DBS Group Holdings Ltd (D05) Earnings Call Transcript & Summary

Hi. Good morning, everyone. Welcome to our first quarter analyst briefing with our CEO, Piyush and our CFO, Sok Hui. We can go straight to the Q&A. So operator, can we please have the first question. Operator?

Yes. First question is from Aakash from UBS.

So I have 4 questions. The first one is the recent acquisitions and the future expansion plans that you've talked about, I think they're all great strategic goals. But alongside these, should investors also be expecting some sort of fine-tuning on your payout policy? And you might see a need for preserving a bit more capital than before? Or do you think you can continue with the more aggressive dividend policy that you've had, especially that compared to the peers?

Are you going to ask all 4 questions together?

Maybe we can go one by one, if that's okay.

Okay. Yes. So I think -- we think we have adequate capital. We were about 14.2% at this point in time. And that's after both Lakshmi Vilas and the Shenzhen Rural Bank. To the question earlier in the media would we look at Citi and I said, yes, we look at them. But even if we wound up being a little bit of Citi, we still have enough capital. And so at this point in time, we do think we have the capacity to go back to our pre-COVID dividend level, notwithstanding the M&A that we've done.

Okay. The second question I have is on the digital exchange. So are you already seeing any income from that? And if yes, then where is this showing up on the income statement? And on a related note, like what sort of contribution do you see from this business this year and maybe in the steady state? .

So Aakash, so far, the income you see from that will be in decimals of a point. So it doesn't matter where in the income statement it won't show up. Because like I said, we've been -- unlike the big exchanges which are sort of going for the mass market, because we're trying to position ourselves differently. And the way we compete with the Binance and Quidax, et cetera, is you want people to figure out that we are regulated in parts of the business at least that we are -- come from a bank. And so we have a much higher threshold and standard for everything. Our custody is bank standard custody capability, is not exchange standard custody capability and so on. And therefore, we've been quite deliberate in opening up that business. And so far, like I said, we've only got 120 clients. I know first that we have hundreds of more, probably thousands of clients who are waiting in the queue, but we're being slightly thoughtful about how we bring them on board, similarly on the asset side. Also, we started off just keeping it open in the Asia trading hours. And obviously, the serious trades want 24/7 access to trading. So it's going to be a steady process for us between now and the end of the year. I think you'll start seeing material contribution to income, which I can point to only from 2022. I won't hold my breath on looking for income in 2021.

Got it. And any sense of what like that material contribution might be like some rough range around 10%, 15%?

No, no. So we made $16 billion, so every $1.5 billion, 10%. I don't know whether we get there. See the thinking I have on many of these, what I call, infrastructure existing activities, is the markets are changing and customers are doing more and more. And we need to figure how we get into the game and start monetizing. But I really don't have really good line of sight for how big any of these could get. I do think, given the amount of interest in all the 4 sectors that we trade now, that interest is quite high. And therefore, I do think it will pick up. But whether it picks up to tens of millions or hundreds of millions of income over the next few years, it's hard to say. So my thinking is we should get in there, figure it out and grow and then we'll get a better sense for how big this could be in time. So that is -- same is true for our other parts of the business, not just the trading. On the digital custody, we are getting a lot of approaches now from other exchanges who want to use us for the digital custody capability because it's obviously superior. And we obviously clip a coupon. We charge a little bit for people who want to use the custody capability. The journey is still a little clunky when we provide the service to other exchanges. So we're trying to streamline that and make that more straight through and the thing. So we've also been careful about how we bring that on. I don't want to create our operations like mad. And finally, on the securities token, like I said, we will try and do at least one, maybe a couple smaller tickets in the second quarter just to make sure that it works. We know how to do it. We can get it out, tie it to fixed income, equity, maybe some property. But all of this is frankly, as much learning and seasoning for us as well before we can really scale it up.

Got it. Third question I had is on the Credit Suisse RWA, which went up by $7 billion quarter-on-quarter. And of course, it was offset by the market risk reduction. What drove these 2 things? Like if you're thinking that asset quality is actually looking better, why did the creditors start -- actually go up so much? I mean then...

So the loans went up by $12 billion.

So it's primarily driven by asset growth?

Because we grew loans at $12 billion, $12 billion in loans are [indiscernible] Typically, our credit density is around 50%. So if you grow loan at $12 billion, you expect RWA to grow at $6 billion, and then there'll be some noise in the numbers beyond that.

