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

[Audio Gap] the second quarter briefing for the buy and sell sides. You have seen the media briefing, so we can go straight to Q&A. Diana, can you open the floor for questions?

[Operator Instructions] Our first question is from Jayden Vantarakis, Macquarie.

Can you hear me?

Yes.

Congratulations on the results. Just have a few questions. I think during the media briefing, Piyush, you mentioned that the fixed rate mortgages are around 3.3% to 3.5%. We're obviously seeing good banking margins, and we're more bullish on the outlook for the NIM, but I'm just wondering, as there's not much growth, do you think there's any potential for further competition that could compress some of the loan margins from here? My second question is just on the provisions. I think last quarter, Obviously, you took a general allowance and you sort of, from memory, almost overruled the models. I'm just wondering if you can sort of share with us the logic around the GP release this quarter. Those are the first 2 questions I have, please.

All right. So yes, I guess there's always potential for some NIM impact from loan pricing. And you deal with that in 2 ways. Either you just don't do the marginal loans, which is what we did in our trade book in the second quarter, for example. The loan pricing actually for the high-quality book came down to 10 basis points. And so we didn't feel it was appropriate to put on assets at 10 basis points, and so we let them run off. And you can see that in our reduction in the loan book. On the mortgage book, at 3%, 3.5%, the through-the-door NIM that we're getting is about 50-odd basis points, right, for the -- I don't see prices going much below that because that's already pretty much rock bottom in terms of through-the-door NIM pricing. When we factored -- in our current NIM rates and where we might go, we factored in a little bit of pricing at the high end if you will get that, but I don't think it's going to be inordinately high. So I don't think it will impact overall NIM materially. On provisions, what we do is, as we indicated before, our GPs are typically driven off model. That model includes macroeconomic variables, which is the outlook on GDPs and rates, inflation, et cetera, et cetera. And on top of that model -- on top of the macroeconomic variables, we then factor in our own portfolio. So we look at all the NIMs which we are concerned about, which are in a watch list and we add up incremental general provisions for different kinds of categories. The NIMs sort of early week or late week, et cetera. And so we come up with something. So the models, they are actually pretty robust. But from time to time, what we do, not every time, not time to time, every quarter. In addition to that, we sit back and figure, is there anything else out there with the model might have missed. And if the models could have missed something, then maybe we should take a top on just to say the model might not have factored this adequately. So if you look at the first quarter, our models actually came in at a negative $100 million. But when we did the review, I was concerned at that time because the overall slowdown seemed to be, I thought you could get a hard landing, not a soft landing. And there's a lot of noise around the commercial real estate all over the world. So I thought there could be some spillover impact of that into a different part of our client base. And so based on that, we did some stress testing. We added some -- and came up with a $200 million number to add on. So net-net, we had $100 million in leases, we added on $200 million. We got net $100 million growth. This quarter, as we look through the same thing, our underlying portfolio, by the way, the reason our GPs keep reducing is underlying portfolio is improving quite materially. If you look at our Pillar 3 disclosures, our probability of default has come down from 1.6 to 1.2. And that reflects the underlying portfolio is just getting much better. The weaker names are either paying down or the tenors are being reduced or we're getting recoveries from those. Overall ACR risk rating for the portfolio is improving. And therefore, it stands to reason that our GP models are actually throwing up lower and lower numbers every quarter. But in the second quarter, as we looked around what else we might have missed or what our models could have missed, we couldn't figure out anything, and we didn't come up with anything. And so if we can't come up with a good credible reason to be able to add on overlay, it's hard to add on overlay, which explains why we don't have an overlay at this time. Sok Hui, do you want to add?

No, just to say that a lot of the sort of stress testing and overlay, the -- I guess, the stress numbers and how we arrive at these numbers actually reviewed by the auditors and the audit committee. So that is -- it is not like we can kind of just come up with a number. It's quite rigorous stress testing that's conducted.

