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

Good morning, everyone. Welcome to OCBC's Fourth Quarter and Full Year 2022 Results Briefing. On our panel this morning, we have our group CEO, Ms. Helen Wong. We have our CFO, Ms. Go Chin Yee; Mr. Tan Teck Long, our Global Wholesale Banking Chief; our Global Treasury Chief, Mr. Kenneth Lai; and Mr. Sunny Quek, which is our Head of Consumer Banking. So for a start, Chin Yee will take us through the slides, and thereafter, we will take questions. Chin Yee, please?

Good morning, everyone. Thank you for joining us in our full year 2022 results presentation. We are pleased to report a record full year profit for 2022, and we will be increasing the return to shareholders by raising our dividend. I will now share more details of our results. Please turn to Slide 4. For full year 2022, we achieved a record net profit for both the group and our banking operations. Group net profit rose 18% to a new high of SGD 5.75 billion. Driven by strong banking operations performance, net profit from our banking operations increased 30% from a year ago to $5.1 billion. The group's return on equity improved by 1.5 percentage points to 11.1%, and earnings per share was 18% higher at SGD 1.27. Total income was strong. increased 10% year-on-year to $11.7 billion. Net interest income rose 31% to a new high, which more than offset the 16% decline in our noninterest income. The record net interest income was driven by loan growth and a 37 basis point expansion in net interest margin to 1.91% as we benefited from rising interest rates and well positioned balance sheet. Our cost-to-income ratio improved by 2 percentage points to 43% in as a result of well-disciplined expense management. With our proactive risk management, total allowances declined year-on-year and were below 2018 pre-pandemic level. Credit costs were lower at 16 basis points of loans compared to 29 basis points a year ago. Asset quality was resilient. NPL ratio declined 0.3 percentage points to 1.2%, while our NPA coverage ratio increased to 114%. Capital remained strong with CET1 ratio of 15.2%. With our robust results and strong capital, the Board has raised our final dividend by 43% or $0.12 to $0.40 per share. This brings our full year 2022 dividend to $0.68, up 28% from 2021 with payout ratio of 53%. Moving on to the performance of key businesses on Slide 5. Banking operations achieve record net profit for 2022 and exceeded the $5 billion mark for the first time. The strong performance was driven by record net interest income, underpinned by loan growth and a 37-basis-point expansion in net interest margin. Expenses were also well managed. Cost-to-income ratio improved more than 4 percentage points. Wealth Management business remained resilient. Group wealth management income continued to contribute to 1/3 of the group's total income. Wealth management income from core banking operations was 8% higher as we continue to grow our wealth franchise across private banking, premier private client and premier banking segments. Our AUM were higher year-on-year from sustained inflows of net new money. In particular, new -- net new money fresh funds in private banking were a record high in the last 5 years. For insurance, the underlying business remains strong. Operating profit was 7% higher year-on-year. Total weighted new sales stayed above SGD 1.9 billion while new business embedded value and margin were higher year-on-year on more favorable product mix. Next slide, 7. Our balance sheet remained solid. Given our strong capital, funding and liquidity position, there is ample room for us to capture growth opportunities and drive strong shareholder returns while having sufficient buffer to weather challenges. I'll now move on to more details of our performance on Slide 9. For 2022, we achieved record profit for both the group and banking operations. Operating profit growth from banking operations was stronger as compared to the group as the group operating profit included significant unrealized valuation losses on insurance contract liabilities in the fourth quarter of this year. Consequently, fourth quarter operating profit from banking operations grew by 6%, while the group registered a 10% drop. Group net profit was at the record $5.75 billion, an increase of 18% from the previous year. The strong growth was driven by a 31% increase in net interest income and lower allowances, which more than offset the decline in noninterest income. Expenses were well managed and rose 5% year-on-year, largely from higher staff costs. Moving on to the next slide. For the fourth quarter, net profit was 34% higher than a year ago. The profit growth was driven by record net interest income propelled by 79-basis-points expansion in our net interest margin. Net profit was, however, lower quarter-on-quarter. Net interest income rose 14% as our NIM continues to expand. The increase was, however, offset by a sharp decline in insurance income in the fourth quarter as a result of unrealized valuation losses on insurance contract liabilities that I mentioned earlier. Moving to Slide 13 on net interest income. Net interest income for both full year and fourth quarter rose -- hit new highs as loans continue to grow, and net interest margin expanded for consecutive quarters. FY 2022, net interest income crossed the $7 billion mark for the first time to $7.69 billion, an increase of 31% from the previous year. This was driven by asset growth and margin expansion across our key markets, including Singapore, Malaysia, Indonesia, China and Hong Kong as asset use continue to rise faster than the increase in funding costs. Full year NIM was strong at 1.91%, above our previous guidance of 1.8% to 1.9%. And for the fourth quarter, NIM was 2.31%, up 79 basis points from last year and 25 basis points from the third quarter. Our exit NIM in the fourth quarter was 2.35%. Next page. Full year 2022 net interest income was $3.99 billion, down 16% from a year ago. The year-on-year decrease was led by lower fee income and investment losses as a result of our bond portfolio rebalancing to address changing market conditions. Insurance income was lower, mainly due to the sharp decline in the fourth quarter as a result of the unrealized valuation losses on insurance contract liabilities. We have