Oversea-Chinese Banking Corporation Limited (O39) Earnings Call Transcript & Summary

Hi. Good morning. Thank you for joining us this morning to our -- at our results earnings call. On today, who we have on our panel with Mr. Samuel Tsien, our group CEO; Ms. Helen Wong, which is our Deputy President; and Mr. Ching Wei Hong, our Deputy President; as well as Darren Tan, our CFO. So we're going to start with Darren kind of taking us through our presentation slides on our results for first half as well as second quarter. And thereafter, we will take questions. [Operator Instructions] Darren, please.

Yes. Good morning. Thank you for joining us today. I will point you to Slide 4. Now you can see from Slide 4, our net profit for the first half of 2020 was $1.43 billion, is down 42% year-on-year as compared to $2.45 billion in the previous year. Now for the second quarter, our net profit was 5% higher at $730 million, and this compares to $698 million in the first quarter of 2020. I'll move on to Slide 5. If you were to look at our operating profit before allowances for our banking operations, it held up relatively well despite the challenging operating environment, rising 1% year-on-year to SGD 2.81 billion. And for Bank of Singapore, despite the market volatility, its AUM reported a small year-on-year increase to USD 113 billion. Insurance business fundamentals remains healthy. Great Eastern continues to generate operating profit growth of 57% as compared to a year ago, and net total weighted new sales were also 7% higher. I'll move you to Slide 6. Our fundamentals remain strong, funding, liquidity and capital positions at a strong level. Net stable funding ratio rose to 119% from 108% as of March 2020. This would enable us to continue to support longer term duration, in this case, longer duration loans. Now in terms of currency coverage ratio, liquidity coverage ratio for first half was 139%, and this is well above the regulatory requirement. And on our capital, our CET1 CAR remains high at 14.2%, while our leverage ratio was unchanged at 7.4%. I'll go into the details of our group performance, starting from Slide 7. Half year group net profit was 42% lower at $1.43 billion, largely from the higher allowances set aside for both impaired and nonimpaired assets. Now if you were to move on to Slide 8, our banking operations net profit was 43% lower at $1.16 billion, mainly from higher allowances. Insurance operations net profit was also 37% lower at $268 million, mainly because of the market volatility that we witnessed over this 2 quarters. And on Slide 9, on our second quarter results, net profit for the second quarter was $730 million, 5% higher than the previous quarter. And in the second quarter, we continued to show up allowances to buffer against the deteriorating economic environment with total allowances of $750 million as compared to $657 million in the first quarter. And on Slide 10, you can see for the quarter, our net profit from operations was $480 million, 29% lower as compared to the quarter before of $680 million. And this, as I mentioned earlier, was mainly from our increased allowances as well as a 8% drop on a quarter-on-quarter basis in terms of the income. Our insurance operations, however, have benefited from the rebound in the financial markets to report a net contribution -- profit contributions of $250 million. I'll move on to Slide 12, on our net interest income. For the first half of 2020 was $3.11 billion, and this was relatively unchanged compared to the year ago. Now although average asset grew about 5% on a year-on-year basis, this was offset by the 10 basis point compression in terms of net interest margin to 1.68%, very much in tandem with the fall in interest rates. Also, the strong deposit growth that we experienced during this period was won without any corresponding sort of amount of loan growth, which