CIMB Group Holdings Berhad (CIMB) Earnings Call Transcript & Summary

Second quarter of 2023. Our host today is CIMB Group CEO, Dr. Abdul Rahman Ahmad; and Group CFO, Khairul Rifaie. My name is Stephen from the CIMB IR team, and you should have received the analyst presentation and financial statements by e-mail from the Investor Relations e-mail by now. If you have not, the documents can be found in the IR section of our website, at cimb.com. So before we begin, please be informed that this briefing is being recorded. I would like to encourage everyone to include your name and company on the webex at to allow us to identify you better. [Operator Instructions] At this juncture, I would like to handover the briefing to Dr. Abdul Rahman and Khairul. Dato, over to you. Thank you.

Thank you Stephen. First, welcome to our half year 2023 analyst briefing. I appreciate you guys making the time, especially for those who base in Malaysia, we are on the eve of Merdeka day. So let me begin by saying that we are pretty positive in terms of our performance, especially given I think most of you are aware of the quite very competitive deposit competition, particularly in Malaysia. So I think we delivered what I would call a pretty robust and positive performance. Firstly, on the income side, we grew 6.7% quarter-on-quarter and 7.4% year-on-year from very strong NOII growth of about 14.4% quarter-on-quarter and 32% year-on-year. And this is driven really by markets related and other income. NII recovered quarter-on-quarter, and this is underpinned by loan growth and moderated cost of deposit. But really, it still remains muted year-on-year owing to the compressed NIM because of the higher cost of deposit. We are pretty pleased in terms of the -- both the loan side as well as the deposit side. Loan actually grew 3.3% quarter-on-quarter and 8.3% year-on-year with growth across countries and segments. Deposits grew at 4.4% on a quarter-on-quarter basis and 9.5% year-on-year. CASA, actually, I think after I call it a weak first quarter, grew 5.7% quarter-on-quarter, leading to improved CASA ratio of 38.5% as some of the regional initiatives that we've been taking start to bear fruit. Next, really, in terms of the OpEx remains under control despite the inflationary pressure. It grew 2.6% quarter-on-quarter and 6.2% year-on-year, but with the income growing, our first half 2023 cost-to-income ratio improved to 46%. And I'd just like to highlight, I think this is a significant improvement from what we were before. I think, in 2018, [indiscernible] we were close to 55%. Provision is contained. It declined 2.2% quarter-on-quarter and 2.9% year-on-year. Our first half loan loss charge stood at about 38 bps significantly lower than our target. Now on a reported basis, all of these translate to PBT growing at 11% quarter-on-quarter and 13.6% year-on-year, while net profit improved 7.8% quarter-on-quarter and 26.2% year-on-year. This translates to a return on equity of 10.7% in second quarter 2023 and increasing it to 10.6% for the first half of the year. Again, on a reported basis, this represent a considerable improvement of about 150 bps year-on-year. Capital remains strong. CET1 is at 14.2%. And with this, I think we are very pleased to announce that we are increasing our dividend payout ratio from 50% to 55% compared to last year. This translates to $0.175 per share or amount to about close to RM 1.87 billion. So that's basically a quick summary of our results. Khairul will take us through in terms of the details of the performance.