more details to explain these unrealized valuation losses on insurance contract liabilities in Slide 8, which I'll be happy to cover in Q&A later, if need be. Moving to next slide. Fee income for the full year was $1.85 billion, 18% lower than the previous year. Higher loan and trade fees were offset by softer wealth management and brokerage fees amid global [ resource ] investment sentiment. Nevertheless, our AUM expanded year-on-year to $255 billion, driven by continued net new money inflows. We will continue to focus on growing our AUM to better position ourselves to capture growth when market conditions improve. Full year trading income rose 9% year-on-year to $834 million customer flow income, which made up the bulk of our trading income was resilient at $696 million. Noncustomer flow income was higher in part due to gains from hedging activities. On operating expenses, our cost management ensured that expenses are well controlled. Full year operating expenses increased 5% from a year ago. This was mainly due to higher staff and IT-related expenses as we continue our investments in talent and technology to support our strategic priorities to drive growth. As income growth more than outpaced the increase in expenses, cost-to-income ratio improved to 43%. For the fourth quarter, expenses increased slightly by 1% year-on-year and 2% quarter-on-quarter. Turning on to allowances. For the full year, total allowances were $584 million or 16 basis points of loans as credit conditions improved this year, lower compared to $873 million or 29 basis points a year ago. Specific provisions were substantially lower at $216 million or 4 basis points of loans. Taking a prudent forward-looking view of uncertainties ahead, we have progressively been raising general provisions over the quarter to $368 million in full year 2022 from a combination of updates to our macroeconomic variables and additional management overlays. NPA coverage ratio increased to 114% as at end December 2022 as nonperforming assets declined quarter-on-quarter while total cumulative allowances were relatively unchanged at around $4 billion. Moving on to portfolio quality. Our portfolio quality was resilient. We continue to exercise prudent and proactive risk management and maintain a resilient portfolio quality. NPAs fell 20% year-on-year to $3.49 billion and were 5% below the previous quarter. NPAs continue to trend lower over consecutive quarters led by declines in ASEAN. However, our Greater China NPLs were higher quarter-on-quarter and year-on-year. This was largely attributable to 2 corporate names, of which one of them were downgraded already in the third quarter. The account that was downgraded in the fourth quarter was a corporate relationship in Hong Kong that is fully secured with LTV of more than 60%. Both downgrades were idiosyncratic in nature, and there is no structural stress observed in our Greater China exposures. Overall, our NPL ratio improved by 0.3 percentage points from a year ago to 1.2% and was stable from a quarter ago. New nonperforming asset formation for 2022 was lower than the prior year across the corporate and consumer book, given improved credit conditions. Recoveries and upgrades for the year were higher, largely driven by both consumer and corporate segments in Malaysia and Indonesia, following the orderly cessation of the loan relief program. Our loan portfolio continued to be well diversified across geography and industry. Loans grew 4.5% year-on-year in constant currency terms to $295 billion, led by increased lending to customers in Singapore and our international network in Australia, the United States and United Kingdom. Our sustainable financing loans expanded 27% year-on-year to $30 billion and now accounted for 10% of our group loans. On deposits, customer deposits grew 2% from a year ago to $350 billion, driven by increase in fixed deposits. The rise in FTEs were from both fresh fund placements and migration from our CASA balances as customers shifted their funds to higher-yielding deposits in a rising interest rate environment. As a result, our CASA ratio was lower at 51.8%. We continue to actively manage funding in line with balance sheet requirements while defending our interest margins. The group's liquidity position remains sound with loans to deposit ratio at 83.3%. On capital, the group's capital position remained strong. As at 31st December, CET1 ratio increased 0.8 percentage points quarter-on-quarter to 15.2%. The increase was mainly due to profit accretion and lower risk-weighted assets. RWA declined from a quarter ago to $232 billion contributing to a 0.4 percentage point increase in our CET1 ratio. The lower RWA was mainly driven by a $5 billion decline in credit RWA and $2 billion drop in market RWA. Credit RWA was lower, largely due to a $1.5 billion savings from our RWA optimization initiatives and currency translation effects. For the last 5 years from 2017 to 2022 as part of our strategic efforts to increase efficiency of capital, we have generated significant RWA savings through methodology refinements. Moving forward in 2023, we potentially have savings from RWA optimization and capital optimization as well. While this efficiency will help to support our current levels of CET1, we target a CET1 ratio in the region of about 14% for the medium term from a combination of asset growth and increase in shareholders' returns. Okay. To recap, I mentioned at the start that to reward our shareholders, we have increased our dividend. And our final dividend has been raised by 43% to $0.40. With this, our full year dividend will be 28%, higher at $0.68 per share as compared to a year ago. This brings our dividend payout ratio to 53%, the highest level since 2008. Going forward, we target to deliver a 50% payout ratio. The target payout ratio and the substantial increase in final dividend provides a clear intent on dividend payment. This demonstrates our confidence in generating quality earnings growth, which is supported by a strong capital position. And with our ongoing efforts and initiatives to optimize our RWA and capital allocations, we would be able to achieve greater capital efficiency to support and deliver increasing shareholders' return. With this, I end my presentation, and will now pass the floor over to Helen. Helen?

