In a decided shift, Fed Chair Jerome Powell told Senate lawmakers that the wave of price increases that has complicated the US pandemic recovery could last longer than anticipated, and he now advocates accelerating the drawback of the central bank’s stimulus measures. That would open the way for it to hike rates sooner than markets expected, putting an end to the rally enjoyed during the pandemic, which was fuelled in part by the Fed’s easy money policies.
Bank stocks have historically been among the most sensitive to changes in interest rates. Macquarie remains bullish on UOB going into 2022 for trading at a low price-to-book considering the recovering ROE outlook and underappreciated digital strategy. In a research note published on Friday 26 November, Macquarie Research (MQ) delved deeper into UOB’s TMRW strategy and the bank’s plans to stay competitive in the digital banking space.
Here is an excerpt of the Macquarie Research (MQ) research note:
Macquarie hosted senior members of UOB’s TMRW team and IR
UOB re-iterated its FY22 targets per the recent quarterly update: mid-high single digit loan growth driven by EM ASEAN markets and a stable NIM at 1.55% until the latter part of the year when rate hikes come through.
Most of the conversation was an interesting strategic update with UOB’s TMRW Chief Commercialisation Officer, Head of Partnerships & Strategy as well as Head of Regional Engagement & User Experience Design. For TMRW, UOB is seeking to double its digitally enabled customer base to 7m in 5 years, investing US$500m into the product. Management keeps an eye on the net promoter score (which is high at +65 currently) and customer profitability (for example savings balances and product holding per customer).
Key discussion points on TMRW
• Thailand and Indonesia remain important development markets. Within these markets UOB is a challenger vs its home market (Singapore). So far, TMRW has 0.5m depositors with the product an important customer acquisition tool representing 30% of the retail savings base in Indonesia and 15% in Thailand
• Buy Now Pay Later was launched in Indonesia under the TMRWPay banner. The product is powered by AI-backed credit scoring and plugs into partners, with Bhinneka (A B2B e-commerce platform) recently onboarded. UOB is of the view that its BNPL will be ‘merchant powered’ rather than relying on high consumer interest (as others in the market are offering in Indonesia). Whilst other markets are eventual targets, nothing has been launched yet in Thailand or Singapore.
• TMRW is a defense proposition against digital bank entrants into Singapore which will start in 2022. The team notes in Hong Kong, 3 of the 8 digital challenger banks have taken 90% of the customers/savings balances and they note that the key has been an ecosystem hook (into a telco, for example). For this reason, TMRW is open to partnerships as well.
• AI use cases include onboarding (facial recognition), a chat-bot in Thailand (UOB was the first to use, solving Thai natural language parsing), personalised financial management tips and credit scoring. More could come, but the bank has an ethics framework to ensure it doesn’t harm customers through AI.