Thank you Dato and good evening, everyone. So firstly, in terms of the key highlights, our very robust growth that Dato mentioned in terms of our revenue growth, both on a Q-on-Q and year-on-year basis is really a result of our execution of the portfolio are reshaping efforts and also the diversification that we have within our group. You can see this with that revenue growth by country. You can see on a Q-on-Q basis, the strong growth of Singapore at 19.9% and also to a certain extent, Malaysia and Indonesia as well, a very decent and good growth Q-on-Q, offsetting the moderate growth that we experienced in Thailand of 40 basis points. Similarly, if you look at the year-on-year revenue growth, the strong growth in Singapore and also Indonesia, offsetting the moderate growth of stable growth in Malaysia revenue growth. So the diversification in our portfolio really has come through and resulted in our overall group robust operating income growth. Secondly, like what Dato mentioned, we still continue with our good cost control. So we did record a positive jaw on a year-on-year basis of 1.2%, which resulted in the cost-to-income ratio improving by 50 basis points. Our asset momentum continues to be stronger during the second quarter. So consumer continues its trajectory, whereas in terms of the nonretail side, both commercial and wholesale on a Q-on-Q basis, actually picked up in terms of the momentum. Provisions remain relatively stable on a Q-on-Q basis. relatively low at 39 basis points on the quarter. So for the year-to-date number that's at 38 basis points so, well better than our target of 45 to 55 basis points. So moving on briefly on PBT by segment on Slide 5. So firstly, in terms of consumer banking, the year-on-year slight contraction on PBT of 5.4% is really driven by the challenging market environment where the operating income is flattish on a year-on-year basis and with the expense are still continuing to grow resulted in the PBT slightly contracting on a year-on-year basis. However, on a Q-on-Q basis, the growth of 3.6% is mainly driven by NII. On Commercial Banking, the strong growth of 23.4% is really driven by both NII and NOII. NOII on commercial banking for the year grew by 15.7%. On a Q-on-Q basis, however, PBT debt contract due to weaker NOII and also some conservative provisioning that we made during the second quarter. We showed an increase, i.e. on a Q-on-Q basis. Wholesale Banking on a year-on-year basis, that's really driven -- that the lower profit PBT is really driven by the absence of a significant write-back that came through in 2022. On a Q-on-Q basis, the strong PBT growth is driven by the market-related income and also other income. CDA and group funding, both on a year-on-year and Q-on-Q basis is really a significant improvement coming through on group funding and also Philippines. On Slide 6, highlights of PBT by country. Firstly, in terms of Malaysia, the strong year-on-year growth of 13.7% is driven by the markets related income and also driven by lower provisioning. On a Q-on-Q basis, PBT growth was flattish. So despite the stronger market-related income in Malaysia that was offset by some conservative provisioning, so on a sequential Q-on-Q basis, Malaysia provisioning increased Q-on-Q. Indonesia on a year-on-year basis, they were stronger, driven by higher revenues and lower provisions. On a Q-on-Q basis, the strong growth is driven by higher NOII and also lower OpEx. Thailand, the weaker year-on-year number is driven by a lower NOII. We did have an exceptional first half last year in Thailand. And also contributing to this lower PBT is an exceptionally low first half provision last year. So this level of provision is more -- this year's level of provision is more at a normalized level. On a Q-on-Q basis, PBT grew by 10.3%. So despite the flattish revenue growth Q-on-Q, the lower provisions Q-on-Q contributed to the PBT growth. Singapore, weaker on a year-on-year basis. Singapore, on a year-on-year basis, very strong operating income growth. However, because of the significant write-back last year, PBT was impacted in terms of the growth year-on-year. Q-on-Q, very strong growth in Singapore. This is driven by top line, growing by 20% Q-on-Q and also lower provisioning. Moving on to the next slide on the details of the P&L. Firstly, on Slide 7 on operating income. So if you look at it from an overall Q-on-Q basis, we have recorded strong growth of 6.7%, and this was driven by the robust NOII growth of 14.4%. But NII as well as Q-on-Q recorded very good growth of 3.5%. However, that was impacted, of course, on the NII line by margins continuing to contract by 2 basis points, but you can see this, the contraction has significantly received compared to the first quarter number. If I break that down into the respective countries in terms of the quarterly margin trajectory. So for Malaysia, in the second quarter, margins contracted by 4 basis points. So a significant reduction in terms of the contraction, broadly cost of funding has somewhat receded, but it's still cost of funding pressure is somewhat receded, but it's still very much there. But if I break it up into 2 parts for Malaysia, the loan and deposit book in terms of the margin has broadly stabilized where the pressure is coming through is actually on the treasury and markets book. And that is due to the fact that they were a bit better capital markets of related opportunity under the -- which is booked under the NOII line. So there's a significant portion of that coming through in terms of the robust NOII growth. Secondly, if you look at Indonesia, as you've seen on a Q-on-Q basis, we did face some cost of funding pressures. So margins contracted 19 basis points Q-on-Q. Similarly, in Singapore, similar to Malaysia, right, there is a contraction in Singapore by 15 basis points, where it's similar is where that pressure is actually mainly coming from the treasury and markets NOII. On Thailand, we managed to expand our margins by about 18 basis points Q-on-Q and it's mostly coming through on the yield. So overall, you can see the margin on a year-on-year basis contracting by 22 basis points, and this resulted in our NII growth being fairly moderate contracting by 80 basis points. A big part of that is driven by the pressure on margins on the T&M book, where there is a -- on the quarterly performance, where there's a lot of opportunity -- market opportunity where it's booked under NOII in state of NII. Within the countries, Malaysia and Thailand on a year-on-year basis contracted margins whereas offsetting -- slightly offsetting that in Singapore and Indonesia where margins actually expanded on a year-on-year basis. Moving on to NOII. If you look at the strong Q-on-Q growth of 14.4%, driver -- the main driver of that is trading and FX where it grew 12.9%. And this is really markets-related treasury markets business driving that growth. The 16% year-on-year growth, we did book an NPL sale during the second quarter, amounting to about RM 170 million from Niaga, fees on a Q-on-Q basis was relatively flattish Q-on-Q. On a year-on-year basis, that 32% a strong growth on trading and FX, which is mainly treasury and markets within Singapore and Malaysia. On the fees and other income, the strong growth is really driven by other income. So overall, during the first half, if you recall, we had some NPL sale as well during the first quarter in Thailand. So in total, during the first half of this year, our NPL sales amounted to about RM 250 million. Last year, we also had some NPL sales, which amounted to about RM 70 million. On the fee side, there was some pressure coming through, which contracted by about 5% year-on-year, and that's mainly coming through from the consumer fee side. Moving on to expenses on Slide 8. It is well within our expectation and still are very much under control, where it ticked up to 2.6%. The main driver is personnel costs, and it's really a reflection of the higher revenues and therefore, we booked higher bonuses during the second quarter. You see under admin in general, a significant reduction compared to last quarter, but there was a one-off adjustment in terms of our accruals where we had no longer require it. So there are some one-off reversals coming through under the A&G line. So overall, on a year-on-year basis, we grew by 6.2%, high growth on the personnel side at 5.4%. So it is reflecting the inflationary pressure and also the full half impact of the hiring that we did in the second half of last year. Marketing in terms of percentage terms also showing very strong growth, but this is mainly driven by Philippines. I think it's important to note in Philippines, of course, as the revenue starts to grow significantly, the cost escalation has also increased in tandem. But overall, on a net-net basis, the cost-to-income ratio for Philippines has improved significantly on a year-on-year basis. So overall, if you look at the quarter, our cost-to-income ratio is at 45.1%, a significant improvement in the last quarter. So on a year-on-year basis, I mentioned earlier, we did record a 1.2% positive jaw on a year-on-year basis, and that resulted in our cost-to-income ratio improving by 50 basis points. Moving on to provisions on Slide 9. So firstly, if I explain the table if you look at debt securities and others on a Q-on-Q basis. This has remained broadly stable Q-on-Q. The loan impairment and commitment and contingencies are within these 2 lines. There are some overlay adjustments. So I will look at these 2 lines in combination. So if you look at the second quarter, our number that adds up these 2 lines to about RM 410 million compared to last quarter of about RM 390 million. So net-net, both on the loan impairment and commitment and contingencies has remained broadly stable. I think it was quite important that I think with the reallocation of our overlays, we wanted to disclose our provision in a more informative way. So also as we work through, we're allocating some of the overlay. So if you look at the chart at the bottom, we are now disclosing it based on retail, nonretail and recoveries. Broadly, during the second quarter, we have continued to minimize the overlay write-back have managed to allocate a large portion of the COVID-19 overlay into new areas. So if you look at it from an overall perspective, our quarterly provision has remained broadly stable. So going through the chart. If you look at, firstly, in terms of recoveries, that has gone up on a Q-on-Q basis, and that's mainly due to an upgrade in an account in Singapore related to the energy sector. On the non-retail segments or nonretail both fractures, commercial and also wholesale banking. There's a slight increase there. And this is driven by the conservative provisioning that we have taken in Malaysia on some commercial names to offset some of the overlay write-backs that we've had during the quarter. On the consumer front, a slight increase to 331. So broadly, it has remained stable across our geographies, including Malaysia. We did see some delinquencies are rising and that is well within our expectation, and that has been more than covered with the overlays that we have. On a year-on-year basis, just to explain the variances, if you look at the year-on-year recoveries, last year, we had more significant recoveries coming through last year in the Singapore oil and gas space and also in the Malaysian aviation space. On the nonretail side, it has been very stable year-on-year. But within that, of course, we've taken some provisions. Last year, if you recall, we took some provisions on the oil and gas Malaysia names. This year, we topped-up further not a big number but topped-up further on the leisure, Malaysia and some several names in Indonesia, not specific to any related sectors, automatic areas. On the consumer side, a significant reduction from RM 864 million to RM 626 million, and the underlying has remained broadly stable. In Thailand, we had some more conservative provisioning coming through during the first quarter. So on a year-on-year basis, consumer Thailand has increased. What has also improved is on the Malaysia consumer other provisions. On to the next slide on asset quality. So overall, our credit cost for year-to-date is 38 basis points. On the impaired loans ratio, there's a slight tick up to 3.3%, a 10 basis points movement month-on-month -- Q-on-Q, and that's mainly driven by consumer Malaysia. And as a result of that, you can see our allowance coverage has come down slightly but still well above 90% to land at 91.6%. Moving on to our gross loans on Slide 11. I have mentioned earlier the growth momentum if you compare to the first quarter actually picked up Q-on-Q. Consumer banking continues to grow very well at 2.3% Q-on-Q. So that momentum has continued. But if you look at where it has picked up, it's mainly on the nonretail side, and that's due to some lumpy drawdowns during the quarter where both Commercial Banking and Wholesale Banking, driving that 3.3% growth. Similarly, because of that, those drawdowns coming through, especially on the Wholesale Banking side, on a year-on-year basis, the 8.3% growth is driven by wholesale banking. Within the countries, if you look at Malaysia, 4.7%, broadly, just slightly higher than industry. That's mainly driven by the nonretail side, both corporate and SME. In Consumer Malaysia, the growth is at 4.1%. Thailand is mainly driven by our retail and also our corporate in Indonesia, that's mostly driven similar to Thailand, retail and also our corporate. Whereas in Singapore, that 5.3% is mostly driven by the non-rental side. Moving on to deposits on Slide 13, like what Dato mentioned, we've had good traction on CASA, in particular on the nonretail space. Here, you can see the efforts that we put in and towards the middle of the first quarter, bearing some fruit coming through during the second quarter. And you can see the growth of CASA at 5.7% versus the deposit growth at 4%. And led to that improvement in the CASA ratio by 60 basis points. Going forward, I think the risk still remains in terms of the -- especially on the consumer and SME space in Malaysia. However, we are continuing with our efforts on the nonretail side in Malaysia. Slide 13 on our capital and liquidity. So our capital remains strong at 14.2%, relatively stable compared to last quarter. And as a result, like what Dato mentioned, we have increased our payout ratio to 55% from 50%. And this is coming from, of course, optimizing our capital and the continued strong capital -- internal capital generation that we have achieved. In terms of liquidity, we are well within our regulatory requirement and comfortable in our liquidity position. Moving on to consumer banking performance by division. So consumer banking firstly on Slide 14, that growth on a Q-on-Q basis is driven by NII and that's mainly coming through from Thailand. On a year-on-year basis, contraction on growth, and that's mainly driven by the challenging NOII markets in terms of the structured wealth management areas. So NOII weakened 4.3% year-on-year. However, that is partially offset by provisions being lower on a year-on-year basis. The growth -- the good growth of 6.7% is mainly driven by very strong growth on consumer in Thailand and Niaga. Malaysia is growing more or less at market. So in Malaysia, our consumer growth was at 4.1%. Commercial Banking on Slide 15. The Q-on-Q performance was weaker Q-on-Q, and that's mainly driven by weaker NOII, specifically on the FX side. also that impacted the profitability is the conservative provisioning that we did within Malaysia and that resulted in a Q-on-Q increase in provisions. On a year-on-year basis, however, you can see a very strong growth driven by strong NOII on the FX line, so driving a very strong PPOP growth of 8.7%. On the gross loans side, the 8% overall growth is really driven by Singapore and Malaysia growing above that number. Wholesale Banking on Slide 16, on a Q-on-Q basis, a stronger performance from wholesale banking, and that's really related to the capital markets-related income. And also the NPL sale, which was a corporate-related NPL sale. Also what's driving that is also a lower provisioning and the upgrade that I mentioned on the Singapore Energy name is related to the corporate segment. And hence, there is a Q-on-Q lower provisioning. On a year-on-year basis, however, PBT is lower, mainly due to the absence of the significant write-back that we had in Malaysia last year related to the aviation sector. However, you can see in terms of the top line, it's growing well at 7.2%, driven mostly by the capital markets-related income. On CDA and group funding on Slide 17, in terms of the Q-on-Q performance, very strong top line growth, and this is driven by both group funding and also CDA. CDA in particular, Philippines, on a year-on-year basis, similarly, the strong 50% operating income is driven by both group funding and also Philippines. Some of the indicators we look at touch and go digital, the number of registered users has continued its strong growth of 15%. Last quarter, our number of customers was at 19.3 million, now it has exceeded 20 million figure. If you look at the annual transacting users as well, that has grown well at close to 17% year-on-year and now touching 10.4 million. Philippines, if you look at the number of customers, that has now crossed 7 million customers last quarter that was at 6.9 million customers. Lastly, on Islamic Banking on Slide 18. If you look at it on a Q-on-Q basis, a stronger performance on the Islamic banking where there was strong growth on NFI at 12.9% Q-on-Q. On a year-on-year basis, however, PBT did contract, and that was due to weaker net financing income and also driven by higher provision. On the asset accumulation side, the Islamic financing continue to significantly outpace the conventional side are growing at 16% year-on-year, and it is both driven by the consumer and also the corporate segment. That's the end of my presentation on the financial, I pass the presentation back to Dato. Thank you.

