DBS Group Holdings Ltd (D05.SI) Q2 FY2025 Earnings Call Transcript & Summary

Hi, everyone. Welcome to the analyst briefing. You've heard the media briefing so we can go straight to Q&A.

So I think the first question, we can start with is Yong Hong from Citi.

Can you hear me?

Yes.

Yes. I will just keep to two questions. Firstly, on dividends. So based on the earnings prospects so far, could you remind us on the thinking behind raising our dividends by turn higher per year and your capital return to equivalent of $0.60 annually across 3 years. Just wanted to get a sense on how confident you are to sustain this? And any update from the MAS and the potential lifting of your penalty on capital? What is asked and what you have delivered? And second question, are you seeing a little bit more opportunities to capture enterprise spending or corporates catching up on IT investment across the regions? And should this be reflected through your volume growth for the rest of this year? And finally, on your digital asset slide, could you give us some color on how these flows through your P&L? And also if the digital asset offering something that is well by our wealth clients. question.

Su Shan?

Yes. Thank you. So your first question was around dividends. We will answer that. Second question was around enterprise spend.

The growth in [indiscernible].

Sorry, I was spinnig with stuff. And the third question was around digital, the income program on the additional asset ecosystem, right? Okay. Do you want to do the dividend and not do the loans, one?

Yes. So hi, Yong Hong. This is Sok Hui. So I think we communicated this quarter, we said there was our CAR, came down by 0.4%. Half of that was just the capital return and share buyback. So consistent with the communication, you'll continue to see that we are committed to the capital returned dividend as well as the share buyback over a 3-year period, right? So that you can take as something that we have committed to unless something that's really unforeseen. And then on the step-up, I think the Board will review every sort of every quarter -- sorry, at the end of each year, that's when we normally do it in Q4 to see whether we were lifted by about $0.06, and that gives you a $0.24 lift. I think we -- when we look at the trajectory, we should be able to still commit to this year and probably next year.

Yes. So looking at the $8 billion of stock, right, which we had declared before, $3 billion was for buybacks and $5 billion was the capital return. So as you know, we have 3 levels of dividend. One was the core dividend what's the capital return and one was the share buyback. And in terms of the share buyback, return about 4%. In terms of the capital return, we've committed to the $0.60 for 3 years. That's because it's part of the stock, it's fine. The flow, as long as we are stable on our income around $11 billion or so, we can still pay around 60-plus percent of that. So that should be -- it should be fine. I think depending on where rates land, but I think we can still afford to do -- to continue to keep the pace. The second question was on loan...

Loan growth.

Loan growth in the region. Okay. forward looking. Okay. So I think what we are seeing is we are seeing sort of muted growth in Hong Kong and China but better growth elsewhere. So Singapore is still -- for large corporates still strong. As I said, the government land sales program has been pretty active. There's still quite a lot of deals to be done there. There are still TMT data center deals in the pipeline, all quite pretty chunky and pretty solid with the hyperscaler offtakers, et cetera. So that's pretty strong. The renewables, especially in the renewable infrastructure as well is strong, cables and connectivity. Infrastructure spend is strong. As you know, we brought a PF project finance. We built a very solid project finance team several years back. So they have been leading a lot of the more complicated deals where we structure, we originate, we set up PPPs and offtakers, and we have ECA coverage around that. So -- and a lot of these deals down in the region. And so that's, again, it's a long-term pipeline, but it's something that we've built over the long term. So in short, we should see continued sort of slow and steady nontrade growth in the IPG business from real estate, renewables and upstream metals and mining, et cetera. And that should mitigate some of the downdraft in Hong Kong and China. So then the third question was around digital assets. And I think if you look in our annual report, you will see that we make, we said we made $13 million in digital assets last year. This year, we're running at more than 3x that. So it depends on where the regulations goal in the region and how many players come in. But I'm optimistic that we have and had a head start. My team are all over this. They're talking to all the major players. We're all over the new regulations. And our strategy is to be the infrastructure player, but also an exchange. So as you heard me say, we want to originate issue less trade, custodize do the payments and settlements by the ecosystem, managed to collateral, manage the reserves, and it's a holistic coverage. It's not just, "Oh, I want to do one thing. It's not just I want to do stablecoins. So I want to do trading or I want to do a listing." It's really the whole suite. And so far, very profitable actually. It's a good business.

