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

Welcome to our Second Quarter 2023 and First Half 2023 Results Briefing. On our panel this morning, we have our group CEO, Ms. Helen Wong; our Group CFO, Ms. Goh Chin Yee; our Head of Global Wholesale Banking; Mr. Tan Teck Long; our Head of Global Consumer Financial Services, Mr. Sunny Quek; the CEO of Bank of Singapore, Mr. Jason Moo, and last but not least, is our Head of Global Treasury, Mr. Kenneth Lai. So we will have Chin Yee taking us through our results. You will have the deck with you, and thereafter, we will take questions. Chin Yee, over to you.

Good morning, everyone. Welcome to OCBC's First Half Results Presentation. We announced our results this morning, and we are pleased to report a record half year net profit for both the group and our banking operations. We are pleased to declare an interim dividend of $0.40 per share, an increase of 43% or $0.12 from the previous year. Moving on to our financial highlights on Slide 4. For first half 2023, our group net profit rose 38% to a new high of SGD 3.59 billion, up from SGD 2.59 billion a year ago. 1 Half 2023 group annualized return on equity improved 3.9 percentage points to 14.3%. Total income was at a record SGD 6.8 billion. Net interest income was at a new high of SGD 4.73 billion, which rose 48% from a year ago, underpinned by asset growth and strong net interest margin expansion. Our net interest margin, or NIM, for short, rose 65 basis points to 2.28%. Noninterest income was also higher mainly attributable to increase in trading, investment and insurance income. Our continued cost management discipline has driven positive operating jaws. Expenses were up 5% to support business growth, while cost-to-income ratio, in short CIR, improved to 37.8%. We proactively monitored our loan portfolio with credit costs for impaired loans at 6 basis points, and total credit cost was 21 basis points, mainly because our group has taken a prudent approach to raise allowances for non-impaired loans. Loan portfolio remained resilient with NPL ratio at 1.1%. Our balance sheet and capital position remains strong with CET1 ratio at 15.4%. Our interim dividend of $0.40 represents a 50% payout ratio, which is in line with our [Audio Gap] to Slide 5. Our 3 key business pillars continue to deliver resilient performance. Banking operations net profit for the first half rose 33% from a year ago to a new high of SGD 3.23 billion, driven by record net interest income. Our Wealth management franchise remains strong. Group wealth management income increased 36% to SGD 2.24 billion. Assets under management continued to grow and was SGD 274 billion as at 30th June 2023, up 10% from a year ago and 2% from the previous quarter. The increase was driven by sustained net new money inflows. Net new money fresh funds from the second quarter were about SGD 6 billion. And adding the SGD 10 billion that we garnered in the first quarter, total net new money fresh funds for the first half of 2023 amounted to SGD 16 billion. For insurance, total weighted new sales and new business embedded value, or NBEV for short, were lower year-on-year. While we saw better sales performance from higher-margin regular premium products, this was offset by slower sales of single premium products. NBEV margin improved to 48.4% from favorable product mix, i.e., the regular premium protection plan products. Okay. Moving on to Slide 6. Our funding, liquidity and capital positions remain strong. All regulatory ratios were well above requirements. Now before I move into the details of our results, I would like to highlight that our insurance subsidiary, Great Eastern Holdings, has adopted the new accounting standard, SFRS 17 from 1st January of 2023. Yesterday, GEH announced the results, and financials for the comparative periods have been restated for the adoption of SFRS 17. Accordingly, OCBC's results for the respective comparative periods have also been restated unless we otherwise mentioned. Now GEH has also disclosed the impact from the adoption of SFRS 17 in greater details in their results announcement, which you can refer to separately. Nonetheless, for better understanding of the financials, I would like to briefly explain the 3 key changes from the adoption of SFRS 17. Firstly, on insurance profit recognition. Instead of recognizing new business profit from insurance contracts upfront in the income statement at the start date, new business profile are now deferred on the balance sheet -- sorry, new business profits are now deferred on the balance sheet and release over the life of the insurance contracts. With this change, insurance profit is expected to be less affected by new business volatility. Secondly, Insurance-related expenses are now reclassified from expenses to income line to be presented on a net income basis. Thirdly, there is better matching of insurance assets and liabilities and a reduction in profit volatilities from mark-to-market movements as the greater proportion of assets and liabilities are now classified as fair value through other comprehensive income, in short FVOCI and the movements in market valuations are recognized in equity line instead of income statement. All right. Moving on to the details of our group results, starting with Slide 8. First half 2023 net profit from both the group and banking operations were at record high with both crossing the SGD 3 billion mark for the first time. Turning to next page. Group net profit of SGD 3.69 billion in first half of '23 was 38% higher than a year ago, mainly attributable to a record total income of SGD 6.8 billion, partly offset by higher operating expenses and increase in general allowances. Next page. For second Q of '23, our group net profit rose 34% year-on-year to SGD 1.71 billion driven largely by a record quarterly net interest income and partly offset by higher allowances. Against the previous quarter, net profit was 9% lower as our 1% growth in operating profit was offset by higher allowances for non-impaired assets. I will next go through our performance trends, starting with Slide 12 on net interest income. First half net interest income rose 48% to a new high of SGD 4.73 billion, underpinned by a 6% asset growth and 65 basis points expansion in net interest margin to 2.28%. For second quarter of 2023, net interest income was SGD 2.39 billion. This was 40% higher than a year ago, driven by higher asset volume and 55 basis points increase in net interest margin. Compared to a quarter ago, net interest income was 2% higher. The increase was attributable