also compresses the LDR, loan-to-deposit ratio, and thereby contributing to the further drop in terms of net interest margin. Now on Slide 13. Our first half '20 noninterest income was 8% lower year-on-year at $2 billion, and this was largely from the combination of lower fee, trading and insurance income. Now if you were to go on to Slide 14, on the net fee itself, you will notice that for the first half of 2020, net fee income was a decline of 3% year-on-year to $986 million. The strong performance in the first quarter of this year was not repeated in the second quarter, partly also because customer activities and transaction volumes were impacted by both the weaker investment sentiment and also movement restrictions within this period. I'll move on to operating expenses on Slide 17. Now with the reduction in top line income, we strive to also tighten our operating expenses. Operating expenses declined 1% to $2.22 billion from $2.25 billion a year ago, by a reduction in terms of discretionary spending and variable compensation that we accrue across this period. Now with 1% decline in operating expenses, our cost-to-income ratio was higher at 43.3% as compared to 42.4% in the first half of last year. I'll move on to Slide 18 on our allowances. Now to buffer our portfolio against the uncertain market outlook, we have revised and raised our general provision to $614 million in the first half of this year, and this is compared to $35 million last year. This included essentially $197 million arising from the adjustment for the macroeconomic environment and also an overlay of $300 million over and above what the ECL model requirements would be. And in terms of allowances for impaired assets, they were higher as well as $793 million from $325 million last year. Now for the quarter itself, we took in additional specific allowances for Singapore-based corporate account in the oil trading sector, and also further specific provisions were taken for offshore vessels support sector as we mark down the carrying value of the OSV NPLs. Consequently, if you look at our allowances for the loans for this half, the amount would be $1.41 billion, and this compared to $360 million a year ago. And if you look at it from the credit cost perspective, for the first half of 2020, it was at 91 basis points as compared to 25 basis points last year. Consequently, as a result of the higher provisions, on Slide 19, you will notice that the total NPA coverage ratio was raised to 101%. And in terms of the unsecured coverage for the unsecured NPA, the coverage ratio was at 284%. Now I'll move on quickly to Slide 24 and the last slide that I'll cover before I pass on to -- the floor to Sam. On our interim dividend, as you are aware, MAS had called upon the Singapore banks to cap the total dividend per share for 2020 and as a preemptive measure essentially to fortify the bank's resilience as well as capacity to support lending activities in the economy. So for us, the cap on 60% of our dividend, in this case, $0.53 for financial year 2019, it translates to $0.318 for financial year 2020. In this case, $0.318 per share. Accordingly, we declined an interim dividend, in this case, of $0.159 per share, half of $0.318 per share, and this will represent a payout ratio of 49% against our first half 2020 net profit. In line with MAS guidance and also consistent with our past practice, we'll be applying the Scrip Dividend Scheme to this interim dividend and at a 10% discount to the dividend. Now with the expected retention in terms of capital, our even stronger capital position will place us in a good state to tie over the COVID-19 pandemic and also enable us to continue to -- in our efforts to develop our employees and also support our customers and communities. Now with that, I will end here -- the presentation here, and I will pass the floor to Sam. Thank you.