Can I just follow up on my first question. Any update from the MAS on the listing of your penalty in terms of what was asked of you and what has been delivered?

You mean the upper chart, the multiplier that applied on the OpRisk charge. So they are not communicated so far on when that will be lifted.

And that is 70 basis points of [indiscernible]?

It's about 0.4% of CET1. Next question from Jayden from Macquarie.

I was just wondering if you could sort of talk us through the drivers. Is that more point in time because of some hedging? Or has something sort of structurally changed?

Could you repeat the question from the start?

Okay. Yes, I just wanted to understand better the non-SGD rate sensitivity. I think during the media briefing, Su Shan mentioned that the sensitivity of fall in U.S. dollar rates would actually be positive. I just wanted to understand, is that because of some point in time hedging or has something changed? What would be the drivers of that? Because that seems to be a bit of a difference with the past.

So the -- Su Shan?

Yes. Okay. Well, it is, there is, it's a snapshot of our balance sheet at that point in time. But we are net -- we have a net total liability of about 40-odd billion in other currencies, primarily U.S. dollars, that is floating. So for us, as long as rates go down, which it hasn't, in the U.S. dollar space, that will give us some savings.

It's largely in the T&M book. So the T&M book is based on that on a short-term basis. And that's the bulk of the $40 billion that we are talking about.

And obviously, we hope to continue to grow that liability. It's been a war cry for us to keep growing our deposits and whether it's Sing or U.S. dollars, that's a big focus for the team. So then it depends on how much we grow that book by.

Okay. Just to understand the $40 billion liability that's floating, how fast could that sort of swing back to an asset. And then another question I had just on the Singapore dollars rates. I think you mentioned that it makes sense to look at them in separate buckets, right, given the whole flow-through has broken down. But what's your assumption on SORA between now and year-end when you think about the guidance to us?

Do you want to take U.S. dollar.

Okay. Jyaden, this is Phil Fernandez, I'm the Corporate Treasurer. So to pick up on your questions, let me take the U.S. dollar one first. That particular sensitivity essentially as 2 parts. One is as Sok Hui, within the markets business we have a sensitivity. We've also put on some central hedges. So those have a duration of about 3 years average, although there is a distribution around that. So I would say it's pretty much -- structurally, if you're looking out over a 3-year horizon. So that's point number one. And your second question was?

SORA.

SORA. Okay. Well, SORA has really gone down a little bit. The U.S. has not moved, and Sing rates, Singaporean dollar rates have gone on a lot. We're looking at rates staying at around the current levels, around the 1.7 handle or so given that a lot of the softness in the rates has really sort of precut the Fed, if I could put it that way. So those are assumptions behind the NII guidance that Su Shan said earlier.

But as I said, Jayden, the SORA is very, very volatile because a lot of it is driven by the FX. And increasingly, also, I think we talked to clients who borrow in Sing dollar. And I think more and more, I think people want to lock in and wait because they can't deal with the volatility now. So like in the mortgage for people, more of our new clients will say, I think I'll just do a 2-year fix, for example. And I think I won't be surprised in SME, we start to see that trend as well. But they're already doing it through IRSs, right? So because SORA is a lagging indicator of what banks post the night before, and it really is hugely volatile. So it's very hard to predict, to be honest. So I would say then have a view on the exchange rate better -- I think better we do that and have a view on the forward it. And then that could be more instructive from where you think SORA can be on average.

Yes. I was just thinking that if the single at continued to strengthen, that may put some more downward pressure on it. But thanks a lot for talking through the assumptions and the sensitivity.

We're seeing strength and it trends too quickly and you want to monitor your authority, you might do, it depends on what the MAS does, right? Do they drain? Do they sterilize, whatever? So, so do they change policy, but it also depends on our trade numbers and how we are in terms of our competitiveness versus our peers in the region. So you're right. I mean, if the region currencies go up as a block and our SG&A is affected, then there will -- you will see some corrective action. But generally, it's a double-edged sword, right? You're right. If the Sing dollar strengthens, then yes, Sing rates will be affected adversely. But if the Sing strengthens, you will also see more flows into Sing, and we are the biggest bank here. So we tend to get more than our fair share of the outsized flow into Sing, which we can then deploy especially it's cheap. So it's -- as I said in my call earlier, I said you have -- whatever happens to the Sing rates, you just have to mitigate. You can't be a sitting dock, right. And then when it's volatile and the team -- Andrew and the team, they would just not whatever they can from the volatility and try and protect our balance sheet to build that fortress balance sheet. But as the business, we look at low rates, and we go, okay, go on and grab market share, right? Great market share on deposits, great market share in wealth, whatever it is, great market share in dollars, great market share on AUM. And mitigate those FX or rate volatility with volume. Does that make sense?