to a 3% asset growth in a longer second quarter. Net interest margin, however, declined 4 basis points to 2.26% in second Q 2023 as the increase in funding costs outpaced the rise in our loan yields. Our exit NIM for the quarter was 2.26%. Next slide. Noninterest income for first half of 2023 was SGD 2.08 billion, up 3% from prior year. The increase was driven by improved trading income, net realized gain from sale of investment securities and increased profit contribution from insurance. Fee income was lower, which I will go through in the next slide. Total fee income for first half 2023 was SGD 883 million, 12% lower than a year ago. Wealth management, brokerage and fund management fees were lower, partly compensated by higher credit card fees and fees from loans and investment banking activities. For the second quarter, fee income was 10% lower year-on-year and 3% below a quarter ago, led by lower wealth fees. While our overall wealth fees remain soft this year. As a result of continued resolve investment sentiments, there were some upticks in fees from customer activities such as bancassurance. And as I have mentioned earlier, our Wealth Management franchise continued to expand with sustained net new money inflows to support fees growth as investment sentiments improved. Next slide, on trading income. For the first half of 2023, trading income was 4% higher at SGD 513 million, driven by increased noncustomer flow income largely from improved performance from our GEH investment portfolio. Moving on to next slide on operating expenses. For first half 2023, operating expenses rose 5% to SGD 2.57 billion, largely driven by higher staff costs, IT related and business promotion expenses. For the second quarter, expenses were 2% higher than a quarter ago, led by increased staff cost from salary adjustment and headcount growth and higher expenses associated with the rise business volume. Cost-to-income ratio improved to 37.8% in first half 2023 compared to 47.1% a year ago. Moving on to allowances on Slide 17. Total allowances for first half second quarter -- for first half 2023 were SGD 362 million as compared to SGD 116 million a year ago. The increase was driven by higher allowances for non-impaired assets, largely in the second quarter. Allowances for impaired assets remain low at 6 basis points of loans. Allowances for non-impaired assets in the second quarter rose to SGD 200 million as the group took a prudent approach to raise allowances to firstly reflect changes in risk profile for the loan portfolio due to macroeconomic environment, updates in macroeconomic variables in our expected credit loss model and additional management overlays to buffer for uncertainties, including the increasing concerns over commercial real estate, especially the office sector in the Western developed markets. With these, credit costs were 21 basis points for the first half of 2023. Next page, on NPA coverage. With increased allowances, coupled with continued decline in our nonperforming assets, our NPA coverage ratio improved further to 131% in as at 30th June 2023. Next slide on portfolio quality. Our portfolio quality remained resilient. NPL ratio remained low at 1.1% as our NPAs continued to decline sequentially since the start of 2022. As of 30th June, NPAs were SGD 3.27 billion, down 17% from a year ago and 2% lower than the previous quarter. The decrease in NPAs was mainly from recoveries and upgrades in Singapore, Malaysia and Indonesia. There was quarter-on-quarter increase in NPLs in rest of the world as you can see, from the bar chart. This is largely attributable to the downgrade of a corporate account in the commercial real estate, or CRE for short, office sector in the United States. As there has been an increasing attention on CRE office sector, especially in the United States, I will share more information in the later sites in our -- on our loan portfolio later. Okay. Turning to Slide 21. Loans grew 2% from a year ago in constant currency terms to SGD 297 billion, led by increase in housing and corporate loans, mainly in Singapore, Australia, the U.S. and the United Kingdom. Against the previous quarter, loan growth was largely from Singapore. On sustainability front, we maintain our concerted efforts to help our customers to transition to net zero. Sustainable financing portfolio loans grew 29% year-on-year to SGD 34 billion, making up 11% of our group loans as at 30th June 2023. Our loan portfolio remains well diversified across geographies and industries. Moving on to our CRE office sector exposure on Slide 22. Total loans to the CRE office sector made up 14% of our group loans. These loans are largely secured with average LTV between 50% to 60%. 2/3 of our CRE office loans are in our key markets of Singapore, Malaysia, Indonesia and Greater China. Loans to Greater China comprise mostly loans booked in Hong Kong. Mainland China, CRE office sectors were less than 0.5% of our total group loans. The [indiscernible] are largely to developed markets, including Australia, the U.K. and the U.S. Loans to U.S. accounted for less than 1% of total group loans and are largely secured by Class A office properties. Loans to overseas markets are mostly lending to our network customers with strong sponsors. We will continue to stay vigilant and exercise proactive risk management to ensure our asset quality remains sound. Moving on to deposits on Slide 23. Customer deposits were SGD 372 billion as at 30th June 2023, up 7% from a year ago and 2% from prior quarter, mainly due to continued inflow of fixed deposits. CASA ratio tendered lower to 45.3% as at 30th June. Turning to next slide on capital position. CET1 ratio was 15.4% as at 30th June, lower than 15.9% a quarter ago. The 0.5 percentage points drop was mainly due to payments of our 2022 final dividend in May and increase in credit risk weighted assets from loans growth, partly lifted by profit accretion. If we were to adjust for the payment of 2023 interim dividend of $0.40, in August, our pro forma CET1 ratio would be lower at 14.6%. Our capital position remains strong, providing a sufficient headroom to navigate uncertainties and to support business growth and capture opportunities as they arise. Turning to next slide. With our strong capital position and sustained earnings growth, an interim dividend of $0.40 has been declared, which is 43% or $0.12 higher than a year ago. This represents a dividend payout ratio of 50%, which is in line with our stated target level. All right. With this, I end my presentation, and we'll now pass the floor over to Helen.