Understood. And on the market risk side, what was it that actually drove the RWA down to $6 billion?

We made an improvement in our market model. I'm going to let Sok Hui explain it.

So previously, we were basically using what we call a majority method, and we have now moved to a duration method, which is more efficient. The duration method allows you to use the cash flow-based sensitivity, which is PDO1, in slotting the bucket as opposed to taking sort of the entire NPV stopping it. So this refined line model required the MAS approval, so we have been in discussions for a year, it's been approved. And that's why we're using the more refined method. It is more consistent with the way we manage the risk in the dealing room.

Understood. And for the rest of the year, do you see any RWA growth because of the credit migration, not because of asset growth?

Actually, I said, we're actually seeing the reverse. The portfolio quality is improving and not deteriorating. In the first quarter, I saw more upgrades than downgrades frankly, overall. And so no, I mean, as the moratorium ends, you might see something. And -- but again, the Singapore moratoriums are -- the chunk of them are behind us. The Hong Kong moratorium won't end until 2022. So you could see some, but on the whole, I don't think it's going to be material.

So Aakash, one easy way for you to look at that is actually look at Pillar 3. Pillar 3 actually have that breakdown. So if you look at A6 of the Pillar 3, basically, you'll see the RWA was $204 million, it went up to $211 million. And the breakdown is given for you. Asset size basically increased by $7.4 billion. Asset quality improved, so you've got a reduction of $1.8 billion and foreign exchange movements contributed another $1.6 billion. So you can actually see the breakdown quite readily in that schedule.

Got it. And the last question is just on the loan growth.

The asset price and foreign exchange movements were the big contributors, but offset by improvement in credit quality, which we just went through the same reasons for why ECL came down.

Understood. The last question is on the loan growth. I mean this $12 billion increase is quite big Q-on-Q. Could you share some break-up? You did say it was broad-based, but could you give some color on what sectors in the corporate side drove that?

Yes. Actually, out of the $12 billion, about $3 billion was actually reverse repo transactions, which was liquidity for financial instrument counterparties. And in -- but if you park that aside, the balance, we had about $4 billion of corporate loan growth, which was broad. We've got TMT, we had real estate, we had transportation, we had a ticket that is very, very broad based. So I tried to figure any concentration, which was just broad manufacturing, trading, et cetera. We had about $2 billion in trade and trade was mostly commodity trade but some manufacturing trade as well. So that was generally up. We got a billion growth in the housing portfolio that I've spoken about before. We got close to a couple of billion growth supporting the wealth management and activities around that. So it is quite dispersed.

[Operator Instructions] Next, we have Nicholas Teh from Credit Suisse.

Yes. Just a couple of questions from me. Just wanted to ask on the GP side. I guess if I look at pre-pandemic levels in 2019, it was around -- the GP was about 0.7% of your total loans. I guess as we go forward, If we're thinking about where your GP and output settle, are you looking at settling at that kind of level, I guess, towards the end of 2022? Or do you think it could be lower or higher than that? And the other question I had was just on dividends. I think previously, you mentioned that you would go up to your $0.33 in kind of 2 steps. With the improved outlook, are you looking at sort of just moving it up in one step?

So on the GP, I'm going to let Sok Hui handle that, but there's an MAS expectation on GP, which is 1% of what is the qualified portfolio, including some secured assets and maybe Sok Hui can elaborate a little bit more on that. That's the benchmark that we like it to you. Sok Hui?

Yes. So no, it's 1% on this qualifying base and this base excludes -- so effectively, because housing loans are all fully secured. So basically, it's one channel that gets removed. So overall, that's why you noticed maybe it's just about 0.7% of the total loan. So the full stack of $4.1 billion like we mentioned earlier is 2 parts, right? It is the model reserve plus the -- what we feel the models may not adequately take care of in the pandemic situation, and we have a management overlay. So in total, $4.1 billion, how it moves, we don't fix the percentage around it. We will say that bases like in this quarter where they had upgrades, the newest names get paid off on the maturity, get short term, you get the -- or the flow rates improve. You get the natural write-backs. And then the call on the management overlay will be a view that we have to assess. Taking into account on the retail side, I think we say that we look at unemployment rates, et cetera, in each location, and there could be opportunity to free up some GP if the conditions driving those models for management overlay are conducive. SMEs will look at moratorium tapering off. And for the larger corporates, I think we'll have to assess the sort of global situation. But any point in time, we'll be sort of quite vigilant. We'll always have a weight on distressed environment. It's only a question of how much weight we place on the stress. That's how we've always managed our GP on a prudent basis.