Okay. Great.

Next question from Nick Lord from Morgan Stanley.

A couple of questions from me. First is just on the assets under management and wealth management business. Can you give us any disclosure on net new money in the quarter? And just any sort of commentary you have about sort of investor appetite. Some of your competitors are saying that Q3 remain very strong. So just any comments on that. And then just on going back on to your comment on the interest rate sensitivity. Just in terms of the hedge, are you -- have you've been able to put on more this quarter? Or are we seeing that run down, obviously, as we see hedges roll off? And I guess because we've had an inverted yield curve, you may not have the same opportunity to lock in, in the last 6 months or so.

Okay. So on net new money, as I think we said the figures just now, right? The net new money for PB TPC was up $9 billion, which was outside on these $5 billion to $6 billion. So we had a very good treasures was up about 2 or so total was up about -- for wealth well was up about $11 billion to $12 billion or treasures about $3 billion So total for wet was up about $12 billion. And I also said that Sok Hui and his team, we're really focusing across the world continuum. So it's the high end, but it's also the mid-end, it's also the low end, right? Because there is a structural growth and wealth needs in Asia. And I think the DBS brand has saved solid, reliable and digital bank speaks well to our branding. And so there's just structural organic growth. Then we'll continue to grow that. And what was the other question?

The question [indiscernible]

Hedge. Whether need to the hedge.

Or the roll-off of the hedges.

Yes. Yes. So in the first half, we were able to replace about $29 billion of maturities, a 60 to 70 basis point lift. There will be about the same magnitude of maturities coming in for second half. So I think we can roll over and broadly the kind of similar kind of yields. And so we have a duration and book is about 2 to 3 years. So that's -- it will sustain us for the while that we hope rates are kept normal.

Okay. Perfect. Can I just ask one more question actually just on Evecrypto, the digital asset side? And obviously, we're reading lots of stuff about this at the moment. And one of the comments that keeps on coming up is that it can be used as a cheap way to make payments and especially international payments. And I just wondered if you agreed to that because obviously, the sort of a lot of those comments is crypto companies. So as a bank, will you agree that? Or do you think that the existing way you make international payments is cheaper?

Okay. So I will start, and then Sun Chang, our Head of [indiscernible] can chime in. So at least for Asia, our real-time payment rails actually work, right? So like in Singapore fast work. Hong Kong faster works. India, UPI works in China, we all know how good the day-to-day 24/7 payments, local domestic rails are actually working quite well. Then you have the cross-border payments, which we have a product called Globe Send, which maybe we haven't marketed to the analysts and up, but we will. And that's our answer to why [indiscernible], which is, again, harnessing what domestic payment railcars cross-border using the current payment verticals, but because it's domestic 24/7, you can also affect that very efficiently through ledger transfers and you've seen that our cross-border and domestic rail. So is there a huge use case for tokenization or private chain to what there is? If you have a lot of people that you need to settle with 24/7 or a lot of merchants or a lot of payments and settlements, millions, if you will, yes. But if you just want to do the on transfer, then no, the current real work, right? I mean, Soon Chong, you want to chime in? I got GTS head here.

So Nick, thanks for the question. So I see that there are many ways of delivery international payments. And we have a lot of products and services, which is Su Shan mentioned about. For low-value cost for Globesend and a lot of other ways of the driving payments. They achieved available 24/7 cost [indiscernible] clients. In international payments, you're referring to correspondent banking and very stable cost like the replacement for that. I think that for most contracts, large value, trust, security, international payments today work. There certain context whereby the payment rate mechanisms don't fully use work and as they talk about whether stable product could be used for that. I think there are a lot of bits and parts. A lot of it will be regulations, the adoption, how the compliance is going to work, so on and so forth. We are closely monitoring the space to look at the contract whereby international payments can be [indiscernible], and we are we able to capture a good share of e-commerce [indiscernible].