Thank you, Khairu. I think in terms of update of our strategic plan, generally, I think roughly the momentum remains positive as per, I think the last time we visit to report in terms of the asset composition and growth I think we -- our asset reshaping, I think, is probably at the tail end, but just happy to look at in terms of loan composition really on the consumer side. We are now much more of, call it ,consumer or retail bank with 52% of our loan composition now in consumer. So the asset that effectively also in the portfolio that we wanted to actually grow, continue to grow. One thing probably to note is our Indonesia commercial, which if you recall, we descale or try to descale quite a bit. I think we are now ready for some form of growth. So I think you can see some growth now. I think we have been able to actually to regrow this particular portfolio. But as I said, I think in terms of area that we want to invest, which is Indonesia consumer. If you look at it, we grew 8%, Malaysia consumer side, this is the one area wanted to grow -- have grown 8% on the first half of the year. Next slide, secondly in terms of our ROE journey. I know a lot of you have been asking about it where we are. In story, I think we are I guess, on track in terms of our target ROE for 2023 between 10.2% to 11%. We progressed, I think, to hit 10.6% in the first half of the year and this is significant improvement from 8.5% in 2019. Our reshaped portfolio, as I mentioned, delivered positively our structured cost take out is substantially down. The ECL uplift from a proactive asset quality management. I think you can see the impact at 38 bps. I think we are substantially below 50 to 60 target end of FY '23 plus. And partly, I think we need to do more because I think we are building a lot more capital at 14.2% compared to 12.9% in 2019. In terms of what's the future outlook, I think the focus is continue to grow profitability from the asset growth. NOII expansion and before segment growth, I think we just are more conscious likely, we need to do more because of the NIM compression that has happened this year. But I think our feeling is that it will subside starting from probably on the end of third quarter to the fourth quarter. The other part I would just like to highlight a higher contribution from CMB on Niaga. I would like to bring you guys to the slide that we have for on Niaga which is Slide 37. If you look at Niaga growth, I think it's been able actually to transform we grew our PBT close to 26%, net profit to about 28%. I'm very happy to report a Niaga ROE effectively in the first half, has it 15.4%. So we think that the Niaga story in terms of contributing to the overall performance will be, I call it, a dominantly, we are optimistic in terms of where we are at Niaga. The market is growing fast until we've been able to tap into it. And more importantly, we've been able to deliver this without taking what we call excessive risk that perhaps we did in the past. So if you look at it a lot of the -- in terms of the growth has been what I call pretty solid, but a lot of it has been by containing costs as well as continuing provision. So generally, I think the Niaga story will be a major contributor to our strive of our strategy actually to deliver the ROE target that we have. We see some opportunity on credit cost optimization. I'll cover that. And I think probably by end of the year and early next year, we'll probably -- we'll be able to demonstrate to you the contribution coming from our digital asset. It's our Philippines business, our touch and go digital business that I think are turning effectively achieving scale and I think starting to demonstrate what we call path to profitability. And obviously, I think the last lever that we have is capital optimization. I think we are starting with our announcement today, increasing the dividend payout ratio to 55%. In terms of the digital reliability, no new major thing to highlight. I think we are now quite happy and I think we are working hard to ensure this sustain in terms of our Clicks downtime. I think we are spending a lot of time to get up to adoption. So I think that's been our focus on this. And I think we are committed to actually to continue investing the -- in terms of technology CapEx that we have. I think we are a bit behind in terms of our CapEx plan for the year. We plan on the second half of it actually to accelerate the CapEx investment, roughly probably towards the level that we have been incurring over the last 3 years. Petron sustainability. I think in terms of the second quarter, I think we are pleased that we've been making further progress. We collaborated with Bursa Malaysia to help Petronas' supply chain to adopt low carbon and sustainable practices. I think we have launched our sustainable living home solution. We've been able to offer preferential rate for solar -- on solar financing as well as incorporating them as part of the mortgage purchase. I think that's a key product that I think we are very keen on in terms of promoting. Obviously, I think we are baked also in terms of the EV drive adoption and in terms of sustainability in treasury program. In Niaga, we are very happy that we won the Domestic Project Finance Bank of the Year and Domestic Sustainable Finance Initiative of the year at the Asian Banking and Finance Wholesale Banking Awards. We also rolled out in Thailand, basically the Human Rights Policy in May 2023, that is aligned with United Nations Guiding Principles. I'd just like to highlight and invite all of you, I think our annual flagship event is happening on the 11th to 21st of September. And we have, I call it, a very exciting program, particularly, I think we have what we call the GLICc panel the 3 GLA, largest GRC Malaysia, PNB, Kazana and EPF all effectively having a panel session to share about their journey in terms of sustainability. So I thought just to highlight to all of you because I think it's very rare that we've been able to actually chat the 3 of them together to do a panel session on this. So final remarks, just to highlight, I think we are confident enough to make some revision in terms of our guidance. In terms of ROE, I think we are maintaining it within the 10.2% to 11%. But as I mentioned, I think we have announced increasing payout ratio to 55% for our interim. We plan subject to cost to regulatory approval, review -- so I try now that to maintain that level of dividend payout ratio for the full year. Loan growth, I think we are comfortable enough bearing any exceptional circumstances to actually increase our own loan growth target to about 6% to 7%. And more importantly, I think on the credit cost, I think we are revising our guidance to 40 to 50 bps from 45 to 55 bps. We believe that I think we -- the credit asset quality things contained in terms of any asset deterioration effectively is done. And obviously, we are judiciously, I call it, looking at effectively all our open at while making sure that we have enough call it, provision to moderate what I call any surprises that could happen in the future. So all in all, I think the improved momentum in the second quarter performance really has been driven by the robust NOII, strong loan growth and CASA expansion. And that has been delivered in an environment whereby the deposit competition was very competitive. I think it has affected all banks, particularly in Malaysia. So I think we are pleased that despite that we have been able to deliver this performance. And I think we've been able to do that without actually, I call it, taking a huge amount of release in overlays. So in terms of strategy, I think we are finally, I think a lot of you guys asked what's the benefit of having this diversified asset portfolio. I think we are now demonstrating that strong performance in markets like Indonesia and Singapore is balancing other markets with that growth. So I think being able to deliver what we call growth while protecting the downside risk is a team that I think we can really leverage on. We continue to maintain quite cautious stance given the global headwinds and of course, the elevated interest rate and heightened deposit competition. But as Khairu mentioned, NIM pressure has moderated in the second quarter. We are hopeful that you expected to subside. But I think our focus is really to strengthen our CASA and deposit franchise. I think long term, that is the only way for us actually to make sure that we are very, very competitive in terms of our cost of deposit. So we are focused on executing the forward strategic plan. And as I said, I think we will continue to actually to invest in the targeted segment as well as make sure that we are -- we remain cost discipline. I noticed now we are no longer the highest cost-to-income ratio player amongst the large bank in Malaysia. So I think that's a significant achievement to what we were before. And I think we continue to want to be very disciplined on the cost side as well as being, I think, very careful in terms of asset quality, notwithstanding the asset growth that we wanted to pursue. So with that, I think I take it. I'm happy to take any questions that you have.

