGD 658 million, driven by stronger customer treasury flows and elevated market volatility.

Table 1: UOB 1Q26 financial performance summary

The steepest phase of NIM compression now appears behind UOB

NIM compression has been the primary drag on UOB’s earnings over the past year, but the pressure now appears close to its cyclical floor. Management previously guided for NIM to stabilise within the 1.75%–1.80% range in 2026 based on expectations of two US Federal Reserve rate cuts. That assumption now looks very unlikely, with the Fed increasingly expected to keep rates higher for longer as renewed energy-driven inflation concerns complicate the easing path. As a result, the trough in NIM may arrive earlier than initially anticipated.

At the same time, the underlying business continues to show resilience, particularly across deposit growth, fee generation, and regional trade financing activity. Customer loans grew 4% year on year to SGD 354 billion, indicating that balance sheet momentum remains healthy despite softer margins. Funding quality also continues to strengthen. Retail Current Account and Savings Account (CASA) balances increased 10% year on year, lifting the CASA ratio to 58% and reinforcing UOB’s structural funding advantage through a larger base of low-cost deposits.

Credit normalisation is restoring earnings visibility

Credit costs were the largest distortion to UOB’s 2025 earnings profile, and that pressure is now easing meaningfully. The sharp rise in provisions during 3Q25 pushed full-year credit costs to 55 basis points and compressed the earnings base to SGD 2.84 per share, creating a significant drag on profitability through the year.

The 1Q26 results provide encouraging evidence that asset quality remains resilient. The NPL ratio held steady quarter on quarter at 1.5%, while new non-performing asset formation declined sharply to SGD 341 million from SGD 599 million in 4Q25. Gross Non-Performing Asset (NPA) coverage also recovered to 100%, reinforcing the strength of UOB’s balance sheet buffers despite continued macro uncertainty.

At the same time, credit costs normalised to 26 basis points, returning to management’s guided range of 25–30 basis points and indicating that the deterioration seen in 2025 is not becoming structural. The broader credit portfolio, for now, continues to behave largely in line with management expectations.

That said, pockets of stress remain visible within the Greater China portfolio. At SGD 49 billion, the book accounts for approximately 14% of total loans. The NPL ratio has increased steadily over the past four quarters, rising from 2.7% in 1Q25 to 3.5% in 1Q26, while NPA coverage remains comparatively modest at 57%, below the group-wide level of 100%. Although the current level of stress remains manageable and is not yet large enough to materially threaten group-wide credit costs, the portfolio continues to be the largest contributor to residual credit pressure within the group.

Overall, the quarter suggests that credit stress at the group level is easing despite selective pressure points within Greater China. With provision pressure moderating alongside an approaching floor in NIM, two of the largest earnings headwinds facing UOB over the past year are beginning to ease simultaneously.

The next phase of earnings growth still requires stronger external conditions

With provision pressure easing and NIM compression approaching a floor, the next phase of UOB’s earnings growth increasingly depends on whether non-interest income can regain momentum.

Management’s guidance for high single-digit fee income growth in 2026 implies a meaningful improvement from the 8% year-on-year decline recorded in 1Q26. Investment banking activity and broader capital market issuance remain soft, with recovery conditions still constrained by cautious corporate sentiment and lingering geopolitical uncertainty.

The broader strategic targets also appear increasingly demanding within the original timeline. UOB had targeted non-interest income to contribute 37% of total revenue by end-2026, but the 1Q26 trajectory moved further away from that objective. Non-interest income accounted for 32.1% of total income in the quarter, down from 34.1% a year earlier, as fee income and trading and investment income both declined faster in absolute terms than net interest income.

Achieving management’s original target would require several drivers to strengthen simultaneously, a combination that is not yet assured under the current operating environment.

Stabilisation is emerging, but the recovery path remains gradual

UOB (SGX: U11) is entering a more stable phase of the earnings cycle in 2026. Credit cost normalisation, an approaching floor in NIM, and continued CASA expansion are collectively reducing the earnings pressures that weighed on the bank through 2025.

However, a stronger acceleration in earnings growth still requires firmer improvement in non-interest income. While the foundation for recovery is increasingly visible, the current trajectory suggests that a more meaningful improvement in profitability is likely to emerge over the medium to longer term.

We maintain our target price of SGD 38, based on our 2028 estimates, implying approximately 3.9% upside from current levels. In addition, the stock offers a forward dividend yield of 5.1%, providing steady income support in a lower rate environment.

Table 2: Valuation table for UOB

UOB (SGX: U11)
	2025A	2026E	2027E	2028E
EPS	2.8	3.0	3.3	3.8
EPS Growth	-26.3%	8.9%	10.9%	13.1%
P/E Ratio (X)	13.3	12.2	11.0	9.7
Book Value/Share	30.2	32.5	35.0	37.7
P/B Ratio (X)	1.1	1.1	1.0	1.0
Dividend Yield	6.2%	4.1%	4.5%	5.1%
Target Price (SGD)				38
Upside Potential (Excluding dividends)				3.9%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 8 May 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.