Thank you, Chin Yee. Good morning, everyone. Welcome again to our headquarters on Friday, Sunday morning, it seems. Hopefully, it head on to good weather for the weekend. We're pleased to announce or deliver a good set of performance for the first half of 2023. I think Chin Yee has talked quite a lot about the details, but I would like to cover a few points through the slides that we have prepared and provided to you. We think our diversified business franchise continue to work and that means Banking, Wealth Management and Insurance. And it has demonstrated the resilience of our business as well. So as Chin Yee just reported, group net profit has rose to a record high, and this was driven by record total income and also underpinned by our diversified income streams. So NII was record high. We see the NIM staying resilient with 4 basis for this quarter. Our funding costs creep up, but creep up slower than forecasted and indeed reflects our sound balance sheet management. I'll provide some guidance for the full year later on. So in line with industry, we see wealth fees a bit soft for the past few quarters as clients remain to be resolved. But we do see sustainable net flows of -- net new money inflow for our wealth segments. So in first quarter, we reported an amount of SGD 10 billion new funds -- fresh funds. And in the second quarter, it was SGD 6 billion. So for the first half of the year, we saw SGD 16 billion of new fresh funds coming into our AUM. Wealth Management AUM base increasing would prepare us to generate more fee income as the market turns more favorable and investment sentiments recover. So for second quarter, I do like to mention that we also saw a record total income. Operating income before allowances in the second quarter is also a record high. That is up 48% year-on-year. But we are also watchful of the global headwinds. A few things I want to mention is global growth slow as we have seen. This is impacted by headwinds since the start of the year, such as developed markets, banking stress, faster-than-expected rate rise and likelihood of a U.S. recession. ASEAN economies are resilient, although growth momentum has eased a bit into the second half of the year, but they are still above global average. And we also see inflationary pressure and interest rates expected to stay higher potentially for longer. So to buffer for these uncertainties, we took a prudent approach to raise our general allowances. So Chin Yee has gone into the details of that, so I'm not going to repeat that. But it does see our allowance coverage increased to 131%. For our full year outlook, I'd like to mention a few points. We do expect this year's ROE to be around 14%. Our NIM guidance remain unchanged. First quarter, we said that it would be above 2.2%, that stay. I do see the exit NIM of 2.26% remaining perhaps quite stable into the second quarter. Cost income ratio should be at lower end of 40% to 45% range. We continue to maintain cost discipline, cost management, and we continue to invest in talent and technology to support our strategic priorities, and we continue to hire in the first half of the year and into the second half of the year. Our loan book remained resilient. Credit costs around 20 basis points for the full year as we have set aside allowances in view of the potentially more challenging operating conditions. We see low to mid-single-digit loan growth potentially at the lower end. Global economic conditions to be softer indeed. And so we expect loan momentum to stay slow, but we've seen loan growth on our portfolio, indeed. We still see areas of opportunities for the loan book to advance. Energy, power and utilities, inflation resistance segments, for example, purpose built student accommodation and hospitality, et cetera. Also in technology and digital infrastructure that we see potential for growth. ASEAN is also expected to benefit from the reconfiguration of supply chains. We have maintained in the first half of the year a dividend payout of 50% of our profits, and we will be committed to it. I think turning to the next page, just want to mention this slides recap the refresh corporate strategy we announced in 2022. And this is -- we talk about 4 growth pillars on the left and also fourth fundamental, the support pillars as we call it internally. We need to continue to build on this and deliver growth for the group. And it's one important pillar in forcing strength is to drive growth through one group approach. It is extremely important for us to work as one group, enhancing collaborations across the group and strengthen our franchise value and drive cost efficiencies as well. So while you look at growth pillar on the right-hand side, if we say we manage our risk and capital and our people well and invest, we also are realizing some transformative changes in the way we work and saving monies and some of the cost synergy as well. So I also want to mention, you probably have seen just a month ago, we are -- we have launched our new United brand. So this is OCBC. We have a refreshed OCBC logo to solidify our One Group approach. And we also have a new tagline for now and beyond and in Chinese [Foreign Language]. There's a lot of interest about where are you going? And indeed, where is OCBC heading to? So our refresh strategy aims to deliver an incremental SGD 3 billion revenues over the next 3 years, I think including 2023. So some people say, "Helen, is that aggressive," but I said, well, we do have initiatives and we have embarked on the journey to deliver the growth. So questions on how and what are these growth. So I just want to give a little bit of clarity on that. In terms of time line, of SGD 3 billion, we're talking potentially a bit below SGD 1/6 of the SGD 3 billion. And then next year, we'll be 1/3 and then the last year will be 1/5. So if your math is fast enough, that add up to 1, okay? And the reason of that moving up, of course, you know as you start on initiatives, it takes a bit of time to add on more customers, to increase the wallet share of the customers, to improve and continue to invest in products, in digitalization, in the way we work, in how we identify opportunities, in building new customer base leading to further customer base, for example, along the supply chain and also about supporting continuously our network customers as they continue to venture into different things. So if you ask them what about the 4 group pillars, I would want to mention that wealth and investment and trade flows would be according to our growth plans, would be about 70% of the revenue and sustainability and new economy about 30% of the revenues. So this will be, of course, the efforts by the business teams. That's why we have our 4 business head here. So together as one group, we should be able to address questions on how we are going to deliver that. And of course, with the support -- our CFO is here, our COO is here. I think HR -- I mean, COO and together, we're going to deliver this. And just want to, again, just mention, how do we achieve all this? Just to give some examples. For the first pillar, for deepening private banking franchise this year, we have already started to hire more RMs. And in Greater China and ASEAN, we have added 20 already. We are inserted in more trust and family office account and we expand product offerings, for example, alternatives and fixed income mandates. For the consumer side, we are growing our regional premier banking franchise. And we're also collaborating with Great Eastern to enhance our bank sales model. We're also scaling our offshore franchise regionally and launch our digital acquisition channels in Hong Kong, China, Malaysia and Indonesia, we see good uptick recently since we launched. On the Pillar 2, trade and investment, we see steady increase in trade and investment flows in ASEAN, Greater China, and we have expanded our China business office by adding new highs in Malaysia, Indonesia and Vietnam. We see a lot of interested parties traveling to ASEAN, and we have also increased our coverage, bring our team into China and recently organized some of the interested parties to visit Indonesia, identifying opportunities for investments for our Chinese clients. We see continued flow in Vietnam as an example as well. We also are enhancing our transaction banking capabilities and on our core product and platform capabilities in Hong Kong, in particular, we won about in the first quarter -- first half of the year, we won about 14 new regional mandates on cash management. And we are growing cash balances from our financial institutions as well. Our third pillar, people ask me what's the new economy, obviously using, again, digitalization partnership to capture further growth and also potentially new ways to assess to our customer and the new customers that are growing in the new economy. So through our digital SME model, we have onboarded quite a large number of new-to-bank customers regionally, including Singapore, Malaysia. We have also improved and increased our SME lending model using data analytics. We're also launching new products. I think some of you read on ADDX, we have launch new products on that exchange platform. We launched a digital Islamic business current account in Malaysia also in the first half of the year. And we are, indeed, as I mentioned earlier, growing SME embedded financing. On sustainability, I think I talked quite a lot about it, and Chin Yee also mentioned, we're delivering our commitment to advance sustainable and inclusive economy, helping our customers, so our sustainable financing commitments is up 29% to SGD 47 billion. We'll be beating our SGD 50 billion by 2025, I think probably well in advance, potentially end of year. And we also announced in May the decarbonization targets for 6 sectors, power, oil and gas, real estate, steel, aviation and shipping and the key actions to meet these targets. So in short, we are seeing good progress in driving growth in 2024 and 2025. And moving on to what we expect our ROE for 2025 as we embark on if we deliver the SGD 3 billion increase in incremental revenue. So our base case ROE is around SGD 12 billion to SGD 13 billion in 2025. This reflects assumptions that include -- we maintain current growth trajectory, and we expect that interest rate will have started to trend it down by next year. And current mark-to-market loss in FVOCI will gradually reverse over time as well. So the SGD 3 billion incremental revenue, of course, together with some expenses on investment, of course, is expected to add 1 basis -- 1 percentage point to our 2025 ROE. So by establishing the structuring earnings growth, as outlined in our strategy, we target to achieve 13% to 14% ROE in 2025. But in the longer run, we are targeting to achieve a 14% for CET1 in that sense over the medium term by upholding our 50% dividend payout ratio. So with this, I end my presentation, and let's now move on to take any questions. We have our panelists, but also supported by some of our colleagues on the floor as well.