But Nick, I think where it could serve a purpose, if you live in a country where you don't have a stable currency. So if you live in Latin America, Africa and you want to buy goods from JD or Alibaba and whatever, then having a stablecoin to pay for your supplies from Asia would be helpful, right? But you then need to on-ramp and off-ramp it. You need to send money to, with U.S. D.C. or whatever to Hong Kong dollar stablecoin, which then goes off ramp into RMB, right? So there is a use case there, which we want to work in as well. So there are opportunities kind of tying maybe more the market trade-related flows where they don't have a stable currency themselves. But I can't see governments kind of rushing to facilitate that because that flies in the face of monetary policy management. for these countries, right? So as Soon Chong said, we have to monitor the regulations. We're a regulated bank will play where we're allowed to play. But we see opportunities in the infrastructure and being a trusted partner for the big players, sanitized players, if you will. And we see also opportunity in the overlay stuff, right, whether we talked about the structured notes or OTC derivatives or custody or listing or whatever, there's on-prem, off-prem. We see a lot of opportunities in that. And that is very scalable. That business is very scalable. So that's something my team and I want to continue to grow in line with the regulations.

Thanks, Nick. Next question is from Harsh from JPMorgan, as, Yes.

Okay. Great. So a couple of questions. First is, I just wanted to understand the payout is slightly better. I understand volume over margins, but volumes comes with RWA growth. And right now, at least till 2027, we are paying out 75%, right, about $4 of EPS, around $3 of payout. So if we end up getting RWA growth, plus there's buyback on top of it, the question is how much are we comfortable with two things, the 60 becoming 66? Does it only go up the regular dividend in 4Q '25 or 4Q '26 also is a given now with such a big rate move? And then second, how do we think about the actual minimum CET1 that we would get to organically, let's say, over the next 2 years.

So he's asking about the dividend. So you're asking about the ability to step up the dividend in the fourth quarter, right?

Yes, 4Q this year -- so two questions, 4Q this year and next year because, if I remember correctly, last quarter, at least my read of your Sok Hui's comments was that $0.06 increase in December will happen and even FY '26 will happen? And then what is the CET1 if we end up getting faster RWA growth over, let's say, next 2 years?

Yes. The RWA growth we factored in would eat up about...

So Harsh, can I try to understand your question. So I think we, you're talking about the step-up, right? And I think we do some simulation, we are okay. We're stepping up $0.06 end of this year. I think based on some simulation, we should be comfortable stepping up $0.06 in 2026. But it's harder to call if we look further out because there are just too many moving parts, right? So we have to see how much of the RWA growth will be needed, and what kind of payout ratio it will imply from our organic growth and earnings.

Yes. But I think your question on RWA step up. I think Yes, that will happen as our loan growth goes up alongside deposit growth, but it's important to also realize that our deposit growth delta is much higher now. And a lot of that spare deposits being deployed into MAS bills and HQLA, which is not RWA. So it's actually ROE accretive and doesn't absorb RWA, so -- and it gives us more earnings, right? So that's the other prison to take. But yes, granted, I mean, if sing dollar rates collapsed and that is going to be a big headwind [indiscernible], that will also be a big headwind, right? So we'll have to see at that time in place. But I think to Sok Hui's point, so probably okay, simulated with flat earnings between now and then that we can probably pay that $0.06 step-up in the next -- this year and next year.

Right. So on a fully phased in at 15.1 and minimum where we would be comfortable with, let's say, 2 years out, is 14, less if it starts hitting early '14, so is it still okay to keep that payout going?

Yes, 14.3% is still above our management operating range guidance of between 12.5% to 13.5%.

Okay. Great. The second question is on the private banking flows. So two questions. One, are you seeing more flows in Singapore dollars versus, let's say, U.S. dollar? Has there been any shift with dollar weakening? And second, how much -- what proportion of your portfolio is now discretionary management? And how has that changed over, let's say, last 3 to 4 years?

So the inflows of deposits, right? Yes. So for Sing dollar, the year-to-date system grew by $47 million, and we kept our share of that. So we were up year-to-date, SGD 20 billion. Foreign currency year-to-date, we were, year-to-date system was plus $51 billion, and we grew by $8 billion.

Right. So you're getting a bigger share of Sing dollar, which should be. But are your clients shifting from USD to Sing D was the question effectively.

