BOC Hong Kong (Holdings) Limited (2388) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. Welcome to the 2022 Interim Results Briefing of BOC Hong Kong Limited. I'm Kenny Luo, Company Secretary of BOC HK. In light of the current pandemic situation, our presentation will be conducted via webcast and teleconference. We apologize for any inconvenience caused. Let's now kick off our results briefing. Firstly, I would like to introduce our senior executives with us today: Mr. Sun Yu, Chief Executive; Madam Jiang Xin, Chief Risk Officer; Madam Wang Qi, Deputy Chief Executive; Mr. Yuan Shu, Deputy Chief Executive; Mr. Zhong Xiangqun, Chief Operating Officer; Mr. Liu Chenggang, Chief Financial Officer; Mr. Chan Man, Deputy Chief Executive. Today's meeting consists of 3 parts: Mr. Sun, our Chief Executive will brief you on the implementation progress of the group's strategy in the first half of 2022. Then Mr. Liu, our Chief Financial Officer, will present the financial and business results. Finally, CEO Sun will discuss our outlook and key priorities for the second half of the year before the Q&A session. Now I would like to hand over to CEO Sun.

Ladies and gentlemen, good afternoon. First, I would like to take this opportunity to introduce the new DCE of our Personal Banking business, Mr. [ Chan ] Stephen. Stephen has been with Bank of China Hong Kong for more than 30 years and has abundant professional experience. Before serving as a General Manager of our Personal Banking and Wealth Management Department, Stephen worked in various pivotal positions in our front, middle and the back offices and accumulated rich professional experience. We warmly welcome him to the management team with the confidence that under his leadership, our Personal Banking business will make further progress in its reform and achieve greater results. Now let's turn to the strategic review for the first half. Since the start of the year, the bank environment has become more complex amid unprecedented financial market instability. During the period, Bank of China Hong Kong coped with market volatility, upheld risk bottom line and capitalized on business opportunities. We achieved favorable results with core business outperforming the market and restored to earnings growth. Profit after tax for the first half was HKD 14.4 billion, up 6.1% year-on-year. ROE improved by 42 basis points to 8.84%. Our major financial and risk indicators remained sound. We continue to strengthen our integrated service capabilities in Hong Kong core market and have cemented of traditional competitive advantages in residential mortgage, syndicated loan, IPO-receiving bank and cash pooling businesses. Amid the challenging market environment, we promoted high-end customer brands and built a brand new youth customer brand. Our Private Wealth and BOC Wealth Management grew their customer bases by 10% and 7%, respectively. We strengthened the marketing and service innovation for full product line. Our custody business recorded 7% growth in corporate and institutional customers, and we led the market in SFGS business. We also delivered faster growth in trading income from financial markets business and assisted BOC's Tokyo branch to issue the world's first TONA-linked floating rate notes in Japanese yen. BOC Life further improved its ranking, for the first time, topping the local market in terms of new standard premium in the first quarter. We consolidated our advantages in cross-border finance and enhanced our foundations for GBA business development. We optimized our service to help customers to remotely resolve the problems about their mainland bank accounts. Customer numbers for GBA account opening service grew to 185,000. We also enriched the product suite and the promotions for cross-border wealth management service with total number of accounts opened for Southbound and Northbound services, continuing to lead the market. By deepening cross-border business collaboration to support innovative tech firms, we increased our GBA corporate loans by 3.2% and innovative tech company loans by 2.8%. We leveraged regional synergies and advanced sales bound Asian business development by capturing Asia Pacific trade and investment opportunities arising from the RCEP. We expanded our syndicated loan business focusing on key projects and customers and strengthened the corporate and personal banking corporation and cross-institution collaboration to