KUALA LUMPUR: The reduction of interest rates by the United States (US) is expected to relieve pressure on currency exchanges in the region, including the ringgit.
UOB Group chief financial officer Lee Wai Fai said this move could further bolster the local currency, which has been on an upward trend due to anticipated US rate cuts and improving domestic economic data.
"The interest rate reduction will also provide an opportunity for regional economies, which have not significantly raised their rates, to lower them.
"For banks, the current interest rate environment offers short-term benefits to commercial banks.
"Although margins might be slightly impacted, we are confident that the increase in transaction volumes will compensate for this," he said during UOB's 2024 Corporate Day: Building the Future of Asean here today.
Commenting further on the current economic environment, especially the risk of a potential recession in the US, Lee said that many current market policies are not directly related to the actual economic conditions.
He said a significant portion of market policies do not directly correspond to economic fundamentals.
"Many are discussing the unwinding of 'carry trades,' but if we look at real economic statistics, is the US truly weak and heading into a deep recession? Our view suggests otherwise, but we will continue to monitor the situation closely," he said.
Furthermore, Lee expects the decline in interest rates will significantly impact UOB's growth strategy, prompting the bank to emphasise fee income moving forward.
He outlined UOB's financial goals for 2026, predicting ten rate cuts by that time.
The bank aims to achieve a medium-term return on equity (ROE) of 14 per cent which Lee considers "quite respectable" given the lower interest rate environment.
To reach this target, UOB will focus on three key areas, namely increasing income from its four Asean markets (Indonesia, Malaysia, Thailand, and Vietnam) to 30 per cent, while keeping 50 per cent from Singapore.
The bank will also focus on boosting non-interest income through wealth management, trade, and customer treasury services, as well as achieving a 40 per cent cost-income ratio.
On top of that, Lee also said that UOB is focusing on developing the wholesale banking market in China and Asean by 2026, given the strong connectivity between the two regions.
He said both regions have significant long-term needs for corporate credit and financial institutions.
He added that UOB's wholesale banking services will shift towards trade and cash management, making the most of their product platforms.
Meanwhile, UOB Group chief executive officer Wee Ee Cheong said UOB will continue to strengthen its position as the preferred bank in Malaysia and the Asean region through ongoing investments in infrastructure and technology.
He added that to invest in physical infrastructure, UOB has established a second technology hub in Kuala Lumpur.
This hub serves as a technology delivery center for the entire business group.
Wee said that the hub not only builds technological capabilities but also nurtures the technological talent required for UOB, aligning with its full commitment to the key Asean markets.
"It is also in line with the aspiration to build the future of Asean, despite the global economy facing significant challenges in recent years, such as the Covid-19 pandemic, geopolitical uncertainties, and high inflation," he said.
Despite these challenges, Wee said UOB remains steadfast in supporting its customers and communities, helping them face these challenges.
He added that with a strong grassroots presence and a wide regional network, UOB leverages its competitive advantages to help businesses connect within Asean, between Asean and China, and globally.