Thank you, Chin Yee. Good morning to everyone, and it's my pleasure to welcome everyone back to our building on our top floor. So good to see everyone sitting all together. As shared by Chin Yee, we achieved a record group net profit for 2022. And I think before I start to go through my presentation, I hope you like the cover. We used this, this time. And if you see hey, is that is actually the OCBC Mangrove Park in Pulau Ubin. Last year, we sponsored this very important project to help fight climate change and indeed, to celebrate our 90th anniversary. So it was unveiled in the fourth quarter last year. I think let me be brief, but we said so much about a record year. And I just want to say that the performance was very much attributed to foundations that we have put in place in the previous few years and as we steered through the pandemic. So I'd like to take some time to go through some of the highlights of the factors that contribute to the performance. So as said, profit was higher than that of -- is record high, and of course, it's higher than the pre-pandemic high of 2019. I'm pleased to report that we have, as a team, together, made the key financial targets that we set for ourselves. So ROE, loan growth, net interest margin and credit costs and then also, in general, a much higher profit. All these were made possible by the momentum generated by our well-balanced portfolio. So again, we always say that our franchise is banking, which performed exceptionally well this year, insurance and also wealth. We also refreshed our corporate strategy in 2021. I unveiled something that I think will be fleshed out on the page later on. But last year, we were very focused on executing the strategy. So we will be sharing some of the highlights according to how we execute our strategy. And indeed, the strong earnings momentum that we have started to see and the strong capital position allow us to review our dividend policy. And as Chin Yee said, we'll target to achieve a payout ratio 50% going forward. All right. So what we're talking about what we have achieved? And indeed, our banking operations delivered record earnings, we posted -- positioned ourselves in particular on our balance sheet and to capture the upswing in the interest rate. And we met our nongrowth. I think that is in constant currency basis. And we also reshaped our deposit base and how we maintain CASA and also how we open new operating accounts faster than before, having achieved a good improvement in digitalization. So across our wealth management franchise, we continue to see sustained inflow of net new money. And this respect that the market has been a bit challenging last year, and you see Bank of Singapore AUM falling. But indeed, we have net new inflows of money for both Bank of Singapore and also for our high net worth customers in our [ CFS ] network. The portfolio quality, of course, remains sound as we continue to exercise proactive risk management. Our credit costs, as reported, were at 16 basis points, which is below the original guidance of 20 to 25 basis points as we set out in the beginning of last year. So if I turn the page, I was talking about refreshing is the same execution of the corporate strategy we unveiled in late part of 2021. But this is a recap to show you the 8 pillars that we have laid out for our strategy. And just to highlight some of them, the first one I really want to talk about sustainability agenda. You know I'm very passionate, and this is so important for everyone. It's not just about climate. It's the whole ESG agenda and indeed, how a company and as a banking group, how we remain to be sustainable as we grow our business. So some highlights in the year 2022, we committed to net zero by 2050 with 1 of the 4 ASEAN banks to join Net-Zero Banking Alliance and that is pledging our commitment. And we already achieved carbon neutrality for banking operational emissions in 2022. And we also further commit SGD 25 million of investment to reduce our carbon footprint across our network. We will continue to support our customer to transit -- in transition to no-carbon well, so we grew our sustainable financing commitment. I think Chin Yee mentioned about outstanding on the book, but our commitment is actually $44 billion, which is quite close to our $50 billion target by 2025, then potentially be some revision on this number and as we continue to push the agenda. I think the important thing is it's not just supporting the large corporates. We want to support the SMEs, so we extend our SME sustainable finance framework to our other markets outside of Singapore as well. We want to continue to support the community. That is very important. I listed a few things there. For example, we continue to support vulnerable individuals, and we will be reaching 1 million by this year since we set out the target 5 years ago. For accelerating growth through digital transformation, some interesting numbers here. I won't go through one by one. But it's indeed over the last few years, we have made significant progress in our digital transformation and accelerated digital adoption by our customers. So we're talking about specifically in Singapore. Almost all of our customers' financial transactions are now conducted digitally. It's important to keep such changes in technology to ensure our digital platforms enable us to meet the evolving needs of our customers. And this is not just for retail customers, consumers, but again, it's for the SME and also for the large corporates as well. We rolled out some innovative solutions and products this year as well, and it's on the right-hand side of the slide. But I think it's interesting, for example, you can top-up your CPF up through an ATM, I think this is quite innovative. Okay. Switching and turning on to Slide 7, is one of the very key strategy of ours is seizing the opportunity and locking value from Asia's growth. We call ourselves a leading Asian bank. And indeed, we want to continue to deepen our presence in the region across our key business pillars. So enhancing our capabilities, which is of the utmost importance and broaden our suite of products and services. So on top of our support of our customers on the sustainability front, we also expand our wealth management franchise to capture growing Asian wealth flows. So these positions us well to serve the wealth and investment needs across the spectrum in the region from ultra-high-net-worth customers to the mass affluent segment as well. And that's why we have also uplifted our wealth management platform just for across the board, servicing our customers. The trade and investment flow Intra-Asia continue to be important. And as we see a certain uplift in 2022 and the reopening of China's borders should continue to help the Greater China ASEAN flow as we continue to strengthen our network and our presence, including building a stronger, what we call our China business office team across the ASEAN countries and indeed strengthen our product offering in our transaction banking unit. It's not just in Singapore, but in Hong Kong, serving the whole Greater China. And also, we are improving our debt capital markets' capabilities and also in general, our treasury products capabilities. So what is the core theme in our strategies? Is this a one group approach. When we say we are a leading bank in Asia, it's important that we join the dots and making sure that we are acting in unison. Our success is driven by aligning ourselves internally to serve customers as a single relationship across the markets. I won't bore you with some of the internal things that we have done. But indeed, this is harnessing a unique combination of a strong geographical network and a very well-established franchise. And we want to, again, continue to establish and widen the scope of group-wide offices to enhance knowledge sharing and drive one group integrated approach. So we also refresh our management team. And you have us follow some of the announcement and news in 2022. We refreshed the team from within our own management internal management pool. And also, we have a few important and external hires. And this is, again, with a, in a way, also a younger team by now. And I hope that you would also notice we have a more diversified team. For our management team 2 out of 5 are females. So I hope that, together, we are diversity with different values and the same values, I'm sorry -- the same values, but different insights and -- but we join up together to manage our business. So for quality capital generation and shareholder returns, I don't need to repeat the dividend this year. But indeed, we do target 50% dividend payout ratio because we are confident to deliver continued growth by continued execution of our corporate strategy. Even in the next year, we could still face some uncertainty. So that leads to our last, my last page. And then looking into 2023. We're still confident of the resilience of our key markets and the strength of our diversified business franchise to deliver growth. Just to set a few targets, I listed out 3 here. Net interest margin in the region of 2.1% compared to the 2022 1.91%. We're talking about a single-digit loan growth, but that should be quality growth as we continue to watch our credit cost. And we are estimating a credit cost in the region of 15 to 20 basis points. I think you will definitely ask me ROE. So I want to say that we are targeting to deliver an ROE of more than 12%. And indeed, as I repeat again, to hopefully to deliver a 50% dividend payout ratio. And this year, it's 53% because we indeed have a very good year, and we do want to share the profits with our shareholders. So I'll end here, and we're open to questions.