facilitate mutual brand recognition. We also refined the supplementary products of our [indiscernible] business and altogether to enhance our regional management capabilities and the competitiveness to accelerate the digital transformation of our local entities. We further promoted online salary direct remittance and cross-border QR code payment services as well as the regional development of the iGTB platform. Our Southeast Asian entities made solid business progress during the period with customer deposits and loans up by 6.8%, and 3%, respectively, driven by better margins and foreign exchange business income, their net operating income grew by 23%. Overall risk remained manageable with NPL ratio at 2.53%, better than most of local peers. We continue to unlock the potential of the offshore RMB market through product innovation and promotion. We maintained a leading position in RMB deposit and loan markets. Cross-border RMB settlement volume increased by 42% year-on-year, while the RMB transaction volume of our [indiscernible] business surged by 153%. Our advantages in offshore RMB clearing business were further consolidated with Hong Kong's total RMB clearing transaction volume rising by 7.6% year-on-year to RMB 192 trillion. Fast growth was also recorded in RMB clearing volumes, handled by our Manila branch and BOC Malaysia. By capturing market opportunities, we maintained our leading position in southbound and northbound trading businesses under the Bond Connect scheme. We expanded the market-making business scope by becoming a qualified market maker for the China foreign exchange trade system for currency pairings as well as for the Shanghai International Gold Exchange. We consolidated our tech foundations and promoted digitalization driven by data, AI and ecosystem development. Our online service capabilities were further enhanced. E-channels accounted for 88% of total transaction volumes, where the number of active mobile banking users increased by 6%. Livi Bank further diversified its products and services after obtaining an insurance agency license and by launching the innovative Livi Flexi Loan. We proactively developed open banking and e-payment services. Peak daily usage of our open APIs increased by 2.9x year-on-year and the number of BoC Pay customers grew by 9%. We launched the BOCHK Bill Merchant Loan program, which makes use of BoC Bill transaction data to simplify the loan application process for SMEs. We accelerated the development and the application of smart technology to promote smart operations, smart risk control and the smart office. We successfully held the activities, such as BOCHK Challenge and BOCHK [ Innovate ] to nurture a culture of innovation. We supported the establishment of the Hong Kong Alliance of Technology and Innovation and set up the BOCHK Site and Technology Innovation Prize to facilitate financial, technological and industrial interaction, helping the city to become an international technology and innovation hub. We further enriched our green products and the service systems and leveraged the role of financial institutions in leading the low-carbon transformation to support Hong Kong to become a leading regional hub for sustainable finance. During the first half, we grew of green and sustainable loans by 53%. New green deposits by 101%, ESG total relationship balance by 24 times and the ESG Bond underwriting amount by 71%. We were honored to become a cornerstone member of its Alliance for Green Commercial Banks and signed a strategic partnership agreement with Guangzhou Emissions Exchange to jointly explore carbon finance opportunities in the GBA. In partnership with S&P, we launched the first Climate Transition Index, focusing on listed companies in the GBA. Furthermore, the green upgrading of BOC Tower was completed, earning us a platinum rating from BEAM Plus. This year marks the 25th anniversary of Hong Kong's return to the mother land. The 110th version of BOC and the 105th anniversary of its continued service to the City of Hong Kong. We are honored to be a strategic partner of Hong Kong Palace Museum and worked with local charities and social institutions to launch a series of anniversary events and volunteer projects to celebrate this momentous year and a show of care for grassroots communities. This concludes our strategic review. Next, our CFO, Mr. Liu, will walk you through our financial and business performance. Mr. Liu, please?