Good morning, everyone. This is Sam. I was originally planned to see you in person by this quarter, but I guess we have to wait until the next quarter. I want to cover the key highlights, and then I'll talk about some of the matters particularly on a forward-looking basis. First of all, the key highlight is that on the revenue side, we are basically flat with the previous year. Our group revenue is also impacted by the mark-to-market swings between the quarters for our insurance operation. But if you then look at our banking operations, which is the largest operation within the group, our revenue was flat, our expenses were controlled. And as a result of that, our operating profit actually increased by 1%. As a matter of fact, our first half operating profit before allowances was the highest half yearly results that we have ever reported. So it's a record high for us for the first half of this year. Having said that, however, the allowances have significantly increased. For the first half of this year, we created a total allowance of $1.4 billion. And within which, as Darren have said, there is the ECL 1 and 2, which previously we call it, but it's not exactly the same, but similar to the general provision. And within that, we have included 2 components. One is the $195 million of macroeconomic factors, which is a forward-looking economic market development. And if the indicators of the future economic development is week, we will create more into this ECL 1 and 2. And then in addition to that, we have also increased our management overlay -- created a management overlay of $300 million, which is in anticipation of the uncertainty that may develop and that may adversely impact our portfolio. So it is done on a fairly prudent and conservative basis to make sure that we shore up our balance sheet. Then we talk about ECL 3, which is equivalent to the previous specific provision. We have taken 2 major actions in ECL 3. One is on our carryforward offshore support vessels portfolio. We have written the carrying value down by $350 million. Now why would we write-down this portfolio at this time? That was because on a forward-looking basis, we believe that the demand for offshore support vessels will come down quite significantly for a period of time. We do not know when the market is going to pick up because we do not know when all the markets will open up. And you know that transportation is a fairly important demand for the oil industry. And with airlines and with normal transportation down, we estimated that just from the lockdown related to transportation demand for fuel, it reduced by 35% in demand. And as a result of that, the offshore support vessels, which goes out to help explore the oil from the oil majors, are in significantly reduced demand. And as was indicated by some other corporates involved in this industry, they've also taken a dimmer view than before on the future. And so we took the opportunity to also write-down the value. After we've written down the value, our OSV portfolio, if you exclude the conglomerates, that is basically down to a very low percentage of our total loans outstanding of less than 0.3%. In the area of credit cost, you will notice that the credit cost for the first half has gone up, but we anticipate that the credit cost for the entire 2-year period, 2020 to 2021, during this COVID-19 times, will still be at 100 to 130 basis point over a 2-year period. So the write-down and the creation of additional provision is well in line with our original expectation. Darren has talked about the dividend side. So our dividend is currently capped by the MAS guidance. However, we are still committed to our policy to pay progressive dividends that are sustainable and in line with OCBC's long-term growth as market stabilizes. I also want to talk about the moratorium because there were uncertainty relating to the impacts on the portfolio when the moratorium programs started to exit -- started to wind down. Our total moratorium relief across the group, including Singapore, Malaysia, Hong Kong and Indonesia, amounted to $27 billion. That's slightly under 10% of our total loan portfolio. But I want to point out that within the $27 billion moratorium relief, 88% of that is actually fully secured, which therefore, gives us comfort that even if the exit from the relief program, we'll have some challenges along the way because the market may not have fully recovered by that time, we still expect that the primary and the secondary source of repayment, which is from the collateral underlying those moratorium, will be able to provide us comfort that the repayment will be available. With respect to our cost management, we will continue to maintain our discipline on cost management. You will notice that, although on the group basis, our expenses was basically flat. But for our banking operations, our expenses were down on a quarter-to-quarter basis. In the second quarter, our expenses were down by 3% versus the first quarter. We expect that our expenses, on a quarterly basis, will continue to see a downward trend. And this will basically be managed through our discretionary spending, our adjusting of variable compensation, our rationalization of real estate costs and realizing efficiencies from the technology spend that we have been able to derive benefits from going forward. Having said that, we are committing to the community that there will be no layoffs in the midst of this COVID crisis. As a matter of fact, we are creating new job opportunities for the community. You would have recalled that a few months ago, we have made a commitment of creating 3,000 job opportunities across the group, including our bank and including our insurance company. During this point in time, we have the social responsibility, in addition to our banking responsibility, to support the community, support our customers and to support the national requirement to have job creation as the market slowly transits out of this covenanting situation. Our NIM was down during the quarter, but we expect that the NIM will continue to be slightly down going forward in the second half, but it will be maintained at the high 1.5% range. We -- our second quarter NIM was 1.6%. We think that it may slightly come down, but the magnitude of downward adjustment will not be as high as we saw in the second quarter versus the first quarter. So that completes my overview. I'm sure that some of you may have some specific questions. And Darren and I will be opening up to take any questions that you may have.