Thank you, Dato and Khairu. We will now begin the Q&A session. If you would like to ask a question, please use the raise hand function and we will unmute your line, okay? Great. We have a few questions already, Dato. The first one comes from Ben from Macquarie.

Thanks for the presentation and well done on the sale results. My first question is on the overlays. So could you just clarify what is the outstanding overlays? And I know you've done some reallocation. So I'm only -- I'm really interested in the [indiscernible] of overlays that could potentially turn back at a later stage of the greatest [indiscernible].

Yes, I'll first get called Khairu actually to answer that. But if you at the end, you notice, right, we stopped providing effectively the breakdown to the overlay reversal trying all that because we really are at the tail end of what we call the reallocation of our overlays. So now we see effectively the overlay has been part of our so called overall provision. But I'll pass to Khairu basically to answer specifically on that.

Yes, thank you Dato. So just to recap, right, Ben. So I mean, during the full year 2022 announcement, our December position -- December 2022 position of overlays was around RM 2 billion of that RM 1.4 billion was related to Malaysia, right? And another big part is about RM 350 million related to Indonesia. For that -- and this is very specific to what you have mentioned is COVID-19-related overlay. So like what Dato mentioned, the big part of that RM 1.4 billion has been reallocated to other forms of risk, right, that we see going forward. And a lot of that is related to the global macro headwinds and also the elevated interest rate or inflationary pressure that we are experiencing. We have still some of that COVID-19 related overlay that will pass through time in terms of the 12-month observation period, coming through in the second half of the year, but that proportion is significantly lower or a small proportion of the whole RM 1.4 billion. So overall, I think what I wanted to really stress in terms of the point is the fact that we have managed to reallocate the bulk of RM 1.4 billion of COVID-19 overlay that we had as of December 2022. But it's still the efforts will still continue in the second half to manage and minimize that small balance that we have in terms of the COVID-19 overlay in the second half of this year.