Okay. We'll start to have Chanya, first hand up, Chanya from Bloomberg.

This is Chanyaporn Chanjaroen from Bloomberg. Congratulations on the numbers. I have a few questions. First, can I ask for wealth management fee outlook because we have seen contraction on quarters for quite a while. Do you expect better performance in the second half? You mentioned -- Chin Yee mentioned exit fee at 2.26%. Do you see the total number for 2023 around that number? Or what do you see? Also, given that Great Eastern has contributed significantly to the bank's performance, when will you see 90% ownership and what is holding you back?

Okay. There are a few questions here. I think Chin Yee, why don't you take the part on NIM and then I'll invite Sunny and Jason to talk a bit about wealth fees, and then I will talk about Great Eastern. Chin Yee?

Okay. As I mentioned, second quarter NIM 2.26%. Exit NIM is also 2.26%. And when we were in the first Q results announcement, our guidance is in the region of 2.2%. So it's panning out according to our guidance. But we do see that at 2.26%, it will stay stable at this level with the prospect of like really one rate hike happened. And our house view is that rates will stay longer at this current level. So based on that, we think that it's stable -- could be stable at about this level, 2.26% here. Overall, for the year will be around higher than 2.2%.

Chanya, maybe I'll share a little bit on the wealth management piece. I think as Chin Yee has shared earlier that we are getting net new money coming in. And right from last year or so in fact and quite a few of them do come in the form of fixed deposit and also generally as the fixed deposits are maturing, we do see customers now coming into the market as well. We do see an uptick in our treasury and insurance take-up from those customers. And generally, I think the outlook is that we are quite positive that the second half would be much than our first half. And treasury activities are also up -- going up -- uptick as well. So generally, I think this will probably give us some comfort that our wealth fee will be much better for second half compared to the half for consumer side. Maybe I'll let Jason share on the private bank side.

Sure. Thanks very much, Sunny. Thanks, Chanya, for the question. As Helen had mentioned as well, we've also done quite a bit of RM hiring in both the GC and the ASEAN area. So we anticipate with that some NMM growth that will benefit fee income later on in the second half. Markets have been volatile. As you well know, we talked about how last year and this year a challenging environment for transactions. I think the second half of this year will -- I mean, I don't have a crystal to tell you how that's going to look like, but we are optimistic that with the growth in RMs, NNM and AUM. We will see an improvement in our fee income as overall -- on an overall basis.

Okay. Thank you. Thank you for the question on Great Eastern. We're happy, I guess, again, Great Eastern is integral part of our business. And we're happy to see increased contribution from Great Eastern. As regarding share purchase, you may refer to a recent announcement that we have a purchase about 2.345 million shares of Great Eastern. I just want to mention that, that is brought to us by a broker. So we did not actively pursue that chance. But as to our intention, that's not something I can comment since any intention of OCBC on Great Eastern is price sensitive for a listed company.

This is Aakash from UBS. A few questions from me. The first one, so Helen, you've reiterated a few times the 50% payout policy in your comments. Does this mean that I think investors should rule out any possible upside to this from a special dividend or excess capital distribution? Then I should -- maybe I'll take the questions one by one, if that's okay.

Thank you for that. We did say it as a policy. Last year, we did pay more than 50%. So I'm not saying that there is no potential. How we pay out dividends, of course, where you have to evaluate every time, we come to that discussion and decision. And indeed, of course, based on how we want to use our capital and the level of our capital. So it is not a simple question that we will pay more or less, but we want to say that we're committed to pay 50%. So that is something that you can look for. But whether we will pay more, it depends on our capital positioning.

So at this moment, you're not able to say anything about your excess capital distribution plans, is that correct?

Sorry.

At this moment, you're not able to say or give more clarity on your excess capital distribution plans?

Yes. This morning, we don't have any particular plans to announce, yes.

Okay. Great. The second question I have is on the funding costs. So it did seem a bit odd that your funding costs increased quite a bit this quarter when for the peers, they were seeing less pressure on that. Is this because -- mainly because of the wealth management funds that are coming in, they're probably going to fixed deposits? Or was it that you were being more aggressive on the deposit campaigns. And what is the outlook for Q3, Q4? Are you using off that deposit campaign pressure?