Your other question on dividends. So actually, as I said last time, and frankly, it's not entirely in our hands. It depends on what the MAS wants to do. If the MAS decides to remove all restrictions on dividend payment, then yes, I think there's every likelihood that we will go back to the pre-COVID levels right away. But if the MAS put in restrictions and only allow us to move back in a graduated way a couple of steps then obviously, we're going to have to follow what the guidelines are. Insofar, we've not had any direction or indications from MAS about what they're planning to do.

Next question we have is Nicholas from Morgan Stanley.

A couple of questions from me, actually. But first, just in terms of wealth management volumes have been obviously pretty strong in Q1. I just wonder if you could give us any commentary as to what activity levels are like sort of as we go into April? My second question would just be on the loan growth. I mean you've given us a good description of where it's come from. I guess if we were to annualize Q1, we would end up well ahead of sort of double or high-single digits. So I just wonder if you could talk about where you think the slowdown comes or what happens in Q2 that restrains you from to mid- to high-single digits. And then finally, one of your global competitors yesterday in their reporting season spoke about as you have cutting sort of commercial office space, but also said they were looking to have their branch network. So I just wonder the sort of increased use of digitization and the impacts of what we've learned from COVID would lead you to lower branch footprint at some stage?

So on the Wealth Management, it has been a tad bit slower than March, but it's sort of in line with previous things. So overall environment is still good. And activity is positive. It's just that the first quarter, Jan and March were very strong. So it's not at the same level. But it's quite solid so far. I think a lot depends on what happens to the market, if the markets don't tag. I think the markets have been a little iffy for the last couple of weeks. So people aren't sure whether they're going up or down. If the markets hold up or if you actually see a run-up, then that activity will come back. On loan growth, I said, one is the repo loans in the first quarter, at least a part on the side because those tend to be opportunistic. I don't count that into our normal business as I forecast the business. So I really look at $9-odd billion of growth in the first quarter as opposed to $12 billion as I'm thinking about the outlook. Within that, the corporate lending pipeline and the trade pipeline is actually quite robust. So at least as far as I can see, second quarter is safe on those 2 fronts. The Wealth Management related loans, which are material, those again are a function of our first question. If Wealth Management is not as strong, then that loan book won't grow that strong. So that could be softer. On mortgages, I think you'll see a stronger mortgage growth in the first half of the year than the second half of the year. I think a large part of this is the front-ending of people doing the retail and et cetera. So I do think you see some slowdown, potentially slow down in mortgages in the second half of the year. And therefore, back to our repo, we did about 2% in the first quarter. If we annualize that, we'll be looking at 8%-ish and I think you might not hit, but you can get high single digit, somewhere there. Your third question is on the branch footprint. We already have said that before, that one of the things that we've been doing is rationalizing our branches, not through reduction of footprint as a number of branches per se, but in transforming the nature of our branches. And so all our branches are not the old-fashioned put lots of people, full service branches. We now have digital branches. We have what we call NAV hubs which are sort of in between branches. So that is already allowing us the opportunity to trim the branch footprint in terms of square feet without necessarily reducing the absolute number of branches per se. The actual presence for us in various parts of the city and having a shingle out there is actually quite important. But yes, we will see some benefits from the commercial real estate in the branch network as well. We're also seeing that outside Singapore, and we probably do some rationalization of the LVB footprint in time. We're seeing something in Taiwan. So we're getting some benefit. When I said we'd probably say 20-odd percent saving in commercial space, it's not just the headquarter space. There is some impact to the branches in that as well.

We have Melissa Kuang from Goldman Sachs next.