We might have to come back to Ben. He's lost his connection. So maybe we'll move on to the next question first and come back to Ben later. The next question comes from Yong Hong from Citi.

Yes. Thanks. I have a few questions, but maybe I'll just ask a few of them. Firstly, on capital and dividends. Last year, you did waived the PRS. Now you progressed our payout ratio, maybe by year-end, can we perhaps live up to special dividends? I think my question is that from your modeling, how does step down optimization since the ROE target? And maybe some color on your ROA -- sorry, on your vehicle production would be quite helpful that is my first question.

Yes, I can comment on many specialty that our process like you highlighted, it's the kind of phase approach. And I think to be fair, I think we've gone through this journey together with you guys, right? If you recall, we were one of the lowest capitalized bank in Malaysia. When I came in, it was [indiscernible] a and I think you guys were saying that, look, do you need more capital? And I think we didn't do that. We basically build the capital out of our earnings and be very efficient in terms of our RWA optimization and be able to build that capital. Now obviously, I think when that strengthened, you're right, the first part that we basically did is the, I call it, the removal of the DRS. Even though, I think we did say that, look, there's always a balance on DRS basically going forward, especially if you want to push higher the dividend ratio. So I think we are now delivering on that in terms of increasing the dividend payout ratio. I think going forward, I think we need to look at the -- not only just our own capital, but as I said, in terms of the industrial capital that I think is [indiscernible] that effectively all our competitors. Historically, Malaysia capital that I think between 13% to 14% subject to some of the companies that are outlier now is sort of like move to 14% to 15%. So generally, I think we got to be concerned. And obviously, the regulatory view is extremely important thing has a bearing in terms of any decision on further capital optimization.

Maybe just following on that. I think you talked about RWA optimization. Where do you see maybe RWA growth for the objective...

Yes. So Yong Hong, in terms of the RWA growth, I mean, of course, in the first half, we did see some very strong and robust growth on RWA, and that's a reflection on 2 parts, right? One, it's on the nonretail side, where we had some lumpy drawdowns coming through in the first half of the year. And also given very robust trading and FX, there is some RWA that's related to that. In the second half of the year, we still expect, of course, continuing growth on RWA, but potentially, if you look at it from a value perspective, it's not going to be potentially as robust as the first half of the year, but still expect rate is in RWA growth in the second half of the year. But overall, if you look at it from a capital generation perspective on a year-on-year basis, definitely, we do expect the returns over RWA to improve on a year-on-year basis.

My second question is, I think, under your [indiscernible] strategy. Why are you in your cost optimization, the asset reallocation mix? And any other levers that you can improve so. I think you mentioned that you have some CapEx catch up in the second half. Should we expect OpEx to pick up in the second half...

Yes, I answer the cost optimization and then I'll pass to Khairu to answer about the second half. I think we've done the part of what -- we call our cost take up or structured take up. We took close to in RM 1 billion in terms of the cost take out. I think the total number was probably close to RM 1.5 billion total that we have taken out. So in terms of what we call the real structural cost take out, we have done across now, I think the focus is being trying to optimize it. It is getting challenging because the inflationary pressures basically are there across all countries, all markets. But so our focus is really now I think really need to optimize rather than real what we call structured cost take out. I'll pass to Khairu in terms of the outlook for second half.

Yes. So in terms of the Opex, P&L itself on a sequential Q-on-Q basis, of course, we do expect cost to tack up sequentially Q-on-Q. On a year-on-year basis, we are still expecting around the mid-single digits of level of growth. And the main driver will still be in terms of personnel costs, and technology costs for the P&L will likely increase compared to what you are seeing here in the first half of the year, which was at 6.7%. So that will expand as we go into the second half of the year. Related to that, I mean one point that Dato mentioned earlier in terms of our CapEx, year-to-date, we have initiated RM 100 million or so in the first half, and there will be a significant catch-up in terms of CapEx in the second half where as Dato mention that we will likely end the year around the RM 800 million number. But I think it's important to highlight, these are CapEx that's been being booked on stream, and there is a time lag in terms of how it hits the P&L, right? So there will be a duration where the project has been undertaken and before, and then it goes live and then it hits the P&L.

[indiscernible] that year-on-year on a full year or on a second half basis?

On the year-on-year will be on a full year basis. So we do expect for the full year 2023 to be around slightly higher than the mid-single digits of level.

And my final question is on your ROE next year. I guess a lot of us are thinking that over lease write-back is a key driver for next year. So do you think 12% ROE is sustainable beyond FY '24? And maybe from your point of view, maybe for my experience as an analyst and as a CFO and CEO, trading at point times book business you are already actually appear fair. And I just want to get some views on here.

I think on the outlook of '24, I think we'll cover that till end of the year, one major thing that we got to basically see is how does this deposit competition play out. To tell you truth, we didn't have the deposit competition. Our result will be a lot a lot stronger and our confidence level in terms of hitting that 2024 target is a lot stronger than what we are feeling today. So we're still -- I'm sure a lot of you are asking why effectively Malaysia suddenly have this deposit competition. To tell you truth we are trying to figure out, is there a structural issue? Is there a liquidity -- excess liquidity issues that's driving it. It is what I call all of us acting rationally by creating what I call it the rational outcome. I think those are still I think we need to actually to think through that so that at least we have a better understanding of how it's going to play out in 2024. Having said that, as I said, I think we are very -- in terms of your comment on the multiple valuation, I leave it to you guys, et cetera and all that. And I'm not sure if you guys are aware our half year profit is now -- we are now the second, I call it, second largest in terms of absolute level of profit in Malaysia compared to [indiscernible] Bank. So it's an absolute level of profit. I don't think that's been delivered. I'm not sure Stephen probably would correct me when was the last time that we deliver a higher lever of profit in second largest. But anyway, I think that just shows the -- I call it, the valuation gap, I think a multiple valuation gap, I think we have. And we are in condition that we need to earn the right to actually to have the right appropriate valuation, but all we can do is I think demonstrate that what we are building, the transformation that we are delivering is working. So -- and hopefully, market will recognize that.

Our next question comes from Aakash from UBS.

Thanks to the management for the presentation and taking my question. And congratulations on a good strong performance. The first question is just on the noninterest income. So you were talking about this earlier, it was quite strong quarter-on-quarter, right? And you said that the NPL sales was a big part of it. So kind of are you to tell me exactly how much was NPL sales out of that 14% Q-on-Q growth? How much did it contribute? And I think you talked about this as a sustainable stream of income in the past. So what is like a normalized level for this business now in your mind?