Okay. The first on the queue to ask questions is Natalie from Business Times.

So I just have 2 questions. So the first one is, how many of the loans or the moratorium are expected to turn into bad loans? And my next question is what's the guidance for total allowances through 2021? What's the pace of deterioration? And my last question is what is the bank's peak NPL ratio forecast?

Okay. With respect to the moratorium, there is quite a bit of uncertainty. Uncertainty relates to how is the program going to be managed? How fast can the market open up? And whether the economic activity is able to pick up or not? Because of this uncertainty, it is very difficult for us to expect how much of that is going to go bad. Based on the previous experiences, we are basically saying that the credit cost will go up to 100 to 130 basis point of our loan portfolio. So in absolute dollar terms, over a 2-year period, this will amount to somewhere between $3 billion and $4 billion for the 2-year period. We have taken $1.4 billion in the first half of this year. We are managing the exit from the relief program as much as we can, and we are working with regulators all around the world, including Singapore, Malaysia, Indonesia and Hong Kong, to make sure there is a coordinated response to the exit from the program. And hopefully, that will be able to help the transition smoother without significant cost to the economy. Having said that, I have mentioned earlier that 88% of our total moratorium relief of $27 billion are actually done on a secured basis. And many of those securities are real estate related, of which the LTV ratio is quite low. They are below 60%. So we are comfortable that, by far, the super majority of the relief program can be exited without ultimate credit cost to us. I've also addressed the credit cost issue, which is 100 and 130 basis point over a 2-year period. With respect to the peak NPL, our NPL ratio is currently at 1.6%. On a gross basis, because NPL, as you know, if we do not feel that there is recovery potential, we will write them off. But on a gross basis, before the write-off going forward, we expect that the gross NPL ratio would rise to 2.5% to 3.5%. That's our best estimate right now, Natalie.

Okay. The next to ask a question is Chris Wright from Euromoney.

I just wanted to ask a question about the wealth management franchise. If I could refer you to Slide #16. Now there, we can see that Bank of Singapore's assets under management increased year-on-year, and yet, total wealth management income declined. Now I recognize that Bank of Singapore was not the entirety of what you call wealth management, but I just wondered if you could speak to the dynamics and what those statistics are telling us. What the various ebbs and flows in the wealth management industry currently are?

The AUM figure that was shown on the slide, the period-end figure, so that is the end of June. And the fee income that was made was throughout the first and the second quarter. So the activity in wealth management significantly came down starting March into April. April was really the trough because during April, most of the economies of which we operate in are literally locked down. There is no client meetings. And the disposals and the shifting in the portfolio migration from riskier to less risky, from equity to bonds or for bonds to equity, took place in the month of March. So by April, there is not much activity. Activity starts to pick up in May. And actually, in June, the activity level in June matches that of March. It is not as good as January and February, but it matches that of March. So we see the pickup from the trough of April to May to June. Because the management -- wealth management fee income is recognized for the entire quarter, so you see that because of the lower activity in April, lower activity in May and then start to pick up in June, averaged out is still lower than that of the first quarter. But the AUM is a period-end AUM, so by June, because of market action, because of net new money, the AUM has started to rise again.

Okay. Right. The next will be Chanya from Bloomberg.

This is Chanyaporn Chanjaroen, reporter from Bloomberg. My first question, what would the NPL ratio in the second quarter have been without a moratorium? Second question, what's the percentage of your Singapore workforce who are working in the office? And when do you expect them to fully come back in? And also, I would like to hear your view about the property in Singapore, especially your view on both residential and commercial because the expectation of working from home might be -- I mean, remain work from home longer than many people would have thought it will.

Thank you, Chanya. With respect to the second half NPL ratio, we believe that it will inch up. It will inch up. But I don't think it will be a significant drop because most of the loans are still under moratorium. So when the moratorium program exits, for Malaysia, it will be in October 1, and for Singapore, it will be the 1st of January, assuming that there is no extension. There will be -- a fair portion of them will probably have some challenges in repayment. But as we exit, we do not believe that it will be exited on a total basis. In other words, there will be a scheduled increase in repayment, scheduled resumption in repayment. But during the first, probably half year, the repayment would not be going back to the original repayment schedule. So this will help ease the cash flow from the borrowers as well as help the banks to manage the customers' requirements better. So I anticipate that in the second half, NPL ratio will inch up. Second quarter, first quarter, moved up by 0.1%. So second quarter may move up slightly, perhaps on a quarterly basis, by the same magnitude. The ultimate impact will be seen as to how we manage the relief program exit. With respect to…

No, no. Sam, what I meant -- so sorry, what I meant was that in the second quarter, what would have been the NPL ratio without the moratorium?

You would not have that number because the customers are not required to repay for those under moratorium. But knowing that, in Singapore, only 10% -- only 9.4% of our loan book is on moratorium. So…

I see. So quite low. I see, I see.