You're seeing on the margin some shift, certainly, but the thing itself for international investors is not, other than you buy the SGX, ETF or whatever. It's still not a natural liquid currency yet. But for some of the PB clients, yes, you are seeing a shift, a reduction in the U.S. dollar overweights you are.

Makes sense. And sorry, on the discretionary portfolio, what proportion of your AUM is there? And how is that changing?

Discretionary question portfolio.

Yes. So the PB side discretionary portfolio, we have seen quite a strong growth as well. So now we've crossed $11 billion already of our payment.

Okay. So still small. Okay. And...

Wait -- no but that's just our own manager. But if you take all the third-party funds and now there will be much.

Of course. Of course. Yes. So if you talk about discretionary as in our own, yes, then there's 11 with [indiscernible], that's actually been growing quite robust.

Right. Maybe I'll reach offline for that. And the one technical question, exit NIM, what is it?

For June or July?

Give me both.

Yes, I know you're going to say that. So it was $195 million on June 1. $198 million for June and $195 million for July.

All right. All right. And final question on digital assets. One of the biggest ones, do you have deposits on public blockchain or not yet? Or this is on private permission blockchain?

Private permission blockchain.

Okay. Has MAS regulation evolved where you can...

We did 8 years ago on the Polygon chain.

Yes, but that was experiment, right?

Yes, yes.

Yes. Yes. Okay. But have you gone commercial? Or are you looking to go commercial with a public blockchain tokenized deposits?

It depends on regulated has, it's hard to say, never say never. But as I said, I don't, a lot of regulators are still, still want to control the monetary policy, right? So, right now, a lot of the flows are still on permission blockchain, it's the bank to client closed loop system.

Now the reason I'm asking that is exactly that because Singapore is pro blockchain but not pro crypto. And the biggest institutional users of on off-ramp are the large crypto players, some of [indiscernible] crypto and all of that. And if the regulation is not there, then while you have one of the best-in-class capability, you are kind of limited to high net worth or very small group of players. So Hong Kong is moving ahead. U.S. has moved ahead. Is there a risk that Singapore kind of gets left out? Or is there some kind of way to be relevant in the DLT world without exposing retail guys to crypto? And what are your conversations with MASS because SIM Singapore seems to be kind of getting behind on that?

Yes. It's a very timely and very good question, and we've been engaging them constantly and daily. And certainly, when Hong Kong may came up with that ordinance that I suspect that may have also put some pressure on us. But we play in both markets, right? We're both in Singapore and Hong Kong. We're also actively looking at ADGM. So -- and then other than high net worth, we also provide services to the crypto natives and the market makers and the institutional players. So I think MAS is okay, we do B2B, it's just not okay if we do B2C. Or to be specific, they're not okay if we do B2C retails, they're okay if we do better investors.

Yes, B2C.

Yes. So, and the irony is, yes, I mean, the B2B is also B2B2C ultimately. But as long as we're not in that B2C chain, I think they're okay. So the B2B flows are growing actually. They are growing, and I see opportunities for us to continue to grow that. whether Singapore or Hong Kong or potentially Abu Dhabi. It's all -- Harsh, it's moving very quickly now. But as I said, we've developed or developing the muscle to play in the whole chain, and we've got to figure out what's the low hanging fruit that we can build on. We've built already, as you know, we've done, because we've done so well this year, I said the team pay guys, let's not raise our head start, let's continue to build on what we'll be good at, right? And I don't want to do this too quickly and therefore file a loan and not do this correctly. So I'd rather do this slowly but surely and be that trusted banking partner because you're going to see the volatility and you're going to see some, I think, some bad players emerge again. And we want to make sure we don't fall into that trap. But I do think there will be rising demand for a good player to play in the infrastructure, and I want that good player to be us. So we have the ambition, and we have the ability, and we just have to continue to execute.

Harsh, can I just add one thing? You asked about exit NIM in June and July. I will say that, frankly, you should expect actually some slight decline, the marginal decline partly because we are bringing in so much deposits, and the deposits that we are bringing in actually gives us additional net interest income. We deployed them at a margin of more than 1%. And, and actually, it's quite a good business. So the key here is that we are focused on NII growth. But whatever we bring in can be decretive to NIM and be decretive in some sense, which doesn't worry us what I mean. So we are focused on bringing more deposits. The deposits come, % they don't earn 2%. The margin that we have, say, in the second quarter, but it's something that we are focused on doing.