Yes. So as you know, it was part of our strategy to improve our NOII because particularly on the Niaga side and our Thai side and even Singapore side, because of what we went through the legacy credit issues that we will face. We do have a bulk significant, I call it asset for us to actually to either divest or to recover. And yes, it has been lumpy, and I'll pass to Khairu actually to show out of that. But on an annualized basis, we think we can create what we call a sustainable revenue stream of this strategy. They are still -- it may not be probably in the same quantum, as I said, in 2022, we had some '23. I think, is a larger amount. But as I said, I think it's a revenue -- a consistent revenue stream at least for the next 2 years, I think we are working on the strategy to make sure that it provides what we call a less recurring revenue for us.

Yes. So on the numbers itself. Firstly, if you look at it from a year-on-year basis. So first half 2023, NPL sales, both Thailand and Niaga, the bulk of it is in Niaga. For this year, it's still RM 250 million. Last year, we had some as well, which is about RM 70 million last year first half. On a Q-on-Q basis, in the second quarter, this is all mostly on Niaga, NPL sale of RM 170 million during the second quarter. Last quarter, we had about RM 80 million both. A small portion of that is Niaga, the bulk of it is in Thailand, last quarter.

Okay. Got it. And in terms of the normalized number, is it sort of somewhere in between last year and this year's number? What do you say? -- like a normalized stream of income from this business.

Difficult to give a guide. It's something that we're working for -- working on. As I said, of course, NPLs will take extreme. But I think on this year, I think we first forward actually took the NPL sale in the first half of the year. Next year, I think we still haven't finalized yet the plan. But as I said, I think we are -- all I can say Aakash, we are trying to actually to create what we call a recurring revenue stream out of effectively of this NPL sale.

And I think the point on this year, and what as Dato say, is front-end loaded to the first half. It's unlikely to be any further significant NPL sales coming through in the second half of the year.

Okay. Understood. That's very helpful. The second one I have is on the -- one of the drivers of achieving the ROE target is the credit cost optimization that you talked about. So firstly, I mean, what sort of number are you thinking about, right, in terms of credit cost on a sustainable basis? And second, how does this fit when you look at the coverage ratio. So coverage ratio for CIMB is still a bit lower compared to the industry, right, below 100%. So do you think that coverage ratio will go higher? And then if yes, then how does the credit atomization work -- credit cost optimization work?

Yes. On our side, yes, so I think for step, I think we simply sort of revise our guidance. I think that's our first step. And if I went on the call, I think we said around the forward '23 plus 2024 target was between 50 to 60. So I think -- substantially, I think that has come down, whether we can further optimize it. I think more work needs to be done on this. And if you ask the question, whether we have one eye on loan loss coverage yes, we do. We do want to basically to make sure that our loan loss coverage is, I call it, comparable to benchmark. So I think that is the probably one of the factors where we think about. When you talk about releasing openly or not to reallocate overlay, I think that's one of the factors that we actually think about. However, I think our other initiative on LLC is really to improve on our GL ratio. I think it is now, I mean you guys highlight the original ratio is higher than market. So we are at 3.3%. So we know that is in the market, partly is basically structural because obviously, we have Indonesia, we have Thailand, et cetera, and on that, all of that but we are really focused on, call it, addressing it and reducing the GL ratio. So obviously, we can reduce the GL ratio. Our LLC will go up despite not having to make any additional provision. But yes, we do have one eye on the loan loss coverage when we make, call it decision in terms of the credit charge.

I have 2 more questions, quick ones. So the next question is also on provisions. I think you showed on one of the slides that the provisions for the consumer sector declined quarter-on-quarter. So what is going on there? And you talked about this reallocation of overlays to provisions, right? Is that the same thing as right thing that provision? Or is there any difference between these two?

Okay. On the first part, I think Q-on-Q, on the consumer side, as we mean are relatively stable. On a year-on-year basis, there is a significant reduction. But that's mostly on provisions that are not related to loans is under others. So last year, we took some other related provisions, related to the double crediting issue. Whereas on the low side on consumer on a year-on-year basis has remained broadly stable. In terms of the overlay, if I get your question quickly, Aakash, because it's mainly on reallocation on the balance sheet side. So whether that's having a COVID-19 overlay, we took some assumptions on 2 parts, right? One is either reallocating it to a new form of overlay. So not related to COVID-19. Like I mentioned, it's more related to the macro backdrop and uncertainty. Another way that we have reallocated it is looking at the nonretail side, whether we could take any further conservative assumption on whether on the NPL book or even on the performing book that from the perspective of the borrower or collateral. So it's a shift of provision within the balance sheet itself.

Sorry, in short, I really don't see any benefit of reversing all our overlays and showing a year or effectively a quarter of effectively 0 provision. In my mind, that's not sustainable, right? So why we are trying to actually to do think about it logically, if you do that, your LLC effectively will drop significantly, and I don't think we are building a much more resilient bank. So that's why actually we are reallocating our overlay. I must say that we didn't release any date. There were some basically there, but I think we are trying to actually to do what we call a consistent improvement in our credit costs. So that, I think, is the philosophy that we are trying to actually to take, which is why I think now we are just combining it effectively in terms of what we call total provision, I think the data that we show is between retail and nonretail so that you can see the evolution going forward on how effectively our provision, basically, the net provision effectively that's taken.

And the last question, I was just -- there was no impact of collective agreements on your OpEx was there -- some sort affected by that?

So the bulk of the personnel costs increased 7.2%. It's really effecting our revenue. So it's mostly bonus, the catch-up in collective agreement because we have taken our provision as with the negotiations was ongoing. So the catch-up in provision on the CA was not significant on a Q-on-Q basis.

Thanks, Aakash. We have -- Ben is back from being dropped, is now Ben, Macquarie.

Yes, sorry. Hope you can hear me. So I missed the answer earlier on overlay, but I just want a very simple number. I just want to know like how much should we think about is potentially it can be return back going forward. The number I have here previously that you were using as a headline number was like 2.7%. I understand you've relocated that most of your direct overlays Malaysian window. So what's the number that you should just refer to just sort of a lump sum and useful to benchmark across your peers.

Yes. So Ben, I think what I can say is that just to clarify, right, that 2.7% position is a December position and that 2.7% includes [ MEF ] right? That's the December position. Going to the second half of the year, I would say that I'm not -- we're not in a position to disclose a specific number, but it will be -- we are trying to make it as minimal as possible and reallocating it as what we have done during the first half of the year.

So if you answer that, what are we going to have I see some of the banks have basically reported a significant, I call it a quarter whereby overlay their credit cost is 0. And because of that profit went up, I don't think that's our strategy. So what we want to do effectively, we are really focused on the credit costs, right? We can do a sustainable improvement in our credit cost. Yes, utilizing overlay is part of it, but it's sustainable. It's not something that is a one-off happens and then in the next year or the next quarter, effectively suddenly spiked up, there's no intention. So pardon, apologies, we are not able to show because that's not -- that's why we allocate the overlay. The intention is not to use overlay to get a one-off significant benefit in terms of profit.