It's very low. And for those under -- because our total moratory book is only 10% of our total loan book, okay. Malaysia is higher. Malaysia's moratorium is higher because Malaysia is on an opt-out basis. So if customers do not ask for it -- do not talk to you, sorry, do not talk to you, you will automatically put them on moratorium. So Malaysia is higher, but across the group, it's only 10%. And on a estimation basis, that's why I put down the gross NPL ratio of 2.5% to 3.5%. That assumes that on the high end, the relief program is exited in an unorderly manner. But if the relief program is exited on an orderly manner, we don't -- we may not see that high ratio either. So with respect to the work-from-home ratio, it differs from country to country. In Singapore, our work from home -- work-from-office ratio is about 50 -- hovers between 50% to 60%. So not all of our staff are back to office at all. With respect to the question on the real estate property value, we can only talk about the macro trends, and I don't think we should focus on the near term of the next 1 to 2 years. I continue to think that the real estate in Singapore has got tremendous intrinsic value because as a financial center, as a commercial center, as a tourist center and as a center with a lot of governance and national security, I think the general intention for the people to trade up, for the local people, and for the foreign investors to trade in, I think, continues to be there. So on the residential real estate market, my view is that it will be quite resilient, barring the blips that may move from 1 year to the other. But if you take a longer-term trend, which you should, because real estate is a long-term investment, then I think the market will be quite resilient. With respect to the commercial side, it is true that going forward, there may be a portion -- a proportion, not necessarily the same people, but a proportion of the workforce who will permanently be working out of office, either remotely or from their homes. And therefore, in that narrow sense, the demand for the commercial real estate may come down. However, the ultimate demand for real -- for commercial real estate will depend on how are we going to promote Singapore as a commercial center. And if there are more commercial centers requirements from overseas investments and from domestic expansion, then the reduction from the people working from home will be picked up by the increased commercial activity that will come back into Singapore. So do not need to be too pessimistic as well on the commercial real estate market. There will be some near-term impacts caused by the shift from people working in office to people working away from office. But ultimately, it depends on our ability to generate commercial activity to fill in that gap, and we are pretty hopeful that with the private sector and the public sector working together, with our continued promotion of our strong points in the region, and as Asia continues to grow after this COVID incident, there will continue to be demand for commercial real estate, which may be able to fill in the gap that was created by people working away from office.

Thanks, Chanya. Okay. Next one, we have Goola from The Edge. Goola?

Also, thank you for the generous quick dividend, if I may say so. So really, your set one, could I just ask, what are the expectations over this 2-year period for -- because there could be some credit migration that could cause RWA to rise? Will the scrip dividend offset some of this and add capital to the numerator -- I mean add more to the numerator? That's the first question. Then the second question is what -- could you give us an idea of what the macroeconomic variables are for your ECL model in terms of like GDP growth, unemployment and so on, that caused you to put more aside for your ECL 1 and 2? And finally, could we just look ahead after COVID? Do you still see the same opportunities in your GBA, your Greater Bay Area, strategy that you did a couple of years ago?

Thank you, Goola. I'll have our CFO, Darren, to take the first question relating to dividend and capital.

Goola, this is Darren. Now in terms of RWA increase, in this case, because of credit migration yes, [indiscernible] actually begin to wade in the first half. In fact, if you look at the second quarter itself, you will notice that our total RWA increased by 5%, of which our credit RWA increased by about 7%. Now that has taken place in this first half and second quarter. In terms of the dividend, the payout would actually take place in the third quarter, of which we do, based on experience, and you also mentioned the generous -- generosity in terms of the discount that we applied to it, we do expect a certain amount of retention. The historical experience we've had in terms of the retention of the dividend by its previous amount about, at least 70%. And in turn, that would roughly sort of add back on the numerator quite a fair bit of capital. Although the net outflow of 30% would also mean that in general, that would be a sort of a slight decline arising from the dividend itself. But we do think that, that will be more than covered by the earnings that we will be able to capture in the third quarter itself. Now in terms of RWA numerator increase in the third quarter, to a certain extent, obviously, depends on the extent of the slowdown that we are seeing now. But we would think that the pace of increase in terms of credit RWA will be slower. So putting all together, if numerator being recaptured, earnings -- sorry, numerator with dividend being recaptured and also having earnings expected in the third quarter and a slower growth in RWA, we will think that the overall capital level will still be relatively strong, at least going to the [indiscernible] and that's particularly answering to the impact arising from the dividend.