Aakash from UBS.

This is Aakash from UBS. I'm here. The first question I have is on the net interest margin. So you had the strongest uplift in net interest margin in the second and the fourth quarter compared to the peers, but the guidance for the full year is around 2.1%, which looks very conservative. It kind of suggests that might decline by 15, 20 basis points for the year. So what are you seeing, which is different from the peers? Just to give you context for the peers, they're expecting the full year NIM to remain at the Q4 level. So for you, it's 20 basis points below right? So how do you explain that? That's the first question.

Thank you for that. I think we -- I think the market has a rather common view on how interest rate is moving. And we share that view. That means interest rate will continue to rise, but it will plateau off and potentially could come down in the second half of the year. When we say potential, right? So when we look at our book, you probably would also notice that funding cost is also rising, because as interest rates continue to go up, all banks -- in the way, financial institutions also share some of the interest rate rising with the depositors. So we do see that deposit -- and normally, your loans will be repriced faster than your deposit. So we do see competition in deposits and in fixed deposits as well. So if you look at trends of bank potentially, you may see -- continue a reduction in the percentage of CASA when more customers actually look on to getting on to time deposits for -- still for a while further, so I think this is because of these reasons, we feel that the overall, the full year NIM will still be higher, definitely higher than the 2022 full year NIM by, we estimate, say around the 2.1 region, meaning at least 20 basis points higher. But I think I don't want to paint to rosy a picture as we go ahead into the rest of the year.

Okay. Got it. Second, on the capital side, I think your revision of the payout policy is definitely a good step. It makes it more aligned with one of your peers, and it's much clearer than before. But I think the fact is still that you still have a lot of excess capital. And I think there's still a question like what are you going to do with that? So like is this payout policy revision a first step towards more to come? Should we start expecting a special dividend and maybe a higher payout for a couple of years when you have very strong earnings? Or is that not a fair expectation?

Thank you. I think you're right. This is the first step, right, as we continue to review our capital position. But we want to give a clear direction forward, right? That's why we said that we changed our dividend policy to target to -- or aim to reach 50%. I don't rule out like this year, we pay 53% because we have a good year. But it's important, as you said, we continue to look at how we manage our capital position and indeed, and how to support our growth, both -- we have a 3-year strategy as we unveil, but we're expecting faster growth organically, but we never rule out looking at inorganic opportunities as the market reopen, and we are looking at opportunities.

Could you also tell us what is the D1 uplift to capital from Basel IV implementation next year? So peers in the 80 to 100 basis point range, what is some of the number for you?

Chin Yee?

Yes, the expected uplift from Basel IV is around 2 percentage points, but that is transitional. As you understand, the Basel IV, there's a transitional phase-in approach.

Okay. Just last question I have is on the net new money inflow into Bank of Singapore. So you said it was positive for the year. Could you give us numbers? What was it for the whole year? And what was it for the Q4?

Can I give a full number because I don't want to neglect our consumer business as well? Maybe I'll ask Sunny to take that question.

Yes. Our net new money for the bank as a whole was upwards of $25 billion for the whole of last year.

For the whole of last year, Q4 alone, is that possible to share?

That's we prefer to distribute the whole year from here.

Yes. Sorry. I think, Neel, did you raise your hand up earlier? Would you like to. All right. Okay. Harsh, over to you.

Harsh Modi from JPMorgan. A few questions. I just wanted to understand a bit of numbers better. First on margins, what's the exit NIM in December? How much higher or lower is it versus fourth quarter?

Exit NIM is 2.34% in December.

And as we look at, let's say, first quarter and the trends in first and second quarter, what is changing more meaningfully? Is it more cost of fund, which is moving up, and on the -- which is likely? But also on the asset yield side, are you now getting to a point where you're saying that you may want to lock in these rates, extend the duration? Is that what's behind your guidance of slightly lower margins in course of the year?

I -- okay, we don't predict what happened or cannot just share exactly what happened in January, February. But I think, indeed, there's a trend, as I said earlier on, that the funding cost is getting up a bit more. And you know our funding base is 80% deposits as well, which we positioned very well to capture the rising. We continue to look at how we manage our funding costs. But I think I will invite Ken to talk maybe a little bit about duration investments.

Yes. So I think we're at the late stage of the interest rate cycle. So while our funding costs have predominantly gone up quite a bit last year on an overall blended basis, obviously, the deposit cost increase isn't as much as the wholesale funding costs on a blended basis has gone up. But at this late stage of this interest rate cycle, I think maybe the upside for the overall cost of function be that much more. So the focus really is to see how we can actually lock in some of our asset yields.

Okay. And that logic, Helen, that can describe on the securities. Is it similar for the loan book as well? So are you also starting to roll out more longer-term fixed rate kind of products to lock in higher rates for longer or not yet?

That this should be the strategy, right? But you also have to read the demand of the market. If the market believe, our consumer believes that interest rate is about to plateau, that's perhaps exactly the wrong time when they locked in interest rate. So it's a balancing act. You want to do it, but you need to be able to find the right product that customers want to accept. Of course, on the investment side, we also can plan to lock in at this level. As Ken said, we do see interest rate cycle coming perhaps to one end quite soon.