Thanks, Sok Hui. next question is from Melissa from Goldman.

Just on this AUM and deposit growth that you're having, just a little bit, I want to just understand a bit like the numbers are pretty high as you mentioned versus your peers. Just wanted to, is it more market share gains? Is it just that the amount coming into Singapore's very much and that's why we're seeing the SORA as well? Or is it some of it, a large part of it is coming from the Taiwan business that you're doing very well? Can we get just a bit of color of this high growth?

Melissa, it's not just Singapore, it's Hong Kong, it's China. It's actually across the board. Chinese stores into Hong Kong have been remarkably strong. And our team in Hong Kong has done a really good job both in the priority and private bank to get more than their fair share. And Singapore continues to be -- to grow, but the flows are also very international and mix. Then we also have the flow back from people who don't want to buy SGS or treasury bills, right? And that requires a lot of work, but we do a healthy of a lot of AI, machine learning and modeling to make sure that when every one of these bills mature with them to not them to bring the money back to us, right? So that's all the work that we need to do to keep our deposit share growing. And is it structural? I do think it's structural. I do think families are realizing that they need to plan, they need to structure. They need to do more. And so our team has just focused on making sure you're in the estate planning. So your first conversation has to be, have you thought about the future? Have you planned? And once your structure -- so you go in, you do the the well planning to do the insurance for the children, their grandchildren, you do a trust structure if you need to. For the lower end, you don't need to. Then once you're in and you can finance the ULI or whatever, you're in, it's very, very sticky. Then after that, the wealth fees will start to come in. And I was looking because Harsh also asked a question. Sok Hui might have the answers on the AUM, but I was looking at how much more we're making up on discretionary, which is third-party funds and in-house discretionary. The first half of last year, we made $200 million this year, this first half, we're making $230 million of that. So I think it's growing by some 15% or so year-on-year, and the percentage of recurring income is about 15% as well. So -- but bancassurance is growing even more. Our bancassurance is growing by very high double-digit growth. And that's also very long term and sticky. So it's all down to the strategy and execution. If you can bring in the new clients, first, it comes in as net new money, then you structure it into estate planning, trust and insurance, then you layer in the funds, third-party funds, in-house funds, you overlay with FX, interest rates and structures and equities or bots, whatever they want to do, then you have a solid wealth offering. And the key is to keep the continuum, we don't just focus on the top end in focus at the retail's focus before they get rich then as they get which they do more with you. And they don't have to change able to change the U.S. is all in the same world app, right? So that's key.

Right, right. Just in terms of the, so what do you say like more than half of the new AUM business quarter came from Hong Kong. And also between Hong Kong and Singapore, in terms of the AUM deploy, is Hong Kong more like than put it into the deployment in terms of the mix versus in Singapore, would you say they're roughly equal?

Actually, our AUM growth, I would say, has been very broad-based. So we have got 2 booking centers in Singapore and Hong Kong. Hong Kong is primarily really booking for North Asia, which includes the customers from Hong Kong, Taiwan, China, right? A lot of these clients, because of their own business interest, et cetera, et cetera, have also a whole bunch of offshore well that's been created. And so that's kind of where we get a lot of the net new money as well as the investments that AUM growth from. Singapore is definitely bigger because Singapore is a center not just for North Asia, but also for Southeast Asia for Middle East, North Africa, South Asia as well as for Europe, right? So because of that, Singapore is bigger.

Yes. Melissa, I think to just follow on what Tse Koon said, the world is getting very fragmented, advocated and people are looking for backup plans or insurance policies, right? So the U.K. after the [indiscernible] loss came out, there was -- and so there's a fund. Some of it went to Dubai, some came to Singapore. Similarly, if the Swiss inheritance tax loss are passed, then you might see an [indiscernible] as well from Switzerland. So there's a lot of money moving around financial centers right now. And I do think that structurally, Singapore can play to win. And structurally, DBS can play to win but we need to continue to invest. And that's what the team is doing. Tse Koon and the team are continuing to invest in getting good people to bring in these new growth paths. But I think the way we're doing it, start with domestic, start with the wealth continuum and then build strong wealth centers in all our core markets. So China, we have a strong wealth center Hong Kong. We have 1 big well center building another 1 and the number of walking customers from China is just amazing. So I think having that Singapore, of course, our headquarters also strong and then looking at other growth corridors as well. That's the plan.