Yes, that's really helpful color. I was just wondering, you indicated, Piyush, obviously, you look at the watch list and any sort of early warning signs. Is it fair to say that the watch list has gotten better as well? Or is it more sort of a macro backdrop that you're more comfortable with?

No, no. The watch list has got better. Watch list in the last year, we put a lot of names in the watch list in the COVID period. And since then, it's continued to shrink. In the last year, the watch list itself has come down by about another 10%. And the bulk of the watch list is in what we call Ambers, very early sort of keeping an eye on it kind of stuff. So the name that we're more concerned about have actually shrunk quite materially.

Okay. That's very interesting. If I may just ask 1 more question before I hand back to the queue. I noticed that there was obviously the $60 million one-off charge for the Taiwan integration, and you said that you added 1,000 employees temporarily. Just want to make sure that this is the only quarter we should see it. And if you can update us on the operational or legal day 1 for the business?

So Sok Hui?

Yes. So the way we sort of calibrate it, we look at sort of what are the charges that have been incurred, and we expect to take roughly another $60 million in the second half. So the work is ongoing.

So the people -- yes, the work is ongoing. So the actual 12 August next weekend is actually cut over, but as you can imagine that for the first 2, 3 months after the cutover, I expect to get millions of calls from customers, XYZ. So we're going to stay staffed up in our contact centers, call centers, et cetera. And so the second half of this year, you should expect to see another $60 million of integration costs before that winds down. Now in terms of your other question, we are actually -- I think we're in very good shape in terms of the actual integration. Unlike most of the other banks within the Citi deals, where they did a servicing arrangement where Citi continues to service the portfolio for a period of time before the banks integrated, we did it exactly the opposite. We decided that we would put in all the investment and figure how we can integrate and bring the book on before we bring the business on. So next or the weekend on 11/12 is our cutover day. We've done 4 dress rehearsals so far. The last dress rehearsal was a couple of weeks ago, and it was almost flawless. So I'm fairly confident that we won't have a problem bringing the book on seamlessly. We were able to some people from Citi to DBS a few weeks ahead of time, so they understand what needs to be done and how it should function. The underlying book at Citi is also holding up. It's consistent with all our projections. We worked with them. So we haven't seen any loss of business momentum or revenue consistent with what we modeled. So I'm actually quite bullish. I think we should expect to see, like we said, for somewhere between $200 million and $250 million bottom line impact from next year. But even this year, we'll probably see somewhere in the region of $50 million bottom line impact for the full year.

Our next question is from Nick Lord, Morgan Stanley.

Can you hear me?

Yes, we can.

You can. Okay. Perfect. A couple of questions actually. First of all, just on dividend. I mean, a nice sort of extra sort of $0.06 in the second quarter. Can I just clarify with you what is now the baseline? Is the baseline $1.86 for the 2023 dividend we should be thinking of for '24? Or is it 48x4, which is $1.92?

It is how you count it. If you count it from the first quarter at $42, then you should expect at a minimum, you get 48 x 3, and then you get the 42. So it depends on how you count it.

I'm thinking just the baseline for '24.

The base line for '24?

Yes, is it $1.86 or $1.92?

Minimum is $1.92.

Minimum is $1.92. Okay. Perfect. And then linked to that, I mean, I know you gave some explanation of the media briefing. So I'll be interested to just think about how we think about this. Because I guess clearly moving up that dividend in second quarter tells us that you have a lot of confidence about the earnings prospects or more confidence about the earnings prospects for the full year, which I guess is obvious from the Q2 numbers. But I'd just be interested in how you think about confidence in future years. And when rates eventually turn, can you just talk us through some of the levers that you think you can pull sort of over the next 2 or 3 years to defend that ROE, so you minimize the impact of those rates falling when that eventually happens?

