The upcoming declining interest rate environment will affect a huge part of United Overseas Bank U11 ’s (UOB) growth engine, so the bank will have to focus on fee income for the foreseeable future, says Lee Wai Fai, CFO of UOB at its corporate day on Aug 14 in Kuala Lumpur.
Speaking to analysts, investors and media, Lee presented on the bank’s 2026 financial ambitions in which they expect 10 rate cuts will happen until then. UOB is targeting a medium-term return of equity (ROE) at 14%, a figure that Lee says is “probably quite respectable” given the declining interest rate environment.
Three levers of focus will help the bank attain this goal — income from its Asean 4, which includes Indonesia, Malaysia, Thailand and Vietnam, to reach 30% while maintaining 50% in Singapore; a higher mix of non-interest income driven by wealth, trade, and customer treasury; and closing in on a 40% cost-income ratio.
“With the recent market volatility, this talk about higher for longer has now transformed into shorter and deeper,” says Lee. “And our view is that a lot of market volatility, we think is not related to the economy.”
Looking at the statistics of the US economy, Lee says that the bank does not think that it will go into a recession. “But we are watching that,” he adds.
On the gradual declining interest rates, the bank’s CFO says that this could be beneficial for commercial banks. “Margins might be affected slightly, but volumes will pick up,” he says.
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The reduction of interest rates in the US will also reduce pressure on exchange rates in the Southeast Asian region, Lee continues. Regional economies that have not had really high rates now have the opportunity to further bring it down.
Still, this will take a huge part of the bank’s growth engine. While current account savings account (CASA) and trade will have to be the driving force to keep ROE where it is at, Lee says the bank will have to transform its operating model from loans and interest functions to fees and treasuries.
The total trade between economic blocs rose about 27% from 2023, and most of the pickup in Asean-related trade flows happened in the intra-Asean and China-Asean corridors, at 34% each respectively.
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When questioned by an analyst about how the group aims to capture trade flows, UOB’s head of group corporate banking, Leong Yung Chee says that the bank’s approach is to be agile and competitive in its solutions and pricing.
“It’s not a case where we’re aiming to win by lowering pricing to win market share, it’s a zero sum game and a vicious cycle. We don’t want to compete on pricing, but the virtue of our solutions,” he says.