Thank you, CEO Sun. In the first half, we kept the opportunities from rising interest rates and strengthened our asset liability management, striving to grow net interest income while stabilizing noninterest income. We strictly controlled expenses and stabilized the asset quality. As a result, our profit after taxation was HKD 14.4 billion, up 6.1% year-on-year and 26.4% half-on-half. We deepened business engagement with institutional and large corporate clients and consolidated mid- to high-end customer base. We also expanded e-payment, payroll, cash management and cash pooling businesses as well as capitalized on opportunities from Cross-boundary Wealth Management Connect and green deposits. As a result, we maintained steady growth in customer deposits, which grew 3% to HKD 2.4 trillion, increasing our local market share to 15.68%, up 0.43 percentage points. Our CASA deposit ratio was 62%. Having established a strong hold in our major markets of Hong Kong, GBA and South Asia, we expanded credit demand by typing cross-border and green finance business opportunities. In the period, customer loans saw solid broad-based growth across all categories, up 10.1% to HKD 1.68 trillion, with market share rising by 0.62 percentage points to 14.8%. We proactively managed the assets and liabilities to take advantage of the rate hike cycle and improved asset yield. Average interest earning assets increased by 5.4% year-on-year. Adjusted for swap impact, net interest income increased by 8.7% year-on-year to HKD 17.7 billion. Net interest margin 23 basis points year-on-year and 5 basis points half-on-half to 1.13%. Second quarter NIM was 1.19%, up 11 basis points from the previous quarter. Due to the impact of the pandemic to build capital market activity and weaker commercial and retail markets in the first half, coupled with the higher base effect in the same period of last year. Net fee income fell 22.7% year-on-year to HKD 5.1 billion, a slight drop of 1.4% half-on-half. As a pandemic situation eased in the second quarter, income from insurance and the traditional fee businesses broadly recovered. In particular, fee income from insurance, currency exchange, build commissions, credit cards and Trust and Custody rebounded by various degrees, ranging from 20% to 5% from the previous quarter. We further stepped up cost management efforts while ensuring sufficient resources for strategic projects. We optimized the resource allocation, pursue low carbon operations, refined our cost base and aligned expense growth with income growth so as to improve efficiency. Operating expenses were largely steady, up 3.2% year-on-year. Cost-to-income ratio improved by 1.53 percentage points to 28.7%, outperforming local peers. In the first half, the increased economic downturn pressure presented challenges to some industries. We insisted on prudent risk management and strengthened our risk management foundations. We adopted strict low classification and maintained a sufficient impairment allowances. Asset quality remains solid with NPL ratio at 0.46%, up 0.19 percentage point from the end of the last year. Outperforming the local market, credit cost was 0.21%, up 6 basis points year-on-year. Total loan impairment allowances accounted for 0.67% of total customer loans, up 5 basis points, which further strengthened capability to withstand potential risks. Benefiting from profit growth and stringent RWA control, our CET1 ratio and the total capital ratio increased by 0.43 and 0.44 percentage points to 17.73% and 21.88%, respectively. We prudently managed the liquidity in a dynamic management with average LCR and NSFR standing at 159% and 127%, respectively. This concludes our results review. CEO Sun will now share the group's perspectives and the priorities for the second half.

Thank you, Mr. Liu. Looking to the second half, we see the international political and economic landscape evolving rapidly and the financial markets becoming more volatile. At the same time, major central banks are tightening their monetary policies and global stagnation risk is emerging. This will introduce more instability and uncertainty into the external environment, presenting challenges to both Hong Kong's economy and the local banking operations. But more positively, the local labor market is expected to steadily improve amid the well-ordered social and economic development, while the second round of consumption voucher scheme will also help stabilize local economy. The mainland economy is expected to gradually recover as a basket of supportive policies begin to take positive effect. The sharp rebound in market interest rates since the end of second quarter will also brighten bank's earnings outlook. More importantly, we will continue to increase the massive opportunities from the further opening up of Chinese financial markets. Progress in mutual access programs, RMB internationalization and GBA construction as well as a start of RCEP, and the development of Hong Kong's Northern metropolis and so on. On top of the good start in the first half, we will pursue a steady progress while ensuring stability in the second half by delivering on the clear work priorities set early this year. We will safeguard our risk bottom line, capture market opportunities and consolidate foundations to enhance growth quality. With the support from society and our customers as well as employees' dedicated efforts, we are confident that we will lead the market in loan and deposit growth despite a challenging environment. We will further enhance profitability while keeping asset quality and other risk indicators stable. Together, we will make persistent and determined efforts to create value for our stakeholders with a view to making positive contributions to the local economy and social prosperity and stability. That is the end of presentation. Thank you. We will now open the floor for the Q&A session.