Right. So on your guidance of 2.1, that assumes that we get rate cuts in second half of '23. Is that fair?

I think we were saying that we estimate there will be some more catch-up on the funding side, but there's not a lot of upside on the income, on the loan side. So I think that is how we see it. And we are not really projecting a rapid drop of interest rate, no, but we are projecting a plateau. And when you are lending, you can't reprice your lending too much better, and you cannot have a lot of customers putting into fixed rate borrowing then as your deposit actually catch up then your cost of funding catch-up, then that's why we say that, that is how we estimate the NIM for 2023.

Right. Just a final question on margins. So let's say, if we end up getting terminal rate of 100 basis points higher than what has been currently priced in, then does your NIM guidance has upside risk or not really?

Potentially, yes. And you do know that through the years, as we discussed our quarterly results. We may give new estimate if we do see that the trend turns. So last year, I remember, I think we did look at NIM, from the early start of the year, we talked about 2023 having a lower than -- sorry, yes, I think we did adjust it when we see that the market is changing. And you do know that every 100 basis points would generate quite a substantial improvement in the net interest income for us. I think we are talking about roughly about $740 million for every 100 basis points on average.

Okay. And the final couple of questions on capital. The 50% plus/minus payout ratio, is it -- is there any linkage to absolute dividend per share as well? So should we expect a minimum of $0.40 per semester subject to 50% payout? Or there is no linkage on an absolute basis?

I don't think we should necessarily look at absolute payout. But when we say we change this, of course, we understand the investors, they may ask would your dividend drop, right, when you have a bad year. So I think we want to say that demonstrating our confidence in building the business to continue to grow. So that we hope that if we maintain 50% dividend payout, it's still on the upward trend, right, but it doesn't rule out as we look at the market, the demand of the investors, the shareholders. And it's not like looking just at 1 year when you decide your dividend. You look out into your capital, right, in the next 2, 3 years at least, so when the customer was asking me, hey, is this a turn of how you actually reward your shareholders. In a way, yes, we look at our capital position, we want to give a much clearer signal that we aim to achieve that. So -- but we always, when we decide the quantum of dividend that we pay out, of course, we will look at our capital position as well.

Neel from CLSA.

Thanks for the presentation, team. I did have a couple of follow-ups to what Aakash is mentioning. The first is on CET1, Chin Yee, you mentioned medium-term target of 14%. How do you actually get there? I mean in a much lower interest rate and NIM environment, you all have been above that level? So at a 50% payout ratio. I don't see it over the next 2, 3 years, at least it'd still be well above that level. So is there a time line to achieve that CET1 number?

Yes. As you can see, we are 15.2%, bringing down to 14%. We are expecting asset growth in terms of RWA. And also we did mention another factor, which is increasing returns to shareholders with our more clearer dividend policy of returning at least 50%. That will be a way of moving towards a more optimal sub-CET1 going forward.

Okay. And second question I had was more to do with how should I look at costs over this year and next year? I mean, your 5% year-on-year growth was actually fairly conservative compared to your peers. Do you see cost pressures coming in further through the course of this year? Should we look at a similar number? I mean the cost to income is fine that that's largely a function of the denominator, the income has been growing much faster. So what sort of cost growth would you be expecting this year?

We are expecting a higher cost this year as we continue to invest. It's not just business as usual. As we grow our business, we're also putting in resources in continue invest in digitalization. And we also would be investing in our capability in -- when I talk about sustainability, you think about it, how to help our customer transition to lower-carbon emission and how do we reshape our portfolio and indeed, how do we increase talent and brand strength? And as we said that we want to capture the Asian growth, that means you need more people who can work cross-border. And indeed, we are building up our talent base as well.

One last question on your credit cost guidance. Is that a reflection of seeing continued improvement in the asset book and more recoveries because over the -- if I look on quarterly trend, it moves around quite a bit. There are some quarters which are higher or some...

I don't think it's based on recovery. If you look at our book, our NPL ratio has improved quite a lot. And indeed, we look at our provision. We also look at -- you know we raised because of economic outlook, we raised some more provision on the non-impaired -- is nonimpaired provision, right? So it's not like we feel that we look at our asset quality. We feel our asset quality is good, quite similar to 2022. That's why if you look at the range, it's quite similar to 2022 as well.

One small detail. How much overlay did you add GPO discretionary overlay that you'll add in 4Q?

4Q actually is very small. It's basically MEV set, we -- how we look at the economy that we have adjusted the non-impaired provision.

Okay. We have one question from Chanya from Bloomberg.

Helen, Congratulations on the numbers. could you comment on capital returns. I mean the dividend is clear. But in terms of share buyback, what's the program for this year? And could you share the number in 2022? Also, could you share a bit more about your plans on wealth management expansion onshore on Mainland China, please?

Okay. Share buyback, we only do it for our own use. I mean for employee programs. So your second question, I might have missed the first few words. You're saying that talent for Mainland China, is that...

No, I ask if you can elaborate a bit more about your plans on expansion in wealth management, onshore China. And just to follow up, what's the outlook for 2023 wealth management? Do you see better fees or more trading from your clients?

Thank you. We did start our wealth management business in Mainland China. We're building a private banking team. I think the potential is good. And -- but remember, if we do that in Mainland China, that means we're also looking after these customers as they go overseas as well. So you have to think about it as we have coverage inside China, but we are also working as a team together as we look at wealth moving across Asia. I think that's an important point. So we will continue to invest in that business. As to wealth performance this year, I think as if interest rate cycle is coming to an end, and we have more confidence in the market, I think it's illustrated actually in the last couple of months, then we see upward potential for our wealth management fees. We are thinking that noninterest income should have a more rapid growth in terms of percentage than net interest income.