I guess there are 2 different questions there, Nick. So first is the ROE question. Can we defend a 19% ROE? The short answer is probably not. And therefore, if you look at our Investor Day guidance, we said 15% to 17% is what we think we can do long term, not 19%. 19% does benefit from the extraordinarily high interest rates. So if the question is, can we defend 15% to 17% ROE? That we are pretty confident based on the overall nature of our business. The various noninterest income streams I've talked about in the meta cash management, wealth management, cards, all of those are kicking in quite nicely. So our ability to defend that number is good. So top line is solid. I think our credit and risk management has also improved quite materially over the years. You can see even through this cycle, we are at the low end of the comparator set in terms of our NPAs, in terms of our credit profile, in terms of our SP. So I think structurally, we should be able to manage in a better SP and better cost of credit than we had historically. And our high return businesses, cash management, wealth, et cetera, they're already today 40% of the bank, right? The SP is 20% of the bank. So all of these collectively means I think we can defend the 15% to 17%. Our projections assuming rates start coming off next year, '24 and '25 suggests that we can still hold that 15%, 17% ROE. Now the second part of your question is more dividend specific. And as Sok Hui pointed it out, I think a lot of people reflected in our Investor Day on the first part of our statement, which says that we're pretty confident that we can increase $0.24 a year for sure. That we've modeled with all kinds of stresses that we can do that. But on top of that, we do think we have another $3 billion of excess capital that we can return to shareholders over the next 2, 3 years. And we had indicated that we could do it in many ways, either through buybacks or specials or just stepping up the dividend more and faster. So the Board, recognizing that we do have that, and -- Sok Hui sort of said that $3 billion, about $1.20 per share. So if we want to give back $1.20 per share in the next 2, 3 years is going to come back in 1 of these 3 forms and the payout in the second quarter reflects that already.

Okay. Perfect. The fact that the payout in the second quarter has gone up. I mean, does that give you -- I mean that you are either more confident on that 15%, 17% range? Or are confident that you can be higher in that 15%, 17% range than you thought previously?

No, I think we're confident about the 15% to 17%. I don't know about much higher. But I think one of the reasons why we've been cautious is the economic outlook. It goes back to the question of GP, so the economic outlook and the likelihood of software landing and our ability to be able to negotiate through the next several quarters without credit mishaps. That confidence has continued to increase. And so that gives us more confidence to sort of step up the dividend sooner rather than later.

Our next question is from Harsh Modi, JPMorgan.

I have a couple of questions. One for the 23% of the commercial book, 20%, 23%, which is to be repriced, is it fair to say about half of it gets repriced this year? And in that case, how much is the spread pickup for that portion of the book as it gets repriced? I'll get to the second question in a minute.

Harsh, half of it gets repriced in 18 months. So between the rest of this year and '24 and the other half of it spills over in '25, '26 by and large. And the yield pickup is about 2% when it reprices.

Okay. Second one, the RWA increased meaningfully Q-on-Q across all the 3 credit market and operational. What drove that? And how do we see that risk density going forward?

So Harsh, you're asking about the RWA growth, so for this quarter, remember, MES had imposed an operational risk charge on 5th of May, so the multiplier of risk was increased from 1.5x to 1.8x and we indicated then that, that would be an impact of 0.3 percentage points. So for the CAR ratio last quarter was 14.4%. It has come down to 14.1%, right? Then the organic growth in MPEM, which added to the capital, we paid out part of the dividend, and the rest was due to the normal RWA growth in credit and market RWA.

So market RWA is up because we've been increasing the size of our risk taking positions in the last quarter. So we think it's appropriate. And as rates are topping out, we think it's been appropriate to start adding for them. We're not going very long on the curve because I still think that the long end, the 10-30 might have scope to move upward and the yield curve will move up there. But in the belly of the curve, we found opportunities. So we've been putting on some more positions in the belly of the curve. So that reflects in the market RWA.

Right. So from here, basically, should we expect a further increase in more limits or basically market risk rate because it seems credit risk rate may not go up too much? Or are kind of -- are kind of done in terms of meaningful increases in risk weight from here?

So if you look forward, I think the -- there will be an impact that will come from the Taiwan integration. I think the impact will be about 0.5 percentage points, but that will be offset. So as best as we can estimate that we expect car to be stable at about the 14% level.