Thanks, CEO Sun and CFO Liu. It is a time for answering questions from the analysts. [Operator Instructions]

[Foreign Language] from JPMorgan.

[Interpreted] Congratulations on a very good interim results. I have 2 questions basically. The first question about NIM outlook. At present, for the third quarter compared to the first half, do we see a continued improvement? And in that, is there a swap effect? If we look at the profit and loss statement, is it that we should think that for the next period of time, the rate rise in the second half of the year or the third quarter will still be reflected in the P&L through swaps effect? Or do you think that for NIM, there will be an even better improvement in the coming period. And next, on fees. Fees income. Quarter-to-quarter, fees income has come down. And in the report you have mentioned just now for some of the traditional businesses, the fee income level is recovered. So does it mean that for the second quarter, there had been some significant decrease for what reason? And do you see some recovery in the future? And a related question concerning fee income. If you look at the fees year-on-year, there is a rather big increase. And I do not understand as most of the fees are dropping. And for fee expenses increase, why is there a fee expenses increase, please?

Thank you very much for your question. So you have asked questions about NIM as well as fee income. So we're going to ask Mr. Liu to give you the answer. First of all, thank you for your questions.

Since 2022, driven by U.S. dollar interest rate hikes, Hong Kong dollar interest rates also were on the rise despite some delay. In the first half, our adjusted net interest income grew 8.7% year-on-year. Our net interest margin widened both on year-on-year and half-on-half basis. Second quarter NIM increased by 11 basis points quarter-on-quarter. The NIM improvement was due to 3 reasons. First, we secured steady deposit and loan growth of 3% and 5.1%, respectively, in the first half, continuing to outperform the market. Affected by the interest rate hikes, total time deposit migration occurred and drove down our CASA ratio. The magnitude of the 4 was in line with the market and our CASA ratio remained at a level of 62%. Second, our asset returns were higher with improvements seen both in customer loan and investment yields. Third, we dynamically managed funding costs by duly extending the [ tenor ] of liabilities the early stage of interest rate cycle. Our Hong Kong dollar composite rate remained better than the market average level. Last Friday, the Federal Reserve Chairman gave out [ hockey ] signals, which induced high interest rate rise expectation. Under Hong Kong's linked exchange rate system. Hong Kong dollar aggregate balance in the interbank market continued to shrink while Hong Kong dollar interest rate rose. In the second half, we will continue to monitor the changes in the market environment and adhere to our asset and liability management principles, targeting business stability and income growth while optimizing KPIs and controlling risk to opportunities and challenges stemming from interest rate highs. Regarding liability management, we will continue to stabilize CASA deposit base and increase personal deposit mix. On the asset side, we will dynamically manage the mix and enhance bond investment yield while ensuring liquidity and maintaining steady loan base. We will ensure that our loan pricing can reasonably reflect market conditions and interest rate hike expectation. Multiple measures will be taken to ensure steady growth of net interest income and NIM. Regarding the impact of foreign currency swap, our reported NIM was 0.99% in the first half, and the adjusted NIM was 1.13%. As we operate in a multicurrency market, aside from Hong Kong dollar business, we are also a Renminbi clearing bank, while having a substantial position in the U.S. dollar. Therefore, we need to manage the liquidity across different currencies in the line currency [ antenna ] mixes. By using foreign currency as well, we can redeploy excess funds in certain currency into other types of currency, which have broader use. In the first half, we generated swap income through swapping among renminbi, Hong Kong dollar, U.S. dollar and Japanese yen, which led to a higher adjusted NIM compared with the reported NIM. Since we had a stronger growth in swap income compared with the same period of last year, it explains why there is a bigger gap between the two as swap income and net interest income are booked in different lines in our profit and loss statement. Therefore, when we analyze what income movements, we shall always look at these 2 lines together. Since the income generated from the Hong Kong dollar or U.S. dollar, Japanese yen swap has become smaller. In the second half, we will increase the deployment of the original currency types and expand loan-to-deposit spread, which means the swap income could be reduced. Overall speaking, our NIM trend is determined by a number of factors, such as interest rate trends, adjustment of price rate, loan and deposit pricings as well as the changes in our asset and liability mix. In the first half, [indiscernible] Hong Kong were facing some few challenges in their fee income businesses, which came from 2 areas. First, both equity and bond markets were under tremendous pressure. Second, certain bank branches of spend services during the pandemic, which reduced the Wealth Fund sales via face-to-face client interaction. During the period, the average daily turnover of Hong Kong stock market decreased by 26.5% year-on-year and the retail sales value also dropped. Facing this challenging market environment, we continue to consolidate our foundations by enhancing segmentation of wealth customers and optimizing our customer base. We leverage our online and offline channel advantages by developing insurance online and investment online platforms. Capitalizing on the opportunities from Cross-Boundary, Wealth Management, Connect and RMB businesses. We satisfied the diverse customer needs for investment and wealth management services. At the same time, we enhanced our integrated service capability and vigorously expand on underwriting and Trust and Custody services. By business types, income from investment and insurance-related businesses fell by 34% year-on-year. And loan commissions and income from [ loan ] credit transitional business decreased slightly by 1.3% and 3.2%, respectively. Net fee income showed signs of recovery in the second quarter as we took advantage of an easing pandemic situation and realization of social distancing rules and step-up business expansion with fee income from credit card business, bills commission, payment, Trust and Custody services, currency exchange, broadly rebounding while insurance fee income strongly grew by 20%. In the second half, given the sluggish investment market and weak market demand for borrowing, we continue to see headwind in our fee income growth. We will continue to enhance our integrated service, financial service capability and expand sources of fee income, striving to narrow the magnitude of year-on-year decline of net fee income and outperform the market.