I have a few questions. Just firstly, in terms of the AUM, just wanted to understand, are you seeing also quite strong AUM flow coming into Singapore and into DBS? That's what's also driving your fee income? And if you have some color on the regions, which is coming in would be helpful. . Secondly, perhaps in terms of your digital side in Digibank, you mentioned that In terms of the current players in the market on those digital guys coming in, there's not much action and there's nothing yet. But those sites also have been bit strong in the pay-later side. So do you think that is something that DBS would launch ahead of these virtual banks coming on board in Singapore? That's my second question. And then thirdly, maybe a really odd question to ask here, but I just wanted to understand, if you know -- like when banks buy assets outside of the banking system, they get actually penalized in terms of capital reduction. So I was just thinking in terms of the virtual bank, they are part of a consumer company or so on. So do they have the same kind of penalization in terms of their capital that will hinder them? And if it's not the case, then would at some point, DBS consider looking at maybe something in the consumer space as well to kind of enhance your ecosystem?

So the first one on AUM. Our AUMs are growing but it's not dramatically different from mostly. I think our net new money was about $1.5 billion for the quarter of our total AUM growth. And that's fairly steady, and it comes from all over the place, including some from North Asia. If the intent of the question, are we seeing a big pickup of money flows coming in from Hong Kong or China or this thing, not really. We're seeing very steady flows from all our usual sources of inflow of money. On the Digibank, the pay-later scheme, first of all, I'm not sure how much opportunity there is in the pay-later schemes in Singapore because I said before, by and large, the Singapore SMEs are fairly well banked, all of the surveys and our own survey suggest that most people have adequate access to financing. Especially, last year with the pandemic, all the government support program, for example, we gave out 20,000 small merchants loans which they didn't have before. So there is some benefit, but it's not huge. The flip side of the pay later, I think it has the possibility of creating social issues. Because when you go through the regulated banking space, the central banks have a fairly tight eye on how much net credit is being created. Is there over extension of credit, what is their total credit. The pay-later space allows people to actually supplement some of those controls. And in fact, many regulators are not comfortable with that. So I do think that there will be some sharper oversight of the pay-later space. So in short, I think the opportunity is there, but not huge. In any case, I think there will be regulatory oversight over it. Your last question on capital and capital reduction. It's actually -- we also -- there is a limit with MAS, let's say go and buy anything we want. MAS has changed the regulation some years ago. So we can go outside of our traditional business and participate in other activities up to some reasonable limit. 10% of our total capital, I think we can, which is quite a bit -- we could put $5 billion into different things without a challenge. And so we're really not necessarily that disadvantaged from that standpoint. When you look at the capital for the CP companies, you've got to remember, it's not the constraint in terms of capital adequacy. The real issue is that their source of capital is what gives them arbitrage. They get a lot of money from a lot of private equity and other investors on terms which public companies like us are unable to access, that's really the source of advantage. But just to your question is, would we do stuff outside of our core thing. And we do in small pockets. We put in small investments in those ecosystem arrangements where we think that we can bring some value. But they've been in a handful of million dollars, right? It is not large. I do think that we have some opportunities to expand beyond the core banking space, but we are quite thoughtful to make sure that these are adjacencies that make sense. And the way we are trending to lead into it is to see where can we provide infrastructure services, where can we use our technology capabilities and how can we get into a broader revenue steam, leveraging some of those things as opposed to try to get into completely new businesses, we don't understand.

Next, we have Harsh from JPMorgan.

A couple of -- more than a couple of questions, actually. First one, on CET1, Piyush, this 12.5% to 13.5%, let's say, midpoint 13%, taking into consideration both organic, inorganic growth, assuming you go back to $0.33 on dividend, by when do you think you should get back to that 13-odd percent CET1?

Well, it all depends on M&A. So if we don't -- we have a lot of surplus capital. And every quarter, we accrete more capital. So even at $0.33, we accrete capital. And therefore, if we don't do M&A, we'll have to start returning a lot more capital to get back to 12.5% to 13.5%. But it does give us the cushion to do M&A, and we've talked about things that we could look at. So it's not a function of that.

Okay. Okay. The second bit is just on this, things like the digital exchange. I don't ask as part we are also -- tick that box. Is there any capital commitment to these initiatives in terms of $80 million a small number, but let's say it becomes $1 billion of assets under custody, there would be some operational risk, likely some sort of counterparty risk and so on. Does the capital consumption move up meaningfully in some of these new businesses that you're looking at?

Actually, no, all the businesses we've looked at -- so it's quite interesting in the way the rule this sector works, you don't need a lot of capital in this business. What you said is correct. The real issue is offices. And when we think about the offices and offices capital, it's not huge. We don't get any credit risk, you really don't get any market risk, you add on some offices. You've got to be tight about that, but it's not very capital consumptive, no.

