Moody's Affirms United Overseas Bank (Thai) Public Co Ltd's Ratings with Negative Outlook

Strategic Insights -

Moody's Investors Service has reaffirmed United Overseas Bank (Thai) Public Co Ltd's A3 long-term deposit ratings, while changing the outlook to negative from stable. The affirmation takes into account the bank's stable liquidity and funding structure, as well as its assumption of very high support from its controlling shareholder, United Overseas Bank Limited. However, the negative outlook reflects increased risks to the bank's solvency in 2025-2026 due to deteriorating operating conditions in Thailand and US trade policy uncertainties.

Key Takeaways:

  • Moody's has affirmed UOB Thai's A3 long-term deposit ratings, with a negative outlook.
  • The bank's capitalization remains modest, with tangible common equity (TCE) as a percentage of risk-weighted assets (RWA) declining to 8.5% as of 31 December 2024.
  • UOB Thai's profitability has been depressed by significant post-acquisition operational expenses and higher credit costs, leading to a 0.1% net income/tangible assets ratio in 2024.
  • The bank faces elevated asset quality risk due to its large exposure to small and medium-sized enterprises and retail borrowers.
  • UOB Thai's deposit franchise remains modest relative to its larger domestic peers in Thailand, but it maintains a low reliance on wholesale funding.
  • The bank's liquidity remains stable, with a liquidity coverage ratio of 150% as of 31 December 2024.
  • An upgrade of UOB Thai's ratings is unlikely in the near term, while a downgrade could occur if the bank's TCE/RWA remains below 9% and net income/tangible assets below 0.5%.
  • The principal methodology used in these ratings was Banks published in November 2024, available at https://ratings.moodys.com/rmc-documents/432741.

Statistics:

  • Tangible common equity (TCE) as a percentage of risk-weighted assets (RWA) declined to 8.5% as of 31 December 2024.
  • Net income/tangible assets ratio declined to 0.1% in 2024, from 0.3% in the previous year.
  • Gross nonperforming loans (NPL) ratio increased to 3.7% as of 31 December 2024, driven by delinquencies from its enlarged unsecured retail loan book.
  • Market funds as a percentage of tangible banking assets was 9.1% as of 31 December 2024.
  • Liquidity coverage ratio was 150% as of 31 December 2024, well above the regulatory minimum.

Sources:

  • Moody's Investors Service, "Moody's Ratings", (no date provided)
  • Moody's Investors Service, "Rating Methodologies", available at https://ratings.moodys.com