I think it's mainly really from new money coming in, which gets into fixed deposit. If you look at -- I think there's a page -- the slide by Chin Yee that shows how the fixed deposits has grown versus CASA. So with the new money and also investors staying a bit on the sideline, so that is one reason why funding costs have crept up a bit. But we are already seeing fixed deposit rates not coming -- also trending a bit down as well. So hopefully, that will continue with less pressure on the funding cost. And I think that is the reason why Chin Yee is expecting that we could be quite stable with the NIM going forward into the second half and stay above 2.2%.

Great. Just on the net new money. So I think last year was a strong year as well for you and this year, of course, has been SGD 16 billion, pretty strong. Are you able to give us some rough split between how much of this money went into deposits? How much went to investments? And then within deposits as well, how much is CASA versus time deposits? Just rough broad splits would be very helpful.

It would be quite difficult to split it as they move from investments in fix deposits. But I would say that more this year, more net new monies into deposits because the investment sentiment stays low. So in a way, AUM could be impacted because the new money coming in, creating new AUM, but you can also see that if our customers is using deposits to repay loans as well, then you actually see the AUM coming down as well. But I would say that, hopefully, the market -- I mean, we're expecting, yes, there's uncertainty, but we are very resilient in our wealth business. And whenever there is interestingly or we shouldn't probably use that word. But when the market is more volatile and there is any liquidity concern, actually, we do see money flowing in because of flight quality. But how we manage it and how we do the business, we welcome the new money because it's always good to have more business coming in and new customers as well. But hopefully, investment sentiments increase. And interest rates stabilize, no more hike than customers are beginning to put money into action.

On the Wealth Management, continuing on that, I think the second quarter income, the 17% quarter-on-quarter decline, it looked a bit steep compared to the peers. The DBS was flattish, UOB was down 8%, 9%. So what happened there? Any color?

Maybe our colleagues may want to respond to that.

Yes, I'll share a little color. I think as Chin Yee has shared earlier that our insurance between the single premium and the regular premium, there's a little change in the mix. Our single premium because of the high interest rate customers are not taking as much loans to fund for a single premium, right, and tend to do in the smaller ticket or they're just deferring that. However, on our regular premium side, I think it's -- we're going to see a record year this year on that front. However, the drop in the single premium just can't quite compensate for the -- rather the increase in the regular premium can't quite compensate for the increase in the single premium. But we are also coming up with a special premium loans, with a special rate to help to bump that up. So we do see positive upside in the second half.

Great. A couple of more questions, just quick ones. So on the provisions, so you did mention that it was across several categories, right, the GP provisions that you provided. So you said it was for CRE, it was for NEV. Could you give us a rough split of how much it is for each of those categories? So how do you split the general provision SGD 200 million this quarter?

Yes. We -- I gave the reasons for the increase in general provision -- general allowances, the 3 categories, right. I won't be able to give you the split. Yes, suffice to say that this takes into consideration our forward-looking view of the macroeconomic environment, and then we adjust accordingly. It's based on a prudent forward-looking view.

So is it fair to say a lot of it is for the CRE space and you're comfortably provided for the developed market CRE space now and you won't need any more in the future?

Yes. Yes. We did that in the first Q, and then we also upped that a lot in the second Q.

Yes. All the time, barring on for same circumstances.

Understood. Just the very last question. So the 13% underlying ROE target that you have for 2025 aside from the SGD 3 billion incremental on top of it, you said it's assuming some decline in rates, right? Could you be able to say like what sort of rates are you thinking about by 2025? What is the assumption behind this ROE target, is that 3%, 4%, 2%?

We are assuming interest rates will start to fall next year but not substantially to pre-cycle. So we are assuming about 1.5% drop, but it's on a gradual basis.

So basically going on to next 4% level -- 3.5% to 4% level by 2025.

Yes, around 3-point something, yes.

We will take next question Prisca from Straight Times.

Congrats on the results. I have 2 questions. One on the fee income as a whole. Do you have any specific guidance on this? Do you expect like a mid-single digit for the whole year...

Sorry, wealth -- income...

For fee income as a whole. What's your specific guidance for this? Is it like a mid-single digit or high single digit for the whole year? And how has this changed before? And second question on changes in the risk profiles for the loan book. Are there any specific sectors that you think might come other stress besides the CRE sector?

We don't provide guidance on the fee income. And so that would be the answer to the question. On risk profile on the loan book, I think it is still resilient. As we explained that we are not seeing any systemic risk but we are -- according to economic situation. So we prepared for some of our potential weakening of the credit due to the economic situation, really don't see any particular sector being too weak.

Thanks for the briefing. A few questions. I would just want to focus on the commercial real estate book, especially in U.S., U.K., Europe, could you give a sense of what is the loan to value? What is the vacancy rates in these properties that you have lent against? And because the deck sales Grade A properties, but with the office occupancy collapsing in most of the markets, in the Western Hemisphere, Grade A doesn't mean what it used to mean a few years ago. So what I'm trying to understand is how much worse can it get in terms of provisions? And in your 20 basis point guidance for full year, how much more have you factored in? And then I'll come to the Greater China and Hong Kong real estate in a minute.

I'll invite Teck Long to talk a bit about it. But in general, our developed market CRE, especially on office, the LTV is about 50% to 60%. When we say Grade A, it's generally Grade A in good location. So not just saying Grade A is the same grade, but it's generally in very good location. But again, we are mainly supporting our network customers. We have very long staying relationship with us. But I'll let Teck Long to comment a bit further.