[Operator Instructions] Next question comes from Gary from HSBC.

[Interpreted] So concerning the performance, if you look at -- first off, of 2018 to now, it seems that this particular quarter has been the fastest-growing. So can you let us know the following. Concerning the June NIM, compared to April's NIM and also the situation in July, what is the difference? It seems that the interest rate movements in the market is very rapid. And so can you let us know the NIM difference and also the NIM comparison between these different months? And when you are using more and more swaps, does it mean that the Hong Kong dollar interest rate will be locked at a high level at an early stage? So the bonuses from Hong Kong interest rate staying high. Will you be able to reap them? Second question has to do with asset quality. So concerning this particular [ culture ], concerning provision. So your provision mainly is targeting Mainland China's real estate market or Southeast Asian market. So which is causing the major moves in provisions? And if you look at our breakdowns, if you look at the situation last year compared to that, now it seems that there's been a major drop. And so concerning the NPL formation, now is it that in the first half, the pressure is going to come down?

Thank you for your questions. Yes, Mr. Liu will answer the question on NIM and on the asset quality, our risk person in charge, madam, will answer that question. Madam Chan.

[Interpreted] Well, thank you very much for the question. They were very accurate observations. First of all, the banking industry in this rate rise in its environment, there is an increase in NIM. And in the first half, as I've mentioned before, compared to the same period last year and for the first quarter, it is on a rising trend. As for month-on-month, this trend is also present. As for disclosure reasons, I can only talk about June. And the NIM is 1.22%, and it is higher than our half year rate. As for U.S. dollar and Hong Kong dollars, the interest rate continues to rise. The NIM will further improve as far as I can see. Just now you mentioned the swap effect. For swap, it is to resolve the problem of mismatching of assets and capital. As you know, in 0 rate interest situation, we have swapped some of the currencies into other currencies. But as we do so, for the swaps, whether for the tenure or the investment tenure, they are matched. The tenure for swaps is limited within 1 year. So for profit and loss impact, it is fully reflected in the 1 year. And also for U.S. dollar and Hong Kong dollar interest rate, they continue to rise. And therefore, it has opened up some space. And we have a strategy of lowering our swap scale and for our P&L, that would be reflected as well. So the second half of the year for swaps. Its impact on our income, the scale of that will be on the decrease. Thank you.