All right. Just to make sure I got it correctly, you say that the growth in wealth management fee this year will be faster in percentage to the growth in interest income?

Yes. In percentage terms, that's how we look at the book.

Thank you, Chanya. We have Nick from Crédit Suisse.

Nicholas from Crédit Suisse. Just two from me. Firstly, follow-up on the credit costs, the management overlay. How do you think about whether it's sufficient at this point in time and/or whether there's a need to build that up going forward? The second question is I think, Chin Yee, you mentioned on the RWA, there's room for further optimization in 2023. So I just want to understand where this is coming from and how much?

I think the first question is quite simple. The answer is yes. I think we have adequate management overlay. Chin Yee, pass to you on the second.

Okay. Yes. On RWA optimization in 2023, that will be coming from our single premium wholesale funding financing portfolio. Quantum-wise is around $4 billion, $5 billion reduction in RWA.

Okay. We will move to the people on the call. Maybe we start with Nick Lord from Morgan Stanley.

Can you hear me?

Yes.

Yes. Okay. A couple of questions from me. First of all, just on strategy. I mean I noticed for reference to -- I mean I think you said where you see yourself as an Asian bank. Is there any change in terms of core country strategy? I mean, obviously, historically, you've referred to yourself as a Singapore, Malaysia, Hong Kong and Indonesia focused bank. So I'm just interested in that. Second question is on -- two questions on credit quality. First is, I just wonder if you could share with us what it is particularly in the global economic outlook that's led you to increase the, MEV. And secondly, if you could just clarify what sector the Hong Kong nonperforming loan was in? And then finally, on IFRS 17 adoption, is there going to be -- or can you quantify the impact on the contribution from Great Eastern as a result of IFRS 17 introduction?

I'll take the first one, meaning geographical presence. Our core markets, as you have already named is Singapore, Malaysia, Indonesia Hong Kong. But in Hong Kong, we don't look at Hong Kong narrowly, we've synched it to China. That presence in China, Mainland China is very important, linking up with Hong Kong as 1 team because we are seeing flow across Greater China to ASEAN. We have strengthened our presence very much not just in the geography. I mean, geography meaning, do we have people sitting in, for example, Vietnam and Thailand who are able to receive some of the investments as even multinationals continue to do the China plus one strategy, right? So I think that is why we say that we need to improve in the presence. But again, the products, which is very important. When you say that when investment flows across Asia, then are we able to serve them as 1 bank so that we can handle very simply the money from China -- let's say, from China going into Indonesia, right? And how do we help them to manage that payment and transfer and hedging in the FX and also in the interest rate? So when we say we want to better our presence, it's the capabilities as well in the various countries where we have a presence. I don't rule out expanding or improving some more. We have smaller office in Vietnam and in Thailand. But as we continue to see the flow, don't rule out improving or increasing the resources there, but we're quite happy with what we have. But the important thing is to strengthen the capabilities to do the business together. I think that's the first part. I think the second is about MEV, Chin Yee, would you like to take that?

Okay. In fourth Q, we look at the MEV and then the economic forecast for various countries, and that's when we decided that we would have some increase in terms of ECR 1 and 2, that's the general provision for our portfolio.

Okay. So it's general, but nothing specific. And it was related to the countries, but you -- okay.

Yes. Yes. But indeed, if you look at some of the projection, right, on the GDP growth, some countries did have the GDP growth revised downwards around fourth quarter. So I think our view is reflecting that as well. I think there's a question of IFRS 17, Chin Yee?

Yes. On IFRS 17, you asked about the impact and contribution to OCBC. We are not, at this stage, able to provide that impact at the moment because our GEH, we are still working on the quantification of the impact. It will take effect from first Q 2023. That's when the impact will be more certain than when we release our results.

I think in general, IFRS, if you look at it, the way we account for the insurance business could potentially bring more stability to the profit line. So I think that is a -- if I can share that as a general comment on that. So hopefully, some of the volatility because of the -- how you value the insurance contracts can be smoothed out once we put in that IFRS 17.

Given the maturity of the book, would it be a negative impact?

I would believe it is smoothing out impact because in a way you know the -- some of our maturity of our contracts are up to 20 years. And then -- but you -- in a way, when you discount it, right, and using, if indeed, for the fourth quarter, we have inverted [ UCAV ] so that's how you see the volatility, right as we account for that, insurance contract liabilities. So I think it's more about moving out as we adopt the new accounting standard. But more details need to be reviewed as we continue on the work.

And sorry, the last question was on the Hong Kong NPL. Just if you could tell us which sector it was in.

Okay. That is a specific real estate customer, but it is highly, it are highly secure. And I think Chin Yee mentioned that it is above -- now it is around LTV of 60%.

That's an offshore China real estate within Hong Kong?

No.

No, sorry. I just want to supplement, right. I guess where your question is coming from is also whether it relates to anything systematic. Our credit quality is actually very robust. The Hong Kong case is not relating to China real estate or the bigger teams which we were talking about, I just want to be very affirmative about that. It's due to the unique consensus relating to that particular midcap.

Okay. Goola from The Edge.

That was a very good set of results. Just a question on Great Eastern again. Sorry about that. Is there any impact? I'm wondering on the new Basel IV regulations because they start transitioning from the middle, end of the second half of this year. So I just wondered whether there's any impact on maybe the RWA, there. Okay. And also, would you, a lot of corporates are giving dividends in specie. I'm just wondering whether you would ever consider something like that for, Great Eastern given that the liquidity is very low. So that's one question. And the second one is just generally over China. You had a Greater Bay Area strategy. I just wonder how that is going to move on now that China has reopened. And we've always talked about the flow business coming from China out into ASEAN. But is there any going the other way? And would you be prepared to offer loans, et cetera, on that? And also just one last question. Do you give out the amount of management overlay that you have? I thought there was a -- the other banks have given indications. I just wondered whether you could give an idea of whether it's $1 billion to $2 billion or below $1 billion? I mean just, is it below $1 billion or above $1 billion -- below $2 billion?