I think what -- if I may just add in what you're asking as well, it's not just about net new money, but AUM growth. Of course, certainly, this -- in this kind of first half of the year, we did see a rebound of the market in Hong Kong, right? So a lot of the Chinese stocks in Hong Kong, we've seen a rebound. And on the back of that, indeed, we have seen customers actually deploy a fair amount of there. So the good thing is that today, we are we're seeing both a resilient kind of play between that market as well as the U.S. market. So we -- because of the rebound, yes, indeed, we have seen an AUM growth on that front. But the AUM group is not necessarily just booked in Hong Kong because likewise, we would have clients who are booked in Singapore with AUM holdings on those Hong Kong-based securities, right?

I think next question on asset quality. It has been a very good run so far on asset quality despite what's happening in the world. I just wanted to get a sense from you, is there any way that we should be smart on what we should be aware of? Or do you think we are on a good path for the next 1.5 years?

Melissa, I don't want to be complacent. So we continue to stress test like mad. Anything coming new, not new, we just stress test it. We've been very, very conservative, Maybe too much so. So especially in China and Hong Kong been very conservative from real estate there. Very conservative in Hong Kong, very consultative in SME, very conservative in consumer and secured loan. So we've been very conservative. A lot of our asset growth is really in a large corporate in MNC, in technology, software companies, data centric, renewables. So big, big, big players, SOEs, et cetera. So I think it -- we found a way to be more predictive and preemptive in our credit assessment. So building models that have sort of line of sight and predictive cash flow or very cash flow based as a bank -- well, less asset based. I mean a lot of our LTVs might be already quite low, say, less than 60% of its property, but well, very cash flow based, right? So my first return is always going to be the operating cash of the business. It's not going to be having to sell your asset any back. And that's been the rigor discipline that we've put in for the last 5 years, and that seems to be working out especially through COVID and through all these tariff issues. But I also have to make sure that we're not too overly conservative, right? So the SME guys are working on tight algorithms around program lending, et cetera, which we're going to see so far. For example, in India, when we did some of these program, lending has worked really well. Because India with SME, we have the operating account. We see who they pay, we see how they receive payments. And so we are very on the ball on what the cash flows are for SME. So that's good. And as I said, with the large corporates, I'm comfortable that we've deepened our relationships with the key big players in the region. So these are all large corporates, and they have multiple free cash flows. So I hope we are not being too conservative is it the honest feedback. But I'm comfortable with the stress test this I don't think I don't think we've missed anything. And if we did, our GP reserve of $2.6 billion should be more than sufficient -- the overlay the GP overlay should be more than sufficient. If we miss anything, touch wood, but I don't think we have. It's my honest answer.

Good. That's good to hear. Then just lastly, just very quickly on the hedges. You said that it's a 3-year duration. So when these kicks in, as you say, you get an advantage. So let's say we go into next year, there's still expectations of a few more rate cuts. But cost that, then when the hedges do roll off. It doesn't mean that, for next year, we won't see anything. And then the year after, then you'll start seeing some of the NIM pressures come back in as the hedges roll off. Is that correct way of thinking?

So Melissa, this is Phil again. So the hedges are quite spread out, right? So we have them over a range of tenants. When we close at 3 years, that's the average tenor of the U.S. dollar hedges, right? So you should think about it as a certain amount rolling over each year and the rate at which we replenish depends on a few things because what you quoted was actually the short rate, the policy rate. But remember, there's also a term structure in, say, the government curve. So if that term structure reasserts, then you can still get a pickup on redeployment. So it all really depends on what the term structure looks like in 2026, 2027. And everyone on the street will have their own view on what the shape of the curve is going to be. So I hope that gives you some color as to how we do our hedging.

Right. Just to call out, you have U.S. hedges, your dollar hedges. Do you have same balances in Hong Kong dollar wages or mainly just U.S. dollar hedges?

U.S. dollar and Sing dollar hedges.

Thanks, Melissa. We only have time for the last question from Akash.

This is Akash from UBS. I'll keep it quick. I just have three questions. So the first one is the guidance on the NIM net coating assets was very clear, SGD 90 billion floating assets and how the maths work around it. But based on your simulations, as again, as the hedges roll off, what is this $90 billion going to look like, let's say, June, end of next year or December end of next year? How does that number change is my first question.