[Interpreted] Yes, I will answer your other question concerning provisions and asset quality. You can see from our first half provisions, the numbers, at different stages, they are in the first stage and third stage, provisions have risen. Second stage had decreased. Overall speaking for the first half, the cost is 0.12%, which is 6 basis points higher than year-on-year. There are 3 reasons for this rise. One, in the first quarter, we have considered the macroeconomic situation, which is worse off. And therefore, we have adjusted the parameters and therefore, we have increased the provisions. And also the credit loans [indiscernible] have also increased and there have been more provisions. And also, as you pointed out, we, in certain sectors, for example, mainland real estate, certain customers and also Southeast Asian exposure because of COVID situation, there have been some policy changes such as government helping the economy policies and that had also increased our Stage 3 provisions. And as of the end of June, our provisions is 0.67% and this is sufficient. For full year asset quality, in the first half, the figures, it's already been reported in the interim report. In the first half, our NPL is 0.46%, which is 19 basis points from end of last year. And this rise already reflects the Mainland real estate customers' downward adjustment and South East customers' new credit rating, as I've mentioned just now. So our portfolio does not contain any systemic risks. It is controllable, the risks, and we are able -- we are confident that we will outperform the market in our NPL level.

[Operator Instructions] Next question please.

[Interpreted] Our next question comes from Gurpreet Sahi from Goldman Sachs.

So the first question is regarding Slide 33. If I can ask again, the Mainland property companies. Thank you for the disclosure here. So how much of this HKD 102 billion is either NPL or special mentioned? That's the first question? And second question is regarding net interest margin. So thanks for sharing the June number. Can we check that in July, the net interest margin in the month of July also kept on moving higher?

Please, my colleagues, translate.

[Foreign Language]

Regarding the Chinese real estate market, we are going to ask Mr. Xin to answer the question.

[Interpreted] We always attach great importance to the asset quality of our mainland property customers and have been adopting a business principle of prudent assessment, strict control and only dealing with the best developers. The majority of our property customers are leading real estate enterprises based in the Greater Bay Area and Tier 1 and Tier 2 coastal cities with a nation-wide presence and relatively stable financial health. At the end of June, our total loans to Chinese commercial real estate developers was HKD 102.9 billion, down 2.7% from the end of last year, accounting for 6.12% of the gross customer loans. Specifically, 78% of them were state-owned enterprise loans and 22% were private enterprise loans based on the definition of 3 red lines. Green line loans accounted for 81%. Yellow line loans were 19% and investment-grade customer loans were 71%. In response to the volatile situation of the Mainland property center. During the first half, we duly reviewed the credit rating and loan classification of their loans and continuously increase provisions. Of those loans, the loan procurement portion was amounting to HKD 3.6 billion, whilst special management loans were HKD 820 million, which accounted for a limited portion of the relevant loan exposure. As to our net interest margin performance. On one hand, the market interest rates, in particular, Hong Kong dollar interest rates have been rising since during. At the same time, our sensitivity to Hong Kong dollar interest rate was positive as reported in our last annual report. Therefore, an increase in Hong Kong dollar interest rate would be positive to us. On the other hand, our net interest margin in the first half improved on both year-on-year and half-on-half basis. And therefore, as long as the market interest rates continue the uptrend, our net interest margin will be more likely to expand. As explained earlier, net interest margin changes are subject to the impact of many factors, including tenor mixes, asset liability structure, deposit pricing, product base asset and liability structure. We will proactively manage our asset and liability and at the same time, strive to increase our NIM and net interest income.