Okay. I see start with I think interesting question on GE. But once we go into technical, I just want to point out that our CFO of GE here. So maybe if you have interest, maybe after this session, you can go into more technical with him. So [ Ron ] is here at the back here just show his hand. Okay. So I think I'll leave the GE on the questions to [ Ronnie ] to handle later. On the China Greater Bay Area strategy, it is that we've been continuing running it. We're very focused on it. We did not give out specifically improve in numbers, but it's continued last year is a double-digit growth in Greater Bay -- cross-border Greater Bay business. So if you want more details, again, you can catch Teck Long He can talk a bit more about that later on. And we do see China reopening, it's a bit faster than everybody expected, so that is positive. As we see, actually, back in Hong Kong, I do see more people around and activities, the economic activities improved already. As to the flow yes, there is always low bound flow. It's not just a self-bound, right? And in a way, if you look at our book in China, in Mainland China, actually, substantially our network customers going north. So we are supporting our customers from Hong Kong, from Singapore, this part of the world as they expand the business in Mainland China. So the last one is about amount of management overlay. I'd pass that to Chin Yee, but normally, we don't disclose an amount. It's -- if you say whether it is $1 billion or $2 billion, I think it's probably more close to the $1 billion mark.

Anshuman, Reuters.

This is Anshuman Daga from Reuters. So previously, you've talked about how the capital is good enough for you to enter a quick phase of growth. You have said that repeatedly, and I want you to talk about that. What other business groups -- so what are the, what would interest you right now, I mean, the markets have changed a lot also given the equity market valuations over the past year and also opening up of economies? Can you share some color on what has changed over the last 2 years in terms of your interest to acquire other companies, what are the types of businesses? And is there sort of would these be small sized acquisitions? Or I mean, it's been a long time since OCBC has done a major acquisition compared to the rivals?

Thank you for that question. When you say it's quite a long time, I think after Wing Hang, we did acquire [ IG ]for the Private Banking business. And I -- we always hold on to the fact that we performed with our strategy. We like the countries where we have a presence. We want to continue to rapidly expand our organic business. Sometimes, we didn't really mention the other overseas branches. They are an important part of us. And I think Chin Yee, in her presentation did talk about we expanded quite a bit of lending in our big centers in U.K., U.S. and also in Australia. But again, if we are looking at acquiring business, we always have the interest to look. And there is not short of opportunities, and we are looking, but of course, it has to suit us. And whether that is eventually a good acquisition, again, eventually up to looking at whether this combined synergy. So if you look at it that way, it has to be potentially in our core markets, potentially in our inventory, we have a diversified franchise. So when we, when you say look at what business that is again banking, insurance, wealth. So I think that's quite a broad spectrum for us to look at. I won't rule out small acquisition like portfolio, which is potentially easier to absorb. But if we feel that a certain market has a very good opportunity that offer a lot of synergy value and broaden our leadership in that market, I definitely will look at.

Anand from BofA.

Anand here from BofA. Helen, you mentioned a couple of times organic growth opportunities, capture a bit more of that. But when we look out the environment is quite uncertain. There are a lot of overlapping factors as well. How much kind of visibility you have in terms of demand from corporate SME retail segments? And what can you do or what are you doing to gain market share even in a slow growth environment, especially in the SME retail segment, if you can give us a bit more color, that will be useful?

I will call Teck Long on that. But if you look at the last 3 years, it's been very -- quite strange may not be the right word, but the pandemic has certainly impact, have a lot of impact on the economy and on how we serve our customer. So when we say we need to be nimble, it is very much -- if you look at loan growth, we say that we want to grow fast, but it's not just on loan. You need the opportunity, you watch our asset quality, right? So I think 3 years in a row, we managed to deliver mid-single digit. I think the first year was actually high single digit as well. But other than that, it is very much the rest of the products that you can offer to your customers. I'll ask that Teck Long to, as I said, take long to talk about it. But when the -- and the economic environment is uncertain, what you try to do is you should also look at your liability side, right? So if you say we reshape our balance sheet, we capture through digitalization. That was my page on transformation digitalization. How easy now is for customers to open an account with us and how we have indeed managed to gain more SME accounts and also gained through the improvement of gaining SME account in number? We also rolled out digitally SME loans where we can approve a loan really quickly. I think there was also a piece of data there. And also for the bigger customers, how we manage to capture mandates. For Singapore, in particular, with the government-related entities, where we would be able to increase our float. And then, of course, as interest rates move up, our floating income as well. So I think going forward, we continue to be nimble as we watch out for credit or lending but against everything that goes with the lending and overall service that we'll be able to offer to our customers. And that's why we emphasize the 1 group approach. You cannot say that I want to build up a bigger loan book in Hong Kong without thinking about what we can get from these Hong Kong companies when they expand the business in Mainland China. So Teck Long, you want to add some color?