Okay. Okay. And moving on to provisions, the guidance of $1 billion sounds a bit conservative. How should we think about that number given it was close to 0 in first quarter? How much of that is conservative guidance? How much of that is realistic? And what are the numbers that can change that? Let's say, at the end of the year, we end up with let's say, $400 million or $500 million number, what would have led to that kind of outcome?

Harsh, I think I'm going to let you figure what you want to put it this figure more, I'm not giving you any guidance. All I can say is that, yes, I think we'll be well shy of $1 billion. And if you look at the outlook, the first quarter, like I said, I mean there are 3 pieces. I'm going to make it easy. There are 3 pieces, right? One is specific provisions. At this point in time, I'm not seeing anything on the -- which is giving me a cause to believe that there will be a big pickup in specific provisions. The provision in the first quarter of $200-odd billion go back to pre-COVID, and I'm not seeing anything that says there will be a lot more. Then the second is the improvement in the portfolio, which is a model-driven GP. So -- and the repayment. So as I said, they came from both things. One, some of the weaker names paid down, and I think partly is because people have been able to go to bond markets, raise money alternatively and they paid us down. But the bigger thing was that companies are improving. And so we had a shipyard company that improved, we had automotive company that improved. So we're seeing improvement in companies. If that improvement in companies continues, you should expect to see a continued reversal of the model-driven GP. Then the question is, should we expect the improvement to continue as that goes back to macroeconomics. With the tremendous bounce back in all of the economies and -- whether the U.S. or China, everywhere else, I've got to logically -- should expect it should flow through to corporate earnings and to flow through the corporate earnings and then go through the improvement in the portfolio. That's the way to think about it. But exactly how much that improvement is and how much we might be able to get back, it's hard to call and so, I don't want to put a number around it. And the last category is that $1 billion that we put in, principally because we didn't know how to model the moratorium impact and didn't have to model some of those things in our model. So we added it on. That really is a function of if the moratoriums keep winding up through the course of the year, the consumer keeps improving, then do we keep some of it for the residual moratorium, Hong Kong is going to carry on till 2022. There's some other areas. Also, we'll have to have conversations with our regulators. In some cases, the regulators might want us to keep more or keep less. So these are all things we will have to worry about in the course of the next couple of quarters. But If you add all of that together, I think there any likelihood that we'll be well south of $1 billion, it's hard to dimension what the number could be.

Got it. Got it. And sorry, if I may, Piyush, just on cross-border, massive, massive positive. I'm not saying because I'm from JPMorgan. But blockchain was just a concept. And when you actually think about monetizing it, is it -- are you let's say, for a DBS customer who is doing a cross-border payment, is it just better quality service, more secure? Or do you also charge a premium for this like, let's say, how do you start monetizing it? And 2 years out, how do you think it takes the shape in terms of actual P&L impact and what actual revenue client impact for you?

So Harsh, I think the actual benefit of it to our direct customers will be there, but limited. And we already charge -- for the cross-border payments, we charge some money. For large corporate, it's a flat fee. I don't think you can charge a lot more. For SMEs, it tends to be [indiscernible] for a large number of SMEs. If you can improve their payment adjusting by a couple of days, you could squeeze something out. I doubt you'll get a lot. What you will get -- if you can get a lot of volume because you can do it more efficiently, then you tend to make a lot more on things like FX. So that adds up, but that's not the principal driver. The principal driver of the infrastructure play is to think like Visa or Mastercard or Swift. Visa, Mastercard clip a coupon just for providing the wheels on which global settlement takes place in the card space. They make $15 billion and $20 billion, respectively, just doing that. They do more than that for just doing that. So if it could be part of an infrastructure play and you can effectively clip a small coupon on payments to facilitate this thing, that's where you -- effectively the platform ends up making money. And then you essentially gain on the value of the platform more than the customer revenues that you make directly.

Right. I don't know if I'm pushing it, but do you think this replaces Swift, is that the utopian goal?