Yes. Firstly, our franchise in U.S., U.K. for office commercial real estate, particularly office, is actually smallish. We think in terms of the number of customers and not like the whole portfolio. So that's the first point. Secondly, majority of it relates to network customers. And the third, because of the -- I would say, by number, small number of cases, in these markets, it tends to be leases by major tenants. So we don't really think of it as the vacancy rate like in the Asian market where the leases are 3 years. So when you have a major tenant moving out at this juncture for a second-tier building, then in which case you will have problems, and that's what you kind of see in marketplace at the moment. We are looking at our portfolio. We are actually very comfortable. We have one idiosyncratic risk, why I call idiosyncratic as opposed to systematic is because there are multiple parties involved, and negotiation is still happening. But for prudence, we decided to kind of like set aside some provisions for it. But other than that, we don't see a real systematic portfolio risk in this sector.

Right. And for the 20 basis point credit cost guidance for full year, how much more are you factoring in, in terms of Western Hemisphere CRE exposure getting weaker?

We'll continue to watch the portfolio. But again, we also want to look to what is the interest rate environment is going to be like. And in a way we are holding constant discussion. But because most of them are network customers, we do know the intention of what they want to see there. As again, we are making general provisions more than specific provisions. So you have to say that as -- if interest rates continue to stay high, we look at that, higher inflation, potential recession in the U.S. This all can lead to uncertainty. And that's why when we say we want to maintain the 20 basis points is to cater for that.

Right. Okay. Moving to our part of the world. Hong Kong CRE, there seems to be some smaller players, in particular, are starting to get impacted. I know your exposure is probably more bigger landlords. But still, what is the risk that you see? Do you have 100% large landlord exposure? And even within that, how do you assess the probability of some weakness or NPL formation in Hong Kong CRE?

In Hong Kong, we are actually quite selective. We bank with most of the top developers of real estate owners. And again, the LTV ratio is quite low. And so I wouldn't say that is a pocket of weaknesses. And if you look at the NPL number for Greater China, it has not really risen. So to an extent, whenever you look at potential NPL is when there is some, for example, Teck Long mentioned, if you have a case where you'll refinancing, it leads a longer time to discuss different parties, investors. They want to negotiate and all that. Then yes, sometimes we say that it may impact the quality when you defined it. Then it may be an NPL, but we don't need even need to make provision because the chance of this being resolved or the value of the property and the sureness that this property will be taken up by another party even if you have to sell it. So it does impact on the provisions we make. So as you see, our special provisions is actually quite stable and is not at a high level. But in general, we do want to make general provisions as we said. But I'm quite comfortable with the Hong Kong CRE portfolio as well.

Right. So just one final question on especially the U.S. Europe CRE. Are these syndicated loans? Do you have other Singapore banks who are with you in these loans? Is that -- as Teck Long said, there could be some multiple parties involved. Is that part of the reason why it is taking -- is becoming an issue to resolve that problem?

I think what Teck Long cited is -- sorry...

Yes. I was citing the specific case. Well, in case, we look at our portfolio, we are quite comfortable with what we see at the moment. I don't think of it as a systematic happening to our portfolio for the Western Hemisphere.

But you are right, for larger ticket items, we generally work with partners, we know very well, even in the syndication.

Congratulations on the good results and of course, on the $0.40 interim dividend. Okay. I've got 2 questions and 1 point. Okay. The first question is on Great Eastern, of course. It's -- okay. So the -- just your SGD 3 billion additional income include Great Eastern for the next 3 years? That's one. And the second one is you noticed IFRS 17 and the profit recognition from the new policies, does it impact your NBEV? And also, I wonder if Great Eastern CEO, who's here, could you give us an idea of the interim embedded value of Great Eastern. So that's a Great Easter question. And the third one on Great Eastern. Would Great Eastern be willing to -- I mean it raises interim dividend. So would it -- is it likely to raise its final dividend? That's a Great Eastern question.

I think I'll take the first question first, whether that is included in the SGD 3 billion. It is included to the extent what Great Eastern can bring to us in the business development, right? So improve banker fees, as an example, and some of the things that we work with Great Eastern on, for example, general insurance. So these are the things that would be in the incremental revenue, but not what they produce, meaning not the bottom line contribution to the group. I'm not sure whether anyone else want to take the IFRS 17 question on NBEV.

No, I think the question is whether we have any interim embedded value. I think we don't publish interim embedded value, we only publish embedded value on a yearly basis. So we won't be able to share that. What is the other question?

On dividend.

On dividend, again, I think I don't think I can really comment on that at this point. Yes.

Yes. And the impact of the IFRS 17 and the profit recognition, does that affect your NBEV, your new business embedded value?

Not quite. Because the way the NBEV is calculated is based on the slightly different needs, on RBC too. So NBEV and the CRM and the profits generated through IFRS 17 are 2 different standards. But the trending is the same. We see a good positive NBEV, then it should generate back into the positive profit generation in the future.

I think that gets into a little bit technical.

Okay. So the second question is on -- still on the SGD 3 billion. Is there a split between the -- your income from assets that require more risk weights and your income like fee income, which is the holy grail of banking, this fee income because they don't require new -- they don't require additional risk weights.

But it's definitely RWA requirement as we bank new customers, as we improve our wallet share on our network customer, for example. But it's equally -- if you look at wealth, of course, that will be more fee-based than RWA base. So I did mention that the top 2 pillar will be 70%. So wealth would be quite an important part of it. So hopefully, we see fees increase as well. But it is -- it's not like you can -- we have targets, but it's not like you can just easily just split into it. It depends also about what one needs to another.

And the third point, of course, is your mangrove swamps are the best things for carbon, whatever sequestration or whatever they call it. So I hope you build more somewhere all around Singapore and Malaysia.

Thank you for that. I'm very excited. We just went to [indiscernible] to plant some mango trees just 2 weeks ago. It looks like Chin Yee want to take that.

No, just one point, we do have mango trees in Malaysia, too.

Yes, yes. I think they should be everywhere, I mean, as many as possible because that will help with this setting the -- that will help preventing -- setting the...

Maybe our next trip to plant trees, mango tress, we can invite our friends.

This is Yong Hong, Citi. So just 2 questions. So on NIM, you obviously talk about NIM's rates coming down over the next 2 years and your peers have been talking about hedging up little thing with loan portfolio. So just wondering if you are doing the same and if there's any extension on your securities duration. And if this can cushion your NIM's [indiscernible].