Yes. In terms of business momentum, I feel pretty, I would say, cautiously optimistic about it. I think our loan book last year, for example, it actually grew at a pretty decent rate in the wholesale bank business. Why there are a couple of key wins in despite the uncertainty? We see continued interest in investing in ASEAN. And we want to capture that. That's where our strength is. Then the next tailwind, which people can focus on is actually the China relaxation of COVID, and that will benefit both China -- I mean, Mainland China as well as the Hong Kong market, so I expect economic activity to tick upwards, especially in Hong Kong. If you look at the weakness in the marketplace, the ICT sector has seen a weakness in the economic activity. But ASEAN's unique in the sense it's attracting investments in this sector. So it kind of gives you the silver lining to the overall trend. For SMEs, we have to look at sectoral team. I think in general, if you look at the SMEs, a lot of them are in the services sector. If -- so they're right, they'll kill COVID tailwind a lot better than what we think about global industries. For SME Hong Kong, I'm very optimistic because there's a lot of reliance on the cross-border activity between China and Hong Kong. So this is how I look at the business momentum.

Sure. Just a bit more on the SME side, how are they handling the rising funding costs on top of it. Macro is still not great when we think about what could happen in the next 12 months. And what are the conversations you're having with your SME customers? How are they approaching this environment?

I think I do acknowledge that the SMEs need to adjust to a higher cost environment, both interest rate, which cost, I think feel the full impact this year. The underlying tone from our conversation in SME is not as bearish as what people think. It's always difficult to run SME business. I think that's always been an underlying tone. What we do see is them adjusting their business model to absorb the higher cost. And then they are also passing on the cost to the customers. Now the pace of passing on to the customers varies, but I don't think we are looking at a credit quality situation as opposed to maybe a little bit slower in terms of our business volume.

Harsh, JPMorgan.

A couple of follow-up questions on Greater China. One is HIBOR has collapsed year-to-date meaningfully. How is it impacting your business? To what extent is it net positive because cost of fund is going down or net negative because of the prime high bar spread? Any news there? And I'll take the second one after this.

I think it's a space we're watching. It's early days to say that, or how do you measure that? Is this really like the end of interest rate rising? And what if there's another 2 or 3 action on by fab on interest rate? A lot of times it's about liquidity, short term liquidity in the marketplace as well. When you have a refresh of liquidity, our HIBOR could collapse quite a bit. So -- but the strategy for Hong Kong does not change. It is our -- what we call our twin hub, together acting with Singapore. It is -- I mean these are the 2 financial centers, which we have a strong presence in. So again, it is how we look at acquiring more customers in Hong Kong, be they the Chinese customers who continue to strengthen the presence in Hong Kong. And when China went up, as we all know, you have customers traveling into Hong Kong to continue to look at the business. And you have Hong Kong customers going to China, but they may actually require banking service in Hong Kong. So I don't know whether Ken has something to add on the Hong Kong market, on the market side for the last month or so.

Like what you pointed out, obviously, there was a point in time when the HIBOR spread, so between 1 and 3 were actually very wide. But I think if you look at the Hong Kong customer profile, most of the loans actually reprice in 1 month. So from that part, in terms of the borrowing costs from them at a 1-month point in time, it hasn't really affected them. Now with spreads starting to normalize coming off a bit. If anything, it would make the situation a lot better in terms of the growth of loans and things like that.

Okay. And the second one is on Bank of Ningbo. It has increasingly become a very important driver of your bottom line. NPL ratio of 0.75%. How sustainable do you think that number is? And how do we get comfort on sustained growth of profits at Bank of Ningbo? And how much can -- do you have an influence in the operations and outlook for Bank of Ningbo?

Truly recognize the fact. It is becoming a very important -- and it has always been a very important investment of ours. If you look at the -- when you talk about NPLs and growth of the bank, you have to look at that business model. They're very strong in their province, which is Jinqiao. They have, over the years, expanded into the key cities in China, but they don't over -- if you look at how they have expanded, they don't just go across the whole country. So they want to continue to support where they can grow the business, but they also want to support these customers in the top 4 cities in China, for example. And if you look at where they have expanded into, it's not just lending. They are into wealth management as well. They are into -- also into develop quite a lot of digital proposition to their SME customers as well. And so I think deposits is also rising, funding. They build their book as they are also built on their deposit base. So we are quite happy with them. And we have very constant working together, meaning there is a lot of customers and business referral. Other than investing in the bank, we also invested into the wealth management business of Bank of Ningbo as well. So with that, we -- with the constant dialogue, I wouldn't say you control them because there's no way for us to control them, but we do constantly point out with factors and points, and we do share our views on the markets and how we expand business in a very good manner.

Aakash from UBS.

I just had one quick follow-up. So I wanted to get your engagement with the family offices that have opened in Singapore in the last year. Could you give us like a rough number of the family offices that you've engaged with or some percentage?

I think there is a strong growth in family numbers. I'm not sure Teck Long want to mention a number, but I think it is in the hundreds. I think is in the hundreds.

So just two quite simple questions. I think firstly, could you elaborate on why wealth management fees have dropped despite higher net inflow? And secondly, ChatGPT is all the rage now. So wondering if you could share whether the OCBC Bank plans on using that.

I call Sunny to just comment a bit on wealth management fees for fourth quarter.

Okay. Last year was a volatile investment landscape. So customers generally are cautious, and they stay within on the sideline. And also with the high interest rates, we do see a less financing on the customer side. But however, with a huge any money that we have, I think they position us and set the stage for a customer to deploy as sentiment improve, and we can see in the first 2 months of this year.

Your second question I think it's a fun question. No answer to that yet, of course, anything new we will look at. I think that's something you can discuss with Ching Ching about.

Any more questions from media friends or analysts? If not, we can wrap up this morning's briefing.

Yes. Again, I want to thank everybody coming. It's, I think it's a good year. We -- as management, we are quite happy. We delivered results. But again, looking forward, I think it's important how we continue to execute our strategy. And we welcome continuous dialogue with all of you. And we are very happy that you continue to follow us. And so thank you very much for coming and have this session with us.

Okay. Thank you, everyone. This comes to the end of our briefing session. Thank you.