Our next question is from Melissa Kuang, Goldman Sachs.

Just on the first question on NIM. Previously, you said NIM peaked in 1Q and then now you're seeing the upside. So do we think 3Q peak, 4Q peak, or do you think we can actually go further since you have some more repricing to go next year? I'll just stop and then maybe I'll ask the second question later.

I think it's only this year, it also goes back to how far the -- my current thing is you might get one more Fed hike. If it turns out the Fed pauses and then goes to the 6% handle, of course, there will be upside, which comes from that. Right now 5.5%, I think there's an even chance they do one more hike and probably no more, but there'll be some impact of that. There's obviously some impact of the repricing we just talked about, the book repricing. But there continues to be an impact on the deposit side. So even though the deposit CASA outflow has slowed down, it's not zero. And there is continued some pressure on the fixed deposit and deposit pricing. So when you put it together, I think we have some upside, a couple of basis points, which you might see in the next quarter and maybe between now and year-end. But I doubt you'll see this continue to increase next year.

So you think 4Q working -- sorry, 3Q or 4Q, maybe 4Q, right?

Yes. I think might even peak in the third quarter. It's hard to say.

Okay. Then the second question is on dividends. You mentioned at length previously about the dividend and about the $3 billion. What we think then at the final like usually during the final you consider maybe perhaps raising the CAR -- the interim at the final or do you think maybe a special will be more a preferred way, which you would do it to release the $3 billion?

Well, I think something the Board evaluates every time and like I said, the Board evaluates all the options. Buybacks, it's a little harder for us to go down the buyback route, but we do look at it. And so it's really between special and a step-up in our ordinary dividend. Our preference is to go down the ordinary dividend route as long as we're pretty confident that we can sustain it and maintain it. We won't have to cut back. And so as long as right now, there's a degree of confidence that we can do that. In this case, we might continue down stepping up the ordinary dividend. But it's something the Board will evaluate. The Board looks at it every quarter. So the Board will revalue what's the best way to do this.

Okay. And then just in terms of thinking about long route because you said 5 years of this $0.24 basic step up. But how we reach there? Are we looking at a payout ratio roughly in the range of 65% to 70% and that's when you will reach a capital neutral point. Is that what you're trying to achieve in the next 5 years?

It could be. So unless we go and find some dramatic opportunities if we just project the numbers and assuming we don't find any attractive new opportunities to grow inorganically. And you work with our operating range of how much capital we want to keep, you can quite easily work yourself to a payout ratio in the 60s, yes.

Okay. Okay. And then last just housekeeping question. Just I noticed in terms of the balance sheet, you have quite high in combined deposits this quarter, quite a big jump. Is that for your treasury business? And also in terms of the off-balance sheet derivatives. It seems to be a pretty big jump half year-on-half year. Is that all down to the treasury business?

Yes, it's all treasury business.

It's all treasury.

Our next question is from Aakash Rawat, UBS.

The first 1 I have is just to touch upon the NIM, Piyush. I think just to clarify what you said earlier, you said there's possible a couple of basis points upside from the exit NIM in June, right, which was 2.2%? Is that correct?

Average. I meant the upside is from the average NIM for the second quarter.

Which is 2.16%, but you said your exit NIM is already 2.2% in June, July.

But it'll come down in August and September, right? So as I said, I think the NIM will probably peak sometime and start coming off.

I see. Okay. And your assumption, like you said, is 1 rate hike take -- 1 more rate hike from the Fed at the moment.

Actually, the assumption on a couple of basis points assumes no more Fed rate hikes.

Okay. I see. Very clear. Just a related question on that is, so on the deposit repricing pressure, like you did say that CASA is still outflowing. It's not gone down to zero. What are the chances that this deposit repricing pressure accelerates into the second half of this year as rates go up further and stay higher for longer in that sort of scenario?