Chin Yee?

Answer to both questions is yes.

Is there any color from -- maybe from -- [ Teck Long ] maybe can share more colors on how that's been ongoing since last year?

Yes. That has -- I mean these are the measures that you are taking in our rebalancing of our portfolio in terms of the interest rate environment and also taking some of these actions, like what you mentioned cash flow hedge, loan portfolio. These are -- and extending duration of our assets. So these are the areas that we are constantly looking at.

Ken will answer to add more color.

Thanks for making me work this morning. I'm glad I'm not forgotten, but not really much to add to Chin Yee's comments. We are looking basically to hedging more in terms of our loan portfolio. That's one way of locking NIM. Your question on whether we're looking at extending duration of some of the securities that we have, particularly HVRA securities, we have done that. And I mean, as and when the opportunities are there, we will consider to see -- we will put more on the books, right? Obviously, the market -- the day-to-day market fluctuations remain quite fluid. Every day, there's a headline news you see rates move up and down. But I think the longer-term or the medium-term trajectory for rates would probably be lower. So we need to look past the nearer-term market impacts and see what's longer term. So longer term, we feel that maybe rates have peaked. And therefore, we are looking in terms seeing how we can put on hedges or extending our securities to locking the NIM.

Since you're on that, maybe do you have some color on how second half trading income can trend? And if this trend in the first half can sustain into the second half?

I think early on Chin Yee alluded to the improvement in our trading income was one of the factors was really the turnaround in our GE mark-to-market in the portfolio. But overall, I think in the second half, the trend will continue, both on the customer and the non-customer flow. I think one thing that in the noncustomer flow that was one-off last year, we aren't seeing this year, right? The one-off last year was really the mark-to-market gains that we had from our hedges because of the volatility and the was a sharp increase in interest rates. This year, the mark-to-market gains were not there. But however, the overall trading income is higher. So that's basically showing that the underlying core business is actually -- the momentum is actually quite good. And we expect that to continue in the second half.

Just maybe one quick follow-up, if I can. Just maybe quickly on your cost income ratio of 40% to 50%. Is that on a group level, and maybe you can share some color on whether that's driven by income level or the cost level.

Of course, we always try to target positive jaws on income versus expenses. So in the next 3 years, in particular, we have to think about -- when we talk about incremental revenues, we're also investing more as well. I think guidance on expenses this year would be high single digit for this year. But for the next 3 years, it also depends on the space of how we invest and also on whether market conditions changes as well. But the point is, of course, we are talking about positive jaws. That's the plan and eventually leading to increase in ROE.

Okay. Next will be [ Dexter ] from Bloomberg.

I know that your inflows actually was more than DBS in UOB both [indiscernible]. So I was curious, how does that break down in terms of geography? Like where are you getting the inflows. Where do you see the inflows coming from? My second question is on China. You guys obviously are very expanding quite a lot. You mentioned RMs and just now like do you see more inflows coming in from there? And are you concerned about the kind of slowdown or the general more pessimistic change economic picture that you have now?

Actual inflows are quite even, but Sunny and Jason can add on to that, so ASEAN and also Greater China, and even from Dubai. But maybe I'll ask them to add some color. Whether it slow down? I think well flow into ASEAN, in particular, is a trend to continue. If you look at a lot of the studies, Singapore and Hong Kong will remain as the 2 main wealth management centers going into 2025. So we are quite positive about money flowing in. And of course, we have a very good brand in our Private Bank, Bank of Singapore plus that as this is again we are a very solid bank, very good credit rating. So that counters some of the uncertainties, as I said, when market liquidity becomes a bit tight and if there is uncertainty. Money tends to flow into -- flight to quality, right, tends to flow in. In a more liquid market, there's more money around and more AUM to get. We are also well positioned to get that. I just wonder whether our colleagues would want to add some color.

Yes. So from the consumer side, I think the inflows are pretty well diversified. We don't see any particular concentration on the side. So I think it's more generally applied to safety, so generally quite well diversify.

So DBS says that about half of it comes from -- is it something you see as well, most of it coming from Greater China as well?

Not a full concentration. We do get slightly more from Greater China, but we do see inflow from other regions as well. I don't -- maybe Jason can share a bit.

Sure. So on the Bank of Singapore side, we've actually got quite a lot of outflows from ASEAN as well. So it's actually to the points made earlier. Greater China may be a good source of the funds, but we haven't seen any particular large concentration coming from there. But we've also had in the first half of this year also a good growth coming from family office setups that really are starting in Singapore. We've started seeing some shoots of that in Hong Kong with their introduction of their family office rules. So family office growth is also a big focus for the bank, and we've seen the fruits of that labor come through this year.

It's Nick Lord from Morgan Stanley. Just a question about your strategic plan to '25 and the SGD 3 billion of incremental revenues. So I just wonder if you could tell us from an outsider point of view how you would like us to measure success or failure on that. Is it purely the ROE? I mean, in 2 years' time, do we judge you on 14% ROE? Or is there other things we can look at because clearly, we don't know what the base revenue is to work out whether you've delivered SGD 3 billion extra. So I just wonder if you could give us some point as to how you think we should be measuring it from the outside.

I think ROE is a good pointer because it's how you accumulate your profits and then the return to the equity. But of course, when you measure, you look at the equity change as well. So for example, if we do increase our payout in dividend, if we do see our major subsidiaries performing better. That's -- I mean there is a variety to that. So I can only tell you that's a plan, so you can measure us on the ROE, but you can also measure us on the growth of revenues as well. Whether the this year's is, in general, above the average in the past.

The peer group comparison would be a average in the past or peer group average in the past.

I think average in the past, I hope to perform above our peers, but I can't rule out that they have plans to do much better as well.

Okay. But how do we just -- because obviously, you benefited a lot from interest rate rise in the last year or so. I'm just trying to think how we normalize for all of this to be able to work out whether you've delivered SGD 3 billion extra because there's lots of moving parts.