[Operator Instructions] Next question, please.

[Interpreted] Our next question comes from Bank of America.

[Interpreted] I also have 2 questions. Thank you, management, for giving me this opportunity. Earlier on, we have discussed the question of swap related to assets. And also, one has to do with your Treasury department. The other has to do with management of interest rate, and also how do you manage interest rate hike and its impact on the investment? So for the first half of the year, the interest rate swap actually has a positive impact on your investment. I just want to know because in the second half of the year, the interest rate swap, what is it? Its impact on the P&L situation and also, what kind of the impact would it have on your P&L? The second question has to do with loans growth. In Q1, now it is close to 5% in growth. Now for Q2, it seems that it is slowing down. So I want to know why is it that in Q2, there is certain slowing down in loan growth? And also for second half, what is going to be your fresh drivers for further growth?

[Interpreted] Thank you, [ Ya Feng ]. And Chenggang will answer the question and others can supplement.

[Interpreted] So thank you for the question. For our asset liability and you see that it is over HKD 1.1 trillion, as you pointed out. And in the first half, with the very good interest rate environment, we continue to optimize our investment in particular debt, for debt and for -- with swap adjusted, it was 38 basis points to 1.72% income. And for the banking industry, there are several areas of impact. For example, there would be pressure on our reinvestment and also our existing securities investment. So what is key for us is for risk and income balance. And for the fourth quarter starting with the interest rate trend, we have already adjusted our size of debt instrument investment and optimized our tenure and also rebalanced our securities portfolio, including BOCI scale. And through these interest rate swaps, it is also to lower our debt portfolio risk. It is a measure for that end. And for the first half, overall speaking, our operator -- our interest rate income, operating income have achieved pretty good results, including our capital adequacy ratio that had increased as well. Now the interest rate, especially for U.S. dollars, it is at a high level. So actually, our policy now is to make some adjustments, especially for Hong Kong dollar and U.S. dollar. They are at a high level for the interest rate. So for swaps, impetus that would lower a bit. And according to the market situation, we'll have a more balanced allocation. For the second half, any growth will come from our traditional loan and credit's interest rate difference. As for your next question. For the first half for our loan growth, it is better than the market. It is pretty good. And BOC Hong Kong is a regional bank, and it is an integrated operation, and it comes from Hong Kong, Greater Bay Area, Southeast Asia and overseas different markets. And there is a balanced development for all. And in the first half, it was $8.2 million and the increase was 5.1% outperforming the market, and then it was 14.8% for new growth loans. And these are more resilient, large scale clients and individual housing mortgage loans and the quality as far as we can see is good. And as for the second half of the year, as you have mentioned just now, the economic situation will be challenging still. Overall speaking, we have an optimistic outlook. Mainland economy will continue to recover and Hong Kong COVID, after it's been managed, the government had come up with different policies to [indiscernible] the market. And with the RCEP implementation in Southeast Asia, we will also have more growth. So overall speaking, we will be using the RCEP, GBA, Northern Metropolis, green economy and RMB internationalization opportunities to forge a multi-sector multi-pound growth. And also, we will strengthen our risk management securities and to attain our main business dynamics. So we think that going forward, it will be a mid-single-digit growth, and it will continue to outperform the market.

More than 100 participants online. But due to the time limit, I would like to offer the last 2 opportunities. Next question, please.

[Interpreted] CICC, [indiscernible] will ask the next question.

[Interpreted] Management, I have 2 questions to ask. First of all, about the bonus or dividend payout. We see that our CAR is adequate. And in the first half, the dividend is stable with last year. And going forward, do you think there will be dividend payout increase, please? And also, secondly, for the first half, we see that at this point, how do you see our adequacy ratio and also for our exposure for Mainland real estate exposure. Is it sufficient for that provisions, please?