So if we look at the deposit pricing, the different segments, I can see the impact differently. The institutional money, the deposit pricing is already 100%. So whatever hike happens, we pay out 100% on the institutional money. But if you look at the noninstitutional money, the cash bank related corporate account, SME, consumer, the actual payout on that is far more contained. And we are seeing that quarter-on-quarter, the bulk of the money, which is a lot more price sensitive, has been repriced or moved out. So I don't see it accelerating. We've already hit levels where the trajectory and trend looks like it's quite contained.

Okay. Understood. And then the next question is on the wealth management inflows. And you did touch upon this in the media briefing about you don't -- nobody wants to get fast money, hot money. But how do you determine -- so I think there's 1 of the questions that many investors are worrying about, which is -- we have seen this very strong inflows last year, this year. How do you determine what part of that is sticky? What part of that is fast money?

Well, it actually goes back to how well you can manage the client relationship. You've got -- at the end of the day, when somebody support -- somebody from wherever in the world puts money into a family office or account in Singapore, what are they going to do? So either they put it in a bank deposit and earn a 3.5%, 4% return or they go and buy a property, they go buy an apartment or a house or eventually, they actually create a portfolio and put it to work. And most of the portfolio is public markets and some private or alternatives. That's what happens to all the money that comes in. The only reason we expect that none of this will happen is the thing that they're going to take the money out and take it back to wherever it came from. And that's sort of counterintuitive. If they've got the money from wherever it was into Singapore, why would they take it out and take it again and take it out of the region. So what you will find is the money will slowly start moving out from a -- and we think about a typical way, in fact, that's some market also. We go to investors and say, okay, why don't you move the money in deposit form and then we start working with you to see how we can actually put the money to work. And so over the next several months, they start building and do a portfolio allocation and decide what goes into equity and what goes into fixed income. So slowly, the money moves in deposit into various other investment categories. This is not new. This is exactly how the business happens.

Right. So I think based on your assessment at the moment, the part of the fast money portion of this net new money that you've seen is very small, right? This I think summarizes if that's what you're saying.

Yes. I mean say the fast money to me is just all of the money that comes in. With the fast money, I'm assuming you're having the money that will leave Singapore or leave the system. And I don't see any of that, right? It will still be anchored from here, where it would get into different kinds of assets, yes.

Got it. And then just on Wealth Management, I think another difference in your trends versus, for example, you reported a few days back, was that the wealth management income actually improved quarter-on-quarter, whereas you were thinking that it might turn out to be a weaker quarter on a sequential basis. Do you have any insights into what went on there?

We're up 12% year-on-year. First quarter was minus 11%. But if you look at quarter-on-quarter, it's about the same level. And so my actual -- there -- I actually assume you might see an even stronger second quarter because I thought the China rebound would mean that the Asian markets would do better, and therefore, I expected a lot more people to put the money to work faster. Actually, because China rebound didn't happen until 3 weeks ago, the Han Seng and the Chinese markets weren't doing anything. Therefore, the actual money will get put to work was also slower than I expected. But I do think that in the second half of the year, it's coming through now.

Okay. Got it. That makes sense. And then next question is on asset quality. If you could give us an update on the commercial real estate exposure in the U.S.? Like how is that -- what's your latest risk assessment on that book? You've already talked about the exposure last quarter. And then the same thing for the Hong Kong CRE space because I think one of the concerns has been that the vacancies in the central area have still remained pretty high in the office space. So how is that progressing with your latest assessment?

It hasn't changed very much. We obviously stressed that the commercial real estate is what prompted us to take the overlay in the first quarter. But at the end of the second quarter, we're not seeing any incremental steps. In Hong Kong, as you know, our U.S. book is quite small. It really goes through the reads more than anything else. The Hong Kong book is really the big developers, and they're very solid, the large Hong Kong Hong. So no, our latest hasn't shown us any incremental stress in that portfolio.

Okay. And then finally, the dividend policy. So I'm just trying to clarify that, historically, your core dividend has gone up in this last quarter, right? So Q4, it goes up. This time, the step-up happened in Q2, but that should be seen as a one-off step-up. It's not that you're changing your policy of raising dividend in Q2 and then keeping it same for the rest of the year. Is that fair?