We will talk more about it as we pass the first year. So we constantly discuss that as we go along the 3 years.

Maybe give us a disclosure...

For example, I probably can tell you whether I meet the SGD 1.6 billion of $2 billion. So I can tell you that by that you finish, at the moment, after half a year, I'm quite cautiously optimistic to reach the target.

Ruiwen from DBS.

I have 3 questions. The first question relates to how should we think about the management overlays level? And what are the current levels? And at 130% of NPL coverage, would you say that we are done with the management overlay and GP net going forward? Or are you adding on more because we do see a lot more risk going forward. My second question relates to NIM. I think 2 of the other peers have mentioned that from 2Q onwards, they continue to see upside bias to NIMs on a Q-on-Q basis as their NIMs in June and July were higher than the average second quarter NIM. So is there any reason why OCBC is seeing it at a stable 2.26% level for the second half? I'll come to my last question later.

Okay. The first question is on management overlay. You asked about like our level. Normally, we will say that of our overall cumulative allowances, 60% come from general allowances, of which 40% is management overlay. And then in terms of weather we will continue to put on more management overlay. As I mentioned earlier, we will be vigilant in terms of monitoring the dynamics so as a macro economy environment and then when need to, we will certainly add on to general allowances in taking a prudent forward-looking view so that we have sufficient buffer to weather uncertainties going forward. Yes. Okay. And then NIM, right? Okay. NIM, in fact, if you read what we say just now our initial sort of guidance was around the region of 2.2%, yes, in first Q when we announced our results. And then now with interest rate hike following that because during that time, our assumption was no further rate hikes, right, for the rest of the year. Now that there was already another rate hike, we do see rates stabilizing at -- higher at 2.2%, right? So we are not saying anything different from our peers. If you recall in first quarter, the guidance was 2.1% and guided down. And then now they are going back up again. So we are -- we guided 2.2% around there. Now we are saying that it will be more than 2.2%.

My second question is relating to how should we see the trending GEH contribution to OCBC. So I think before the SFRS 17 changes, we used to take the GEH Group profit attributable to shareholders number. And this number together with some adjustments were pass into OCBC's number. And directionally, it's kind of consistent over the quarters, meaning if this number is up, then the contribution to OCBC should be up. But I think this quarter, this number for GEH is actually down, but we know that the contribution to OCBC at the noninterest income level is actually up. So is it because we are going to see a more consistent handle at the SGD 200-odd million of fee contribution handle to OCBC because of these accounting changes. Could you share more color on it?

I think I'm not at the liberty to project contribution from Great Eastern.

So maybe let me phrase my question in different way. So I think for 1Q 2, 3, the profit attributable to shareholders for Great Eastern is SGD 244 million. For 2Q to 3, it's SGD 193 million. So it's down quarter-on-quarter. But if we look at on the GEH numbers that are on your slides, it's actually up quarter-on-quarter. So SGD 262 million versus SGD 238 million. So I just wanted to understand this directional changes, which is not very intuitive is because of the accounting changes. And going forward, we do see a more stable contribution at SGD 200-odd million levels because of the more permanence in accounting standards.

I'll suggest we take this offline because you're comparing numbers that we may not necessarily have on hand. So we should look at it separately. But again, taking into consideration that is indeed repays of how we compare things. So I would suggest we take it separately.

Jayden?

A lot of great questions have been asked already, but I just wanted to ask a little bit about the management overlays. How much of the commercial real estate book is not network customers? So i.e., what would you actually have to provide for you? If all of the sponsors are from Asia, and we know them well, then maybe we don't actually lose very much. And it sort of strikes me that this quarter, yes, we had an NPL, but actually the overall NPL asset quality improved. And then following from that, under what scenarios would you release some of the general allowances? It feels like we're just sort of working towards 20 basis points. But why? Like at what point would we say, we don't need this anymore. We could release them. And then my second question is just on costs. We're obviously in a very good revenue environment. Cost to income is below 40%. For the medium term, where we have the 12% to 13% ROE target, is there any potential for cost out during that process? Because obviously, the revenue environment may normalize, right, as rates come down. So I just wanted to get your thoughts on that. There's sort of 2 broad points there.

You're referring to how much is not network customers, it depends on whether your focus is entirely on developed markets or elsewhere, right. Developed markets, I don't think really we can have a number, but I really think mostly network customers. Teck long can take that.

Maybe I take question 2 instead of answering how many percent because it's really improve, but such we are talking about. I think the nonnetwork is very tightening, like some of the sovereign wealth fund. Because it's not a Singapore or Malaysia or Hong Kong customers, but we had some dealings with a very global account, sovereign wealth fund. That's the kind of quality we are talking about. So it's not really the mid caps or whatever.

Regarding general provisions release, of course, we will adjust if MEV change, market becomes a lot more favorable. We do look at the MEVs. And that in the past, we have experience of releasing some of the general provisions if market conditions improve. So that's taking your second question. The first one is about costs leading into this. We're definitely investing in people. We're definitely investing in infrastructure, in systems, in making our products better. And so that's the part of our contribution to the SGD 3 billion increased revenues. But as I said, we target positive jaws. So hopefully, revenues rise still as a percentage-wise are higher than our cost, but you should see some cost uptick going into the next 3 years.

Okay. Do we have any more questions? Okay.

Next year, could you give broad range of provision outcome because it's not clear how things will be. And I understand no one has a strong view. But given the different ranges that you are working with. So 2 questions actually. What are the range that we could expect? And second, what are the places or parts of portfolio where you are a bit more worried about, especially in 2024.

I think that would be a later part of the year question, yes, at this moment, very difficult to say. But I didn't get the first one.

The range of credit costs, you think, for '24.

It's still early. Okay. I know what you say, but we generally, we do talk about it towards the -- either the third quarter results or when we talk about the final results for 2023.

Okay. I guess we don't have any more questions. With that, thank you very much for attending this morning's session. We wish you have a good weekend and a good Friday.