UOB said Saturday the bank is «well-positioned» to benefit from interest-rate increases in the U.S., with around 70 percent of its portfolio set to floating rates.

In March, the Fed raised interest rates by 25 basis points, with the benchmark federal funds rate currently targeting 0.25 percent to 0.5 percent, up from close to zero. St. Louis Federal Reserve President James Bullard told CNBC last week that he believed the benchmark short-term borrowing rate should rise to around 3.5 percent in response to higher inflation. 

UOB is projecting every 25 basis point hike in the U.S. federal funds rate would translate into around 4 basis points of net interest margin (NIM) improvement, or around S$150 million in incremental net interest income a year, based on the current balance sheet, the bank said in answers to shareholder questions ahead of its annual general meeting (AGM). 

Repricing Loans

«There will however be some time lag as the loans are re-priced,» UOB said. 

In February, UOB reported 2021 net profit of S$4.08 billion ($2.99 billion), up 40 percent from 2020. 

When asked about the proposed acquisition of Citigroup’s consumer banking operations in Indonesia, Malaysia, Thailand and Vietnam, UOB reiterated the deal would double its retail business in Southeast Asia to 5.3 million customers, to reach the customer acquisition target five years faster than expected.

Citi Deal to Boost Unsecured Loans

UOB noted, in response to a shareholder question, that the Citi deal would boost revenue from unsecured loans to 36 percent of income from the current around 10 percent. 

«Their operating model is able to generate a superior return. The Citi portfolio, which has been tested in the last two years during the pandemic, is of high quality, resilient with superior returns,» UOB said.

Digital Bank Impact

When asked about the potential impact from the introduction of digital banks in Singapore, UOB said it expected a limited impact, with only around 5 percent of its revenue at risk. 

«The Singapore banking market is highly penetrated and incumbent banks are well trusted by consumers,» UOB said.

The bank added that it has been investing in technology, including in artificial intelligence (AI), data analytics and robotic process automation, with its digital banking app, TMRW, called the Best Digital Bank in Southeast Asia by The Digital Banker for two years.

This article originally appeared on «Shenton Wire.»