Yes. No, we're not changing that, but yes, that's fair. So we're not changing it as a policy that we review in Q2 and keep it like that. So it's not a policy, but it goes back to my earlier comments to Nick, that we will look for every opportunity to pay back what we think is $1.20 over the next 2, 3 years. And so if some of that means we'll do step-ups, which are not a normal annual step up. So that is a possibility that we could do step ups, which are not annual.

Right. Understood. And then the very last question that I have is if you talk about this BEPS taxation impact during the Investor Day. Do you have any more details to share on that? What is the potential impact on your P&L?

Sok Hui, the 15% BEPS tax. When tax goes to minimum 15%.

Yes. I think it's -- it will be a case where our tax payout will be higher. So we are working...

That's why we got to figure when that policy goes on. Right now half the world is backing off on it from what I can see. The Americans are saying they're not going to do it and so on, right?

Yes. So as best as we can figure out, it's like 2025, and we'll work with IRS to see how we can sort of mitigate some of the impact.

Average I'd say it's about 13.5%. So your worst-case assumption should be that our taxes go up from 13.5% to 15%. But then if you look at all the [Foreign Language] going on around the world with all of the other jurisdictions, everybody is finding a way to not actually get to the 15% level. And I guess some countries are just saying they are not going to do it. So I think this is a place to watch and see what effective tax rate finally winds up at.

Right. Can I just check on that percentage, when I look at your geographies for the businesses in, all of them have a tax rate of higher than 15%. So how does at the group level it has come down to below 15%, 13.5%?

Singapore?

Yes. So this sort of affects primarily Singapore. So for all the countries that have higher tax rates than Singapore, usually, in fact, for all our -- most of our locations, frankly, there will be no change, it's mainly in Singapore, where our tax rate is lower.

Our next question is from Neel Sinha, CLSA Singapore.

Can you hear me?

Yes.

A lot of them have been answered by my peers' questions. So I've got a couple of residual questions. The first is on loan growth. I want to get a sense of the lower guidance over the past couple of quarters that as it has evolved, where are the pressure points? Is part of it largely the Hong Kong book because of the change in the rate environment that you -- versus what you initially anticipated? Is part of it the mortgage market in Singapore from what we've seen with cooling measures, et cetera? My second question on Citi. Most of it has been answered. But what would the NIM impact be going into '24, '25 incremental? And the third is I'd love to get an update on Lakshmi Vilas? Whether you've now decided to take your foot off the pedal and -- or rather press your foot on the pedal and grow the franchise because a year ago, it wasn't really the right environment to do so?

So on loan growth, I think it's all of the above. If you look at the second quarter as an example, our non-trade loan growth was flattish and the trade book shrank by about $4 billion. The trade loan book reduction, as I mentioned in the briefing, as best as I can see, about half of it is just a general slowdown and half of it is the loans, basically, we let them run off because the pricing was so low, 10 basis points kind of loan, right? On the non-trade book, we got $3 billion, $4 billion of loan growth everywhere else, and we lost the $3 billion as loan shifted from Hong Kong to China. So you can see that in the reduction in the Hong Kong loan. So it's a little bit of both. In the local book, the mortgages will be slower, Singapore mortgages will be slower than we anticipated. I was hoping even after all of the changes that we would do north of $1 billion in growth in the balances this year. Now I think we'll probably wind up at between $500 million and $750 million for the year. So it's not huge, but I would probably not -- give up about a few hundred million dollars of growth from the mortgage book over here. So it's a mixed bag. My own -- right now is that I think we should be able to do in the order of about $5-odd billion of growth in the second half of the year. But if you add that to 0 in the first half, you'll get somewhere between 1 and 2 percentage points of loan growth for the year across the book. On your a question on Citi NIM. I haven't seen it, the model, maybe Sok Hui -- it's not much. So you will probably see a 1 basis point uplift because of the Citi book integration next year. And your third question was Lakshmi Vilas, Lakshmi Vilas actually, we do have a foot on the pedal...