Swift wanted to do something similar. But if you really look at the underlying nature, just focus on Swift, but the issue -- I have been doing this for 30 years. So this has been for me one of the holy grail. We did a version of it, a short cut of it 4, 5 years ago, we launched DBS Remit and it bounced because the whole notion of settlement, which it takes 3 plus 2 because it goes through 2 hubs, like JP correspondent banks. If I have to pay somebody in London, I pay to JP, JP then pay to Citi, Citi then pays to Barclays. And those hubs take 2 days. The problem with that is, effect is happening in real time, security is happening in real time, but the cash settlement is taking 2 days. And that creates massive inefficiencies in the system. So when we launched Remit, we said forget going through the hub. I'll just set up direct bilateral relationships in the countries that matter. And that's why I can now do payments into all of the countries that are meaningful to me in 3 seconds. And that's allowed us to build a big business. We make over $100 million, but definitely, we do much better than transferring. And that's basically because we changed the hub-and-spoke nature of that. Now that, unfortunately, you can do a bilateral arrangement only so far. What the blockchain that you do is take it and democratize it at scale for any counterparty in the world. I'm not going to limit it to places as set up in an arrangement. And therefore, anybody on this platform can effectively pay in real time instantly. And so your settlement of security, settlement of FX, settlement of active payment, you do in real time. I think that's the game changer, and it's much better than the current expat infrastructure, including the Swift infrastructure. The challenge with all of these, which will be a challenge for party as well is how to get enough usage? How to get people to embrace it? And which is why we are creating this open platform. We are also hopeful about 2 things. One is this does have the support of the Central Bank. MAS is a big participant of Project Ubin. So they are big pushers, they're talking to other central banks, they're talking to other agencies to see how we could actually push this platform and make it generically available. I'm also quite optimistic that as you see more of CBDCs, every country is generating its own CBDCs. But finally, I think you need a platform to be able to set up CBDCs from one country, CBDC to another CBDC. And again, this blockchain driven platform, which is, as I say, it might be a good way to do that. Now so I'm optimistic that the use cases you can develop, but obviously, the biggest challenge is getting enough people to embrace those use cases.

Next, we have Anand from Bank of America.

Piyush, you mentioned a bit about the structural changes to Wealth Management and the Treasury side. So just to put some numbers in context, the PPOP ROE that you showed this quarter, 1.38%, it's just shy of like 3, 4 basis points, the PPOP ROE showed in 2019 when the rate cycle was so high. So margins are down like almost 50 bps, but your PPOP margins are badly impacted. In that context, if I adjust your credit cost to 25-ish level, I already get towards 13% ROE at the bottom of the rate cycle. So in that context, where do you think is your kind of new structural PPOP, how much of this improvement is structural? How much of this is cyclical? Obviously, there is some component of fee income and some OpEx here? And when credit costs and rates normalize, are we looking at a much higher base for your ROE compared to what we have seen historically?

Actually, apart from credit cost, you didn't take out another big thing for this quarter that's trading. So trading is one of the big quarter. I mean normal trading quarter, I expect $250 million. This time, it was $500 million. And that $500 million is not going to repeat. It is just a very unusual quarter for trading and that's not just us. It was every big bank in the world. So you've got to adjust down not just the unusual credit cost, but you're also going to adjust out the trading. And if you adjust both those out, and ROE is not as high as it appears on surface, once they take trading out. So my own thing is that the structural changes are helping. Without a doubt, the changes in our business in transaction banking, the changes in our business in treasury customer flows, the changes in wealth management, they're helping. As I said before, the cumulative of that should give us over time, maybe a percentage point improvement in ROE, but it's not going to be huge. The impact of the interest rates is very material. So my own sense is that if you look at our ROE before the interest rate hike, we were hanging around trying to get to 10.5%, 11% ROE. The structural changes might get us north of 11%. You might get to 11.5% ROE. But I don't feel we'll get to 13% or thereabouts unless the rate cycle comes back.

Sure. And on the OpEx side, also you could see some more upside or that cyclicality will come back in the next few quarters?

So it depends on what -- look, I think the absolute management of expenses, they clearly are upside. We're running a huge transformation program, which includes our distribution, we're moving to digital, we're changing whatever. So you will see some upside coming through from that. But at the same time, due to -- the wage pressures are building up. And I do think we're going to have to dial up a little bit on the wages and variable comp this year. So that will be a bit of a match. So I think we can control expenses, like I said, to maybe 3%, 4% over the 2019 level. The cost/income ratio will creep up, creep up because the income will be down because of the interest thing. So if you look at the cost/income ratio at present, that will go up because the income will come down.