Goola, with respect to the second question on the MEVs, the MEV factors that we take into account covers all of the regions of which we are in. So not only for Singapore, but also for Malaysia, for Indonesia, for Greater China and for all countries of which we have credit risk components there. And the factors we take into account are the PPI, the unemployment, the interest rate and the GDP, growth or decline. So these are the 4 major factors that we take into account when we look at our ECL 1 and 2 requirement and when we look at the MEV. Also bear in mind that the MEV is done on a forward-looking basis. So it is not what we have been able to achieve for the second quarter. We will actually look at the third, fourth, and look at into 2021 as well. So all these on a forward-looking basis. And as a result of the less promising macroeconomic variable factors going forward, we have created additional allowances of $197 million in the first half of this year. With respect to your third question on going forward growth, particularly with respect to GBA. Actually, the way that we look at economy developing is that there will be some rebalancing happening, and there will be some reinventing of the business models that is required. So during this period of time, we will also be actively involved with our client base, whether it is in consolidation, in some privatization, in the overseas diversification or in restructuring. We also believe that there will be shifts in the global supply chain, which will result in some of the countries on the receiving end of capital investments, particularly for onshore or near-shore manufacturing. So we'll be focusing on that as well. We believe that China will continue to be a major factor of creation of economic activities for this region, particularly as the world becomes a bit more bipolar. And we are going to broaden our China business office coverage for Southeast Asia. With respect to Greater Bay Area, it will continue to be a focus for us. You would have noticed that Greater Bay Area has just announced what is called the Wealth Management Connect Initiative, and we are closely following that. That basically allows the Chinese residents to invest into Hong Kong, and for Hong Kong investors to invest into China. The details have not yet been announced, but the framework has been announced. So we are actively looking at that to see how we can serve the customers in that region so that each one of them will have an expanded range of investment products across the border into each other's regions. A further point looking forward is we will be focusing on sustainability-related projects and customer requirements quite a bit. Previously, about 3 years ago, we have said that we would like to build up the sustainability portfolio from insignificant amount of below $1 billion then to $10 billion by 2023. We have already achieved that, of $10 billion, in 2020 this year. So now we set ourselves a higher target of $25 billion by '25. What does that mean? It means that we want to hit $25 billion in sustainability portfolio by 2025. So we believe that, that's an area of which we can work more intensively on because there's a global requirement, there's a regional requirement, there's a country requirement for that. On the other hand, we are also going to continue our investments into digitalization because that is going to increase the customers' stickiness to the bank. The customers' client -- customers' experience with us is going to be more favorable, and it is going to reduce the cost. I mentioned earlier in the cost management side, there are different areas of which we are working on, and one of it is to achieve the cost efficiencies of the investments that we have already made in the digitalization side. We have made those investments in the past, but the customers' utilization has not been as high and as quick as we had originally anticipated. Now with the COVID prompter, people are willing to utilize that more frequently than before. So ultimately, it's going to reduce our cost. One other number I want to share with you is that during the first half of this year, we have 100,000 first-time digital sign-on customers. Majority of that in consumer, a minority of that is also in our businesses. Now this is fantastic because I think without the COVID, it will be difficult to achieve the 100,000 number. But with the COVID as the prompter, we actually added another 100,000 active users to our base, which is already very high. For consumer side, it's about 60%; on the commercial side, it's about 70%.

Okay. The next up will be Anshuman from Reuters.

I wanted to check with you on what really -- if you can give some color on what really changed this quarter versus Q1? And there's several unknowns out there. So how does OCBC look at navigating the landscape? I mean you talked about opportunities in investment banking and supply chains and all that. But generally, should investors be prepared for much slower growth for OCBC and in general for the sector?