[Interpreted] For a long time, we attach great importance to stable long-term dividend returns. It is our long-term practice to distribute a fixed amount of interim dividend. For this year, our interim dividend per share remains HKD 0.447, which is the same as the previous year. In the first half, despite a challenging and complicated external environment, we achieved market outperformance in core business and solid growth in earnings and profit. Meanwhile, we brutally manage risk-weighted assets, which moderately decreased and achieved capital return enhancement. As of end of June, our total capital ratio was 21.88%. Amid a volatile financial market, we continue to maintain our capital at a sufficient level and effectively increase our capability to withstand risk. In the future, we will continue to enhance our capital management and earnings growth, which is expected to help increase our capital position and maintain it at a sufficient level, therefore, providing assurance for us to provide a steady shareholder return. Bank of China Hong Kong has always been adopting a prudent dividend policy. For the full year of 2022, the dividend payout ratio will remain between 40% to 60%.

We will strive to increase shareholder returns and sensibly determine full year dividend payout after balancing shareholders' expectations, regulatory advice, changes in the external operating environment, our profitability and long-term development. As of end of June, our total impairment allowances were HKD 11.235 billion, up [ 13.7%] from the end of the previous year. Overall nonperforming loan provision coverage ratio was 144%, down by 85 percentage points, mainly due to the part of the new NPL was collateralized. When making provisions, we will contact comprehensive assessment of the collateral value, pledged under the NPL and the reliable cash flow support under different scenarios. And for the portion of loans without collateral, we will make full provisions against them so as to ensure sufficient provision. As of end of June, the impairment allowances of our Chinese commercial real estate loans was 2.3% of the total relevant loans, which was higher than the 0.67% of the group. In the next stage, we will continue to closely monitor the changes in the Mainland property sector and assess the changes of asset quality and the operating conditions of our customers, ensuring that their credit ratings is adjusted on a real-time basis. We'll also reevaluate our provisioning policy and ensure focusing charges is enough.

I would like to invite the last analyst to ask questions.

Our last question comes from Mr. Sam Wong from Jefferies.

[Interpreted] Management, I've got two. According to the macro outlook, now what is going to be the outlook on the cost of operation? And also, during the past few years, Hong Kong's bank, et cetera, has been at a lot of pressure. Now it seems that the situation has turned the corner and revenue should go back up. And how is it going to offset the increase in cost?

[Interpreted] As to the credit cost, you can take an integrated view on both the NPL trends and factors that affect provisioning.

[Interpreted] Regarding the asset quality in the second half, as the banking environment will remain highly complicated, we will uphold our risk bottom line and keep close attention on the changes in customers' financial status and operating conditions. We expect our NPL ratio to remain in a controllable range and in a level that is better than the market average. As to our provisions, we will duly adjust ECM model parameters according to our stringent assessment of the macroeconomic changes and ensure our provision charge is prudently made and sufficient. For the full year, our credit cost should see some growth year-on-year, but overall risk remains manageable. In the first half, our operating expenses rose by 3.2% year-on-year to HKD 7.826 billion. And with faster income growth, our cost-to-income ratio improved by 1.53 percentage points to 28.74%, continuing to lead in the local market. During the period, we continue to promote business flow with them and low cabin operations so as to optimize operational efficiency. Our staff costs increased by 4.9% year-on-year while premises and equipment expenses and depreciation and amortization grew 1 to 3. For the full year, we will continue to increase investment in key areas of development such as IT, while driving transformation; and integrations of branch outlets, advancing optimization projects through the use of e-statements; and the development of [ paperless ] operations and intelligent operations. We will explore room for cost reduction and optimization and enhance the input and output efficiency. We expect to improve our cost-to-income ratio for 2022 compared with the previous year. In the long run, we will keep our cost-to-income ratio at a better level amid the peers striving to maintain it below 35% in the long term.

Good day and I would also like to thank all other senior management today with us. Today's interim result briefing has come to an end. Should you have any further questions, please contact our Investor Relations team. Thanks for your participation, and see you next time. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]