Next have [indiscernible] from HSBC.

This is [indiscernible]. So one is on the overseas strategy. Can I ask like what kind of target settlement do you want to look at? Because I guess -- then you're looking at wealth and strengthen kind of some SMEs and some amount of [indiscernible] But quickly just I guess, are more to -- more like in retail start because [indiscernible] wealth. So I'm trying to see, does this [indiscernible] or do you think under what you are looking for?

So I think there are 2 pieces of the Citi business, which are very similar to the ANZ book. One is that a Citi gold business, which is very similar to what we got from the ANZ wealth piece. That's very similar to what we have in our mass affluent in our treasure segment and even the low-end of the PPE segment. So that is quite interesting. The other big piece is they have a fantastic card franchise, which is, again, very similar to what we got from ANZ in Taiwan and Indonesia. So that piece is also actually quite attractive.

Okay. I see. Can I also ask about the [indiscernible] platform, like how scalable do they have a pipeline or how many international banks is on your pipeline? And also, if you expand to different currencies, you need regulatory approval of each regulator because they are putting a cap on to the ledger, right?

Yes. So actually, what we are looking at [indiscernible] strategy, talk to a better sense for what will banks in the -- how many banks and things are in the pipeline. But basically what we figure is that we are not creating a new cryptocurrency right? And so that's the important thing to understand. It's not a new Bitcoin or a new DM or whatever. So all we're doing is digitizing fair money. And to the extent we're digitizing fair money, it doesn't create an extended new way of this thing. So I do think the regulatory forbearance is much better than if you start trying to pay the new currency. But, [indiscernible] if you want to take the question on how do we get other players onto the platform, which are the currencies?

Yes. So if you think about it, there is the whole concept of a settlement bank and the participant bank for platform. So we are talking to banks to the cost of movement that will be add-on currencies like yen, euro and hopefully, we can RMB where PBOC allows. So those would be the important ones. And then the other one will be participant banks where banks will come in to take advantage of this to clear a lot of your corporate and treasury payments. And so if you look at it in totality, today, we are speaking to right now, about 6 to 7 of them. And this is where the partners in the JV, which is JP [indiscernible] are talking. And the entity has yet to be fully operational, and we already have quite a matter of interest. So this is where we are. And with the setup itself more will come. And since the announcement itself, we have been getting more inquiries from banks that we didn't target initially because we're just looking at those who can give us flows to get the platform growing.

Right. Sure. Okay. Just one last question, I guess, also in the digital area, the digital bank in Indonesia. I guess there's some other players like Jago bank now and all that group. What do you think really is the difference between Digibank and some of these [indiscernible] players? And how can you be more competitive?

Actually, in many cases, you won't see the management. Our customer experience and our customer journeys are actually quite similar. But to be in the big markets, the way to think about is that you'll never see a winner take all. So it's not that there'll be one big provider who will get suddenly dominant 100% market share. I think there'll be multiple providers who will continue to win market share, not just because of the digital products out there, but the rest of the suite of services and products they put together. One of the things that we've been quite successful with is in partnerships. So we've got a very good ecosystem partnerships with several providers, e-commerce companies, low-origination companies, car leasing companies by plugging our platform into some of those. We are actually getting some fairly decent volume and traction. So bottom line, I think we'll be a competitive player in the market. Doesn't necessarily mean that Jago won't be successful or someone else.

Right. But you also have finances with all the e-commerce and all these players?

Yes. We have plugged in. So we've essentially -- a large part of our origination now is coming in to other partners. So we just don't go direct to market. We are going into this ecosystem strategy.

Next, we have Robert Kong from Citi Research.

Thanks for the briefing. And congrats again on the great results. Just some small questions, if I may. For India and LVB, what's the long term -- I guess you're moving much to a hybrid strategy between the Digibank and the LVB. I'm just trying to think what the long-term structure of the business will look like. You still have something like 600 branches, which I suppose is a little bit on the high side. Second, on the Shenzhen Rural Commercial Bank. What kind -- I mean you're going to be the biggest shareholder with 13% stake. What kind of management control do you expect to be able to get? I know you're going to get some sort of Board representation? And will the revenue model be more seeing growth in DBS Hong Kong? Is that -- will that be where we will see the positive upside on that? So those are the 2 questions.