Okay. Thank you, Anshu. The -- I think the general response to your question is the difference between the second quarter and the first quarter is that we reinforced our strengthening of the balance sheet. Because the balance sheet ultimately is the foundation for us to face the challenges and also be prepared to grow after COVID-19 is totally contained. So to me, strengthening of the balance sheet is most important. So what did we do? First of all, on the capital preservation side. Secondly, on shoring up their allowances so that we can get all of the factors that is visible to us to put them behind us. So that's why we took an allowance action on the carryforward OSV portfolio. The OSV portfolio, in a way, in the second quarter and the first quarter, are performing at the same level. But when we look at on a forward-looking basis, we look at whether those charter, which is in place, will be able to be renewed at the old rate, or whether the charter will be renewed because of the reduced activity in the demand for oil, and therefore, the exploration will be reduced. And as the COVID continues, the outbreak continues, the impact on the transportation industry, that include cars and airplanes, are significant. And as you may know, transportation's demand for oil represents about 35%, 40% of the requirement of the total oil in the world. And if that is under subdued demand, it's bound to have an impact on that. So we are taking action on a very forward-looking basis for this portfolio, and we decided to write-down what we call the carrying value of the loans. The loans are not written off. They are just writing down the carrying values because taking that view is that we need to do that. Of course, in the first quarter -- in the first half of this year, we also have the write-down of the oil trader exposure in Singapore, and we also write that down. So these are the major components. And then we shore up on the ECL 1 and 2 side, management overlay, macroeconomic variables. So we are totally shoring up the balance sheet. This is both for defensive reasons as well as for offensive reasons. In terms of the growth in revenue, I think for the second half of this year, the revenue growth will be fairly muted. Starting 2021, it depends on how the COVID virus is going to be contained. I believe there will be a gradual opening of the economy as people's safety measures have improved and their awareness of what needs to be done have improved. And this is regardless of whether a vaccine is invented or not. With that, we will see gradual increase in activity. And because the liquidity in the market is still significantly ample, maybe too much, it is going to generate economic activities for us to grow. So the areas that I mentioned about looking at the supply chain shift, looking at the growth in the wealth management side, looking at some of the corporate finance deals that may be required, looking at sustainable renewable financing, I think those are the areas that will generate future growth for us. In terms of the normal conventional growth, I think they will be slower, and there will be some restructuring that is required. But as the market gradually opens up, those industries will also have a higher demand than we are seeing them now.

So next will be from Nikkei. Takashi from Nikkei. Takashi, you're next.

I have a question on digitalization. So as you explained, customers are shifting rapidly from off-line to online. So do you consider shutting down more branches, shutting down more ATM? And how is the situation of other countries you are operating in? Is the pace of digital adoption as fast as Singapore in other countries?

Okay. Thank you, Takashi. I'll pass it on to Wei Hong, who is Deputy President, in-charge of consumer banking and wealth management to respond to this digitalization question and the impact on our operation.

Yes. Takashi, in terms of the branch network, yes, we are looking at rationalizing it, but we're not looking at shutting down half the fleet. I think it is important, while we have seen a very strong and high-level adoption of digital banking, our wealth management business is also a key part of the business. Despite the fact that, actually, over the COVID circuit breaker period, our wealth management online sales went up about threefolds. But there's still the bond assurance business that requires a lot more face-to-face engagement with the customers. So yes, if your question is will we close branches? Yes, we will close branches, but the network will still be a very important asset for us. It's also going to be a key differentiator for us against the pure digital banks, right? So in terms of the ATM networks, the ATM networks, we have always been rationalizing it. And again, cash will never go away completely. It will not disappear, but there will be also a certain degree of rationalization.

Can you talk about overseas market as well? Takashi, can you -- your second part of your question, talking about the overseas markets, can you repeat that?

Yes. So you mentioned about how fast Singapore customers adopting digital technology in Singapore. But how about other countries that you are operating in Thailand, Malaysia, Indonesia? Do you see the same tendency, same situation in other countries?