My next question, I guess, is a simple one. Any implications you've been -- for the money laundering case in Singapore, and something like are there any potential mitigating circumstances we can think about [indiscernible] for? Or will you come a surprise when this case came out?

No. I think you know that we're not able to comment on any individual or ongoing investigation or court proceeding. However, I just like to assure you, we are fully committed to a strong corporate governance and we adhere strictly to effectively to banking standard loss as well to make sure that we are always in line with the group's [indiscernible] money laundering and counter financing of terrorism activity, right? So you all know, the role of the bank is to do what? To report. So this applies basically to all banks, right? So that is the role of the brand to basically to report. So I leave it to that because I said we've been cautioned by [ MAS ] and not to comment specifically on this case.

My next question is around your guidance. Did you -- did I miss it, but did you provide a NIM guidance going forward?

Not yet. So in terms of NIM guidance for the group overall, we are looking at minus 15 to 20 basis points group NIM pressure on a year-on-year basis. So if you recall, in the last quarter, it was at 10 to -- minus 10 to minus 15. So there is a downgrade in terms of our NIM guidance. And this is mainly driven by Malaysia. So within Malaysia, that is the main driver of that margin guidance. In Indonesia, we are still maintaining the 4.6% to 4.8%. So plus/minus 10 basis points compared to where we ended last year. Last year was at 4.69%. In Thailand, we are expecting about 10 basis points margin contraction, so about 100 to 110 basis points in terms of margin. In Singapore, we are expecting it to be relatively flattish. Although on a year-on-year basis, it has shown a significant improvement, but we do expect in the second half of the year, that pressure coming through from treasury and markets recording more under NOII and also deposit pricing catching up. So that should slightly ease in the second half of the year. So net-net, overall, in terms of our margin guidance, we are expecting 15 to 20 basis points. And this is a reflection of both in terms of the repricing of the deposit to higher rates, reflecting how the policy rates have moved over the last -- the second half, in particular the second half of last year. And also still a reflection of some of the pockets of competition, although receding is still there.

I just wanted to highlight the nature of Indonesia, Thailand is slightly different in terms of main compression versus Malaysia. Malaysia is a straight forward cost of deposits have risen higher than OPR rate. Asset yield side basically is translate or really follow the OPR rate. For Indonesia and Thailand, the new compression is happening that the increase in cost of deposit is tend to be lower than the increase in the interest rate. However, the challenge is passing on the increase in the interest rate to the customer because particularly in Indonesia and like Malaysia, there is no automatic way to actually to pass the so-called your increase in interest rate to the customer. It is literally a bilateral negotiation effectively with the -- particularly on the corporate side on that. So it's a different nature of what's driving effectively the NIM compression in the 3 countries.

Okay. Sorry, did you mention the NIM compression for Malaysia, your guidance from Asia?

Yes. So for Malaysia, it's broadly similar to the group level.

And just to follow up on that. You've done relatively well on managing your NIM pressure. Could you give a bit of color on maybe what you're doing differently and whether you still have any more levers to work with into the second half? Or are you mostly done sort of extracting that relative advantage...

I think it's a difficult question actually to answer. Of course, I think we had -- we saw this -- and I think we highlighted it. I think some of you were quite surprised. We were quite, I'd call it, conservative in our NIM part, right? Because we saw late, I think fourth quarter last year -- sorry, late third quarter last year, this basically is coming through. And I think we have embarked upon our CASA deposit franchise, probably earlier on that, this just really need to make sure our CASA deposit franchise actually happened. I think that benefited probably Malaysia in the first quarter. I think we pulled in a quite strong pretty decent growth in terms of deposits to actually to help elevate this. So what did that continue and obviously, the market part. To tell you truth, I think market needs to be more rational. I think that's my view. There is perhaps basically initial structural -- not [indiscernible] issue about liquidity, et cetera, and all that. On this day, we are still -- maybe that is a transient part. But yes, I think the key or I think on a long term or midterm, long-term business is really focused on your CASA and effectively your deposit initiative. I think we've been -- I think really starting end of last year, I think we really made that as our key focus for 2023. And hopefully, as I say, I think we still there because I think people are still competing for the deposit. I think we are able to improve the people's usage of the operating account being very aggressive in terms of the nonretail market in terms of getting main operating current account as well as some deposit, I think that's our main strategy.

And I think just to add in terms of particularly in a very, very short term. If you look at the deposit pricing, we've managed to cut our campaign rates in July and August by about 5 basis points per in July and also August. And volumes still continue to be very decent. Although despite, we did see some pockets of competition on the campaign rates by other banks. There is relatively quite positive in the third quarter. However, as we run into the end of the year, and it's quite typical, especially on the wholesale funding side, where at the year-end, the rates on the wholesale funding starts to creep up. And again, similarly for this year, we do expect that to come through. So that there are some short-term trajectory where it looks quite positive. But because of the pockets of competition and our typical year-end rates going up, there could be some offset to that technical upside.

I think it took us decision to take a leadership position in terms of moderating our so called FD rates. And really, I think we are hopeful that market simply will see that and then effectively sort of like moderated stuff, right? Because I don't think this whole idea about all of us effectively increasing our deposit rate higher than the OPR increase. I think it just doesn't quite make sense.

Because I mean, looking at, let's say, bank you are dumping their deposits, especially wholesale, I think you saw the deposit contracting, but you guys are still having deposit growth and maybe you're cutting your long-dated FDs. So clearly, there's some differentiation in that strategy from that perspective. So from your answer, it sounds like it's more structural, so what you're trying to attract customers back from the third quarter when you're saying last year. Those are my questions.

Our next question comes from Harsh from JPMorgan.

Thanks for going to a couple of questions. First, what is the minimum ROE for FY '23 that [indiscernible].

Sorry Harsh, you are very -- you're breaking up. You're not clear.

Sorry. What is the ROE in the 10.2% to 11% range that you noted this year?

Harsh, you are saying what's our minimum ROE part. I think in terms of our -- we haven't changed our guidance and target on the ROE, as I said, our target has been set between 10.2% to 11%. That's our range on the ROE for 2023. We haven't changed that. At the moment, we are right in the middle. So I think that's where we are today. I think we need to do a lot more work to make sure that for us to actually to do better, right? But at the moment, we are really in the middle of that 10.2% to 11%.

And another one on the margin. Malaysia, we have gone through a massive competition, Singapore, highly, the Indonesia look okay. But if that changes, how can you make your ROE for '24.

I couldn't hear you. is your question, what will be the impact if our the NIM compression in Malaysia gets moderated or improved? Is that your question?