Yes. So Robert, I guess on both LVB and Shenzhen Rural, the basic premise, which is a little bit of a shift in our thinking in the last 5 years is that a pure digital play is not that easy to monetize to profitability. And that's why if you look at all our -- we're getting a lot of top line growth. I mean, numbers of customers grow, we're getting a lot of eyeball growth. But a lot of people who join us as to digital banks are young millennials, kids. They get the deals, they get the freebie, but it's not been that easy to monetize that. And therefore, we've been a little thoughtful about how much you keep pouring down that figure because we are -- unlike many of the other people who are only trying to focus on the valuation game, we're trying to focus on a cash flow and a profitability game at the same time. Now we realized that in those places where we create digital, where we add that digital along with the branch footprint, we get much better customer performance. We get better quality customers. We do a lot more with them. And we saw that with the ANZ initiative in Indonesia, gave us a clear differentiation between that and what we are doing pure digitally. So that thinking is what we're trying to care that if we can actually scale up some degree of physical presence, so we get brand, we get recognition, we get people's willingness except that we are now a local bank, all of those things matter. And that's what we're trying to achieve in some of these markets. But LVB, the 5 states where LVB has a presence, South Indian states, so I thought it's quite attractive for us for many reasons. It's the better performing part of the system. The economy is better, it links better into Singapore. It also allows us to change the profile of our business because today in India, which is very heavily in large corporate, as well as all the big returns, so you take HDFC or Kotak, their returns are mostly SME and retail. We haven't had access to that. This changes that game. So it allows us to build out and scale up the retail, SME, it gives us a much better deposit base, it is a better retail footprint. So there's a lot of good strategic reasons for doing that. But I think it is correct. Over time, I don't think we need 600 branches. 600 branches also include 100-some branches, which are rural unbanked. Those we'll do what the local banks do, use the business correspondent arrangement to take care of those. Of the others, we try and concentrate and focus on the districts in the centers we really get value. So I think we will be able to rationalize some of that network. We will also overlay digital on top of that. Now that's going to take us a year because the technology platform alignment doesn't happen overnight, and we were already doing some work in India. But we will put digital products in there. We will rationalize some of the network. We will add on some of the assets that they have, including the gold loans and loan against property. So we'll create an integrated presence, but that allows us to get into the SME and retail space in a far more compelling way than we've been able to do with just the pure digital strategy. That's the thinking. On the Shenzhen Rural, so right now, one of the advantages that this thing of -- they have a really good management team. We think that the Chairman, the CEO, the management team are very good. They have skin in the game. They run the place very well. And so we really don't think we need to do a lot of interfering in the day-to-day management of the bank. Obviously, we have a couple of Board seats, we'll keep an eye on the risk and help them with some stuff. The real thing where we think we can bring value is how we transform the bank for becoming more international and becoming more digital. They don't have that. And that's what they're reaching out to us for. So that's what we will put our energies behind. And you're right, a large part of the resourcing and the driving of that is going to come from Hong Kong and our own team. We've got a very large presence now in Shenzhen and in Guangzhou. So we're using our onshore teams in GP as well as the Hong Kong team to work with Shenzhen Rural to drive some of these incremental capabilities. But the core running of the bank is very good. I don't think we need to necessarily get involved with that.

Just one quick one on the pathway. I understand the phenomenal upside, if you can take a -- clip a coupon on the volumes. But do you expect it to have a material impact on your own bank's fee income? Because as you say, you're going to be able to offer potentially a much more attractive way of settling payments than anybody else on the Street?

So it remains to be seen, Robert. I think what we will see, and I'm already seeing that if you look at my transaction banking business, both cash and trade and look at the volume growth you see, particularly through the pandemic, it's been off the chart. Now I think that results in not that I charge higher fee because I now have APIs, I can give them the thing. I charge the same kind of fee structure, maybe slightly more. But I get a lot more volume. So my current take is that this should allow me to scale up the volumes we get, and that would be appended in larger fee pools and larger CASA balances and corporate deposits, et cetera. I think that will happen. It's less clear to me whether we'll be able to charge premium pricing and we would have to test that in the market as it evolves.

Okay. Thank you, everyone, for your questions. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Okay. Thanks, all.

Thank you.

Thank you very much for joining us. .