Yes. For the other markets where we do have consumer banking operations, that will be Indonesia, Malaysia and Hong Kong, yes, we've seen also a fairly -- a good take-up and adoption of digital banking in the 3 -- other 3 core markets. So likewise, in terms of, if you ask then what did we do with our branch and ATM network, I think we will also follow the same adoption of rationalizing and also enhancing the networks and focusing them on the wealth management sales direction.

If I may just add, Takashi, with respect to our insurance operation, we have insurance to the online insurance sales. So during the first half, despite the lockdown, the insurance agents are still communicating with their clients, which actually resulted in our total weighted new sales for the first half to be 7% above that of the previous period. Those are primarily simpler products, but it still drive up the sales for us through the digitalization that they have embarked upon.

Okay. We have Chris again from Euromoney.

Actually, your previous answers have touched upon what I was going to raise. But earlier, when I asked you about the wealth management side, you said one of the reasons for the trough in April was the absence of face-to-face client meetings. And I just wondered, given everything that we've learned in the last 3 months about what can be done without jumping on planes, without sitting down face-to-face, and using newer technologies like video conference, not just in wealth, but across your businesses, how important is it, in your view, that bankers and relationship managers can sit down face-to-face with people?

Chris, it depends on the complexity of the products. So if it is a fairly straightforward product, of which the structure is not complex, it is very -- could be very effectively done through the online channel, through online communication, and through video communication. But if you are talking about a portfolio review that involves complex products and the future movements of those complex products, depending on multiple factors instead of just interest rate such as you've got the political risk, you've got geographical risk, you've got industry risk in there, we still believe that it is a relationship business. And it is not so much that the customer or the bank already have a transaction in mind to execute. Execution is most easily and most effectively and efficiently done through the technology side. But when it comes to creating new ideas together, assessing an area which is not clearly defined, but we wanted to able to share with the customer, our view, and the customer will have their own view as well, and then we're bring in additional people to chip in, I think the relationship presentation side is still most relevant if you have a direct contact. Now as a compromise, it can be achieved. But whether you'll be able to create that depth of relationship, which resulted in closer interaction, which resulted in the customers buying into a solution that we have presented to them, I think it is still better if you have a face-to-face meeting. But I also want to point out that during the month of April, I think the risk appetite is not there. The propensity to do a transaction is not there. Because people are focusing on a crisis. People are focusing where they -- when can the market open up, what happened to their family members. Some families are split apart. So the attention is not there, which also caused the reduction in activities.

Thanks. We have the last question from Chanya. Chanya, next.

Yes. Sorry, I kept muting myself. Sam, so for the next 2 quarters, can we -- are we going to see huge jumps in provisions again? Or are you done front-loading? And the fact that the dividend curve is now in place, would that allow you more ammunition to set aside provisions?

The allowances, as you would have noted, with the MEV and with the management overlay, are really done on a forward-looking basis already. And therefore, if the market turns out to be as we see now on a forward-looking basis, the provisions that we have created would have taken into account future development. But you also know that the future development is very uncertain. Not only the exit from the relief program, but also the geopolitical risks that we are seeing. So with those uncertainty factors, it is quite difficult for us to estimate as to what is the likely credit cost that we incur and the NPL that may result. So what we have done is that we, to use your term, front-loading it so that we'll be able to take care of the future uncertainty as we expect. But that uncertainty is, by nature, uncertain. So we would not be able to say, have all the uncertainties to be taken into account? We do not know that. But as far -- as much as we can, and that's why we break the allowances down because $1.4 billion is significantly higher than the prior period. We break it down as to what they are. We break it down as to writing down the OSV, which actually from a portfolio basis, did not change that much on the first quarter; but on the forward-looking basis, the demand for oil and therefore, the utilization of these vessels will be reduced. If it's not for the next half, it will be for the next year, so we write that down. We break it further down into what is the impact of MEV, $197 million. We then say, beyond that, what else do you think? I said, I do not know. But because you do not know, we put in $300 million of management overlay. So that's how we have approached it.

Okay. We have come to the end of our earnings call with the media. We'd like to thank you very much for joining us this morning. Thank you.

Thank you very much. Hope to see you the next quarter.