I would say, Akash that our corporate treasury division is actually very nimble. I think we take a view of rates and then we sort of are flexible with whether we want to do more fixed or more floating. So not really anchored on in [indiscernible] and therefore, fixed. So I think as a read on the external environment. And what we have proven is that we actually do make good calls and we are sharing with you the sensitivity so that you can do your own simulation at this point in time.

We know exactly how much matures when, and sometimes these hedges were done earlier when rates were actually lower. So when we rehedge them, actually, you have a yield pickup, some were not. So it's -- there is a different time and different rates. So it's quite not for me for us to answer it in definitively, to be honest. But I would say based on our experience so far and based on our ability to be nimble and ability to kind of catch market sensitivity, I think we've been okay.

Got it. I think the reason I'm asking this question is because my understanding was that hedges only delays the NIM transmission. They don't structurally change the NIM transmission that you're going to see in at this point, obviously, DBS is seeing less NIM compression versus peers because of the hedges. But at some point, this will change, right? Is that not the right way to think about it?

Maybe if I can step in our Akash. This is Phil, right? So remember that when you think about NIM, that is really a function of the installed base. And as we deploy surplus deposits, and a big chunk of that is going into HQLA. As Sok Hui mentioned earlier, we're getting margins about 1% on those deposits. So it's going to blend down the NIM. And that's why NIM doesn't pay dividends, right, and I pay dividends. So we have focused very much on NII growth. And the NIM may come up, but the ROE will high because you're taking deposits, making a margin of 1-odd-percent in terms of deployment. And the risk weights on that, and this goes back a little bit to the earlier question on CET1. You will not see such a downdraft on RWA because that's what Su Shan putting it into itchy. So I hope that gives you some color on and how we think about it.

Understood. The second one is just on Hong Kong CRE. So as you might have seen some of the Hong Kong banks started booking more provisions for the CRE exposures. Just wanted to check like how has your thinking evolved on it, if you could specifically comment on a new world, which you have talked about in the past? And if you could talk about the provision coverage that you have on the Hong Kong CRE book -- commercial CRE.

So the Hong Kong CRE book is about 12 -- sorry, $17 billion exposure, $12 billion in mixed use, $3 billion in office and $2 billion in retail and it's mostly in the large names, large top-tier blue-chip names, and the LTV is less than 60%. A lot of what we've seen in terms of the pain has come from the mid-cap and SME sector. And as you know, we had some provisions for that in the last year or so. But we managed to -- actually, all those that we had -- that we had NPAs, we managed to sell and we managed to recover. So there is liquidity in the market is just that the prices have to be realistic. Having said that, though, I think, when I look at the names of our current exposure, I'm quite comfortable all these guys, got strong cash flows. They're all conglomerates, big names and blue chips, and they're all hunkering down, but I think they're going to be all right.

Does that also mean that you don't have actually made any provisions for this book, the blue-chip names at this point?

So you're not coming across very clearly. You're asking whether the real estate sectors in China and Hong Kong, we set aside sort of additional general provisions.

Yes. Do you have provisions.

So in term of the overlay that we set aside as well.

Okay. Understood. And then just the last question is on the sudden pickup in the net new money that you saw in trying to understand where -- what caused this shift from $4 billion, $5 billion, $6 billion to $9 billion, and I think what you're suggesting is this can actually sustain at this close because there are structural drivers behind that?

Sorry, say that net new money?

The $9 billion net new money. That was $9 billion this quarter as opposed to $5 million to $6 million, we normally get that, is it sustainable? Or was it like spike, a one-off something.

So I do think that it should be sustainable. I look at it more from an annual basis, right, rather than a quarterly basis, to be fair because there are times when the movement of funds will be affected by various kinds of activities from the underlying clients because sometimes they have a monetization event in the in their businesses, et cetera. So if I look at it on an annual basis, I think the kind of numbers we have seen on an annual basis should be something that's sustainable.

Yes. So as a reminder, Akash, we've done above $20 billion on an annual basis for the last few years. There can be volatility quarter-to-quarter, Tse Koon's referencing the annual run rate?

Correct. So yes. So we are looking like $20 billion-ish kind of number annually. I think that is something sustainable.

Okay. That's about all the time we have. Thanks, everyone, for dialing in. We'll see you next quarter.