Harsh, perhaps you could type your question into the chat, it'd be easier way because we really can't hear you. Sorry about that. Maybe we can move on to the next question first. We have Peter Kong from CLSA.

Yes. I just got 2 questions. Sorry, the first one, I should know this by on Page 22 of the slides, right? When I look at the achievements so far in terms of ROE journey, I have immediately -- it strikes me that our portfolio reshaping looks to be very small in terms of how you are on the line. But there's another category called others, which is before capital accumulation. And then maybe just help me understand what are others team that is helping the ROE?

The other bucket is within the other parts of the businesses that has improved, right? So this is more from a segment point of view, rather than the forward '23 plus of strategic pillar.

So it's not any specific driver Okay. Got that. My second question actually is more hypothetical, but I just wanted to understand, right now, it does seem like you are willing to optimize your capital a bit more and improve your payout ratio. But in my mind, I was just wondering whether or not -- because I think, Dato has mentioned before in the past or so that you want to be a bit more asset light, be very careful about how you outgrow your assets and all that. Is there also a thinking that you are doing that while simultaneously keeping your CET1 at a more elevated level like...

No. I think our CET1 level, if your question is basically there, it is much more a function of the, I call it, the market and I think the industry capital ratio seems to be a lot higher partly, I guess, because of regulatory, I call it, regulatory oversight. So as I said, I think when I joined it, we were at 12.5% at the current call CET1 ratio. Most of our competitor would be roughly around 13% to 14%. Now this seems to be 14% to 15%. And I assume it's yes. So the question is why, right? But obviously, actually, we went through COVID, that everybody is basically conservative. Regulatory, I think scrutiny, if I think on this, will probably heightened during COVID. So if your question is right there, there is opportunity that will revert back to the 13%, 14% total try, I don't have an answer at the moment. As I said, we don't want to be the least capitalized bank back to where we were before. And I think we'll be very, very conscious of that. And at the same time, I think we will address the -- continue to engage with our regulators in terms of the scrutiny that they look in terms of capital.

Sir. My final question is, I think this quarter, I would -- in my observation, quite many banks have done relatively well on the ForEx income side. And growing NOII is one of your future expansion drivers. I was just wondering what are some of the areas that you are currently building that will help us understand the magnitude of potential improvement into the next year?

Yes. I think this effect is generally driven by what Khairu mentioned, I call it the carry trade that people do effectively borrowing in U.S. dollar and then effectively swapping it. Because you borrow U.S. dollar, you have higher cost of deposit on the treasury side, which reduce your NIM, but you make money effectively on the swap [indiscernible]. So I think we benefited out of that particular part. Now we see that as relatively opportunity to a certain extent because in treasury itself, effectively, there are then opportunity to make money on the NII side, perhaps in the future. We are much more focused on what we call sustainable NOII growth, whether it comes from fees, FX commission, trade, et cetera, and all that on investment income, those kind effectively, what we are focused on to actually to grow . The [indiscernible] market opportunistic deal. I think that is something that I think obviously, we'll try our best, but we are more focused on what we call creating a much more sustainable growth in terms of sales, distribution income or flow business, rather than what we call the one-off for episodic effective income.

Dato, just to highlight Harsh's question is how can you protect ROE in 2024 if we get competition in Indonesia, Singapore and Thailand.

Yes. So I think on the Singapore side, I think we are quite comfortable. We've been able to tap into, of course, I think the liquidity in Singapore has been very, very strong, but we've been able to tap into what we call the SME market on the deposit side. I think it has been a very successful strategy that we've been able to actually to grow. And really, I think we see that continue to be there because I think we are still a marginal player. So in reality, I think there's an opportunity for us to be very, very sharp in terms of our offering to be able to garner effectively the deposit on the, I call it, the SME side, effectively in Singapore. In Indonesia, I think the issue is that if competition heighten, as I said, on the deposit side, it's still manageable. I think we do that. The bigger challenge of Indonesia is much more whether we can pass on effectively the higher cost of deposit to the asset side. Now we're not able to do that, then I think we need to think through about how -- meaning that margin is going to contract, I think we need more volume to actually to compensate that, right? Because there's only 2 ways for you to grow your revenue, either you improve your margin? Or if not, you increase your volume. So we think that there's opportunity for us to grow faster in Indonesia without taking what we call additional credit risk. And that's because even with our good growth on the loan side, Indonesia, we've been growing per market. And we're still relatively a small player compared to the big part of that. So the way we think about, I call it, name an initial, if we basically compress because we are not able to actually to pass on that higher cost of deposit because interest rates have gone up. The key to Indonesia, I think, is increasing loan volume. But doing it judiciously, doing it effectively such that there is no adverse impact to the credit costs in Indonesia. I think that's the way that we're thinking about tackling the greater competition. But we think market Indonesia is still large growing. Demand for credit is still very strong. We just need to make sure that our underwriting model is strong to really tap into the market and lend more in a judicious manner.

I think we have a last question from Danny Goh from Credit Suisse.

Sorry, we've kept you so long. Just one very quick question for me, actually. Just would like to hear your thoughts on -- what's actually your base case scenario in terms of the macro backdrop and policy rates that you baked into your ROE projections? And what are the potential upside and downside risk to those assumptions?

On the Malaysia side, I think we're assuming interest rate will remain the same in terms of that. So we are not making any cut neither we are expecting any increase. That's on the Malaysia side. In terms of total macroeconomic growth, I don't think our -- I would take how stake is any different than what is forecast for instant Malaysia still around growth this year, 4.3%. And that, I think, is basically as our base. If you ask me whether we are forecasting a recession in our original economies, no, I think we address our view on the macro-economy numbers relatively the same as what we call market.

Okay. Got it. So if -- should there be a situation where we do shift into a scenario where people are expecting rate cuts to come through. Would that be something that would change your ROE expectations, either positively or negatively?

I think if we do get any adjustment on the rate side, I mean, the biggest impact will be coming through from Malaysia, given the size and contribution of Malaysia to NII. But however, because of how I think the outlook in terms of -- if we do get a cut in 2024, that cut would likely be very moderate and measured. And therefore, the impact to ROE or NII would not be as significant as it will be like how it has been in the past.

My hope is that there is a cut will deposit, because when it comes down you don't know. Maybe all my competitors will basically will act accordingly, hopefully, that's the case. I mean that's my own personal -- that's just my personal view.

Yes. That's what I was actually thinking maybe perhaps that might be something that would actually lead to much less competition on the deposit front, if that expectation would change.

Okay Dato. We do not have any further questions at this point. Can I just pass the line back to you for your...

Thank you very much everybody for joining us on the eve of Merdeka. So I just like to thank all of you. For further questions, obviously, you can reach out to Stephen and Khairu. Thanks again for joining and wishing you a happy Merdeka Day. Thank you.

Thank you, everyone.