Actually, Piyush, if I can just check, like Citi, a lot of it is unsecured credit, right? So wouldn't that be higher margins generally?

Of course, it will be, but it's a small portion of our book. Our total loan book has $400 billion, if we add about another $15 billion, right?

Okay, all right.

And then your last question, Lakshmi Vilas. Lakshmi Vilas is doing really well. So the integrations been done. We're really now beginning to put our foot on the pedal. We're getting growth in loans. We're getting growth in deposits, we're getting growth across the board. So India, as the franchise is growing quite nicely at this stage. We're all cylinders firing.

Where does the cost to income sit there now? I remember when you bought, it was close to 100%, right? Now I mean, are you beginning to see widening jaws from what you just mentioned?

You have the cost income of just the LVB franchise? We stopped tracking the LVB franchise separately if you are aware. But no, I think it will be profitable. The LVB franchise as I said will be profitable. So -- but I'll get somebody to check out the cost income of the LVB franchise.

Our next question is from Tan Yong Hong from Citi.

Just 2 questions from me. The first 1 is related to capital question. We higher absolute dividends and our $0.24 per year uplift would you be confident or comfortable with maybe a 70% payout ratio or higher, is that if it's all asset quality turns? Or will you be keeping some of these $3 billion capital for this company even?

I didn't follow the question. May you are saying would we be confident of a 70% payout higher, I don't know, because we don't look at the payout ratio as our principal driver. It is just that if you do the math backwards and see how much capital we need to pay out, you do get a number in the 60s, right? And so if we had to, we would be comfortable with that. But that's not a key driver of what we call. We'd stay with our dividend policy, which is to be consistent and in line with the growth of our business.

Got it. And my second question will be, is there any update to how many percent of your commercial book been hit. I think the last update was 6%, and that has helped to push on your interest rate downside lease when the pivot as you stated in your Pillar 3 disclosure? And should we be expecting that to be further reduced as we get to year-end and beyond?

No, we actually beginning to -- as the hedges roll off for some of our overlay positions we recreate the hedges. So I think we said about 8% or something of the whole this thing was hedged, and so what happens is the hedges come off now. And particularly at these, where the yield curve is and where the pricing is, we are continuing to take some portion of that and hedge it back in that when the middle of the bucket category.

Our next question is from Weldon Sng, HSBC.

Yes. Okay. Can I just clarify on the dividend, which is -- if you just take the $0.42 and 3 x $0.48, I think you get to about $1.86. So that when your EPS is about 4 plus that less than 50% payout this year. So is that the ratio you're looking for this year?

We have already said that we review this every quarter. The Board reviews this every quarter, right? So -- and I know we are predicting, but it could well be that we pay more than $0.48 in a quarter as well.

Right, right. And just now you said your preferred is to raise the ordinary rather than the special, right?

That's correct. Yes.

Okay. Right. Got it. So can I just make sure I understand it correctly because you had said that you have $1.20 per share of excess capital payback, so if you -- so if I just annualize the additional of $0.24 that you added to this trajectory this time. But I mean, then I just found that's around $0.60, right? So that's like sort of $0.60 of the $1.20 that you had...

No, no, that's not right. The $1.20 is on top of the $0.24 we've already factored in.

On top of the regular...

Go back to yesterday. We said we factored in that we can definitely pay $0.24 increase every year. And then on top of that, we think we have another $1.20 we need to pay out, right? So that's on top of that $0.24 increase, which is already factored in.

Right, right. But from this year compared to last year, because of this year adjustment, there's an additional $0.24 a year that is paid out in this year. Isn't that right?

No, actually, it's not -- assuming we don't change the $0.48, and you take the calendar year, right, there is an additional $0.18 on top of the $0.24, right? Because you already increased by $0.06 first. So $0.06 over 4 quarters is 20% and now for the 3 quarters, we are increasing by another $0.06. That's another $0.18.

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