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

Good morning, everyone, and welcome to OCBC's Full Year 2023 and Fourth Quarter 2023 results briefing. On our panel this morning, we have our group CEO, Ms. Helen Wong; and our Group CFO, Ms. Goh Chin Yee, and I shall go from where Chin Yee is. Next to Chin Yee is Mr. Sunny Quek, our Head of Global Consumer Financial Services. And next to Sunny is Jason Moo, our CEO for Bank of Singapore. Next to Helen is Mr. Tan Teck Long, our Head of Global Wholesale Banking Services and next to Teck Long is Mr. Kenneth Lai, our Head of Global Markets. Chin Yee will take us through our results. And thereafter, we will have Helen and the panel to take your questions. Chin Yee, please?

Good morning to all. And a warm welcome to OCBC's results briefing. Thank you for taking time to join us today. We are pleased to report another year of record profit. With our resilient results and strong capital position, our Board has proposed to increase the final dividend to $0.42 per share. This brings our full year 2023 dividend per share to $0.82, up 21% or $0.14 from the previous year. This represents a payout ratio of 53%, which is above our target level of 50%. I will now share the highlights of our results for 2023. For full year 2023, we achieved record income and net profit. In particular, Banking operations net profit was at a new high. Group profit crossed SGD 7 billion for the first time to a record SGD 7.02 billion. This lifted return on equity to 13.7%, up from 11.1% in the prior year. Our record profit was driven by 3 factors. Firstly, strong growth across diversified income streams; secondly, well-managed expenses and thirdly, benign credit cost. Income rose 20% to a new high of SGD 13.5 billion. Net interest income advanced 25% to a record 9.65 billion. This was underpinned by asset growth and expansion in net interest margin or NIM in short. Our NIM expanded by 37 basis points to 2.28%. Noninterest income has also performed well, up 7% from a year ago to SGD 3.86 billion. This was mainly driven by higher income from trading and investment activities. Expenses were well controlled. Even while we continue our strategic spending to support business growth and invest for the future, cost-to-income ratio was below 40% this year. Importantly, our disciplined credit practices have kept NPL ratio low at 1.0% and credit costs contained at 20 basis points of loans. On our balance sheet, loans and deposits were both higher compared to a year ago. I will share more detail in the later slide. For the fourth quarter, group net profit was SGD 1.62 billion, up 12% from a year ago, but down 10% quarter-on-quarter. If I may draw your attention to banking operations, our performance in fourth quarter 2023 was resilient. Net interest income was sustained at third quarter's record levels. Trading income was comparable to the third quarter, while investment income improved quarter-on-quarter. Loan related fees grew with improved corporate sentiment, but these were offset by softer fees from seasonally slower wealth related activities in the fourth quarter. Allowances in the fourth quarter were largely general allowances set aside with a forward-looking view. However, while the operating trends for our banking operations were resilient, I would like to highlight that the group net profit was lower than the previous quarter, mainly due to 2 reasons: firstly, lower insurance income as a result of higher-than-expected claims and secondly, the decline in the profit contribution from our associates. I will share our financial performance in more detail in the later slides. For the full year, our 3 key business pillars of banking, wealth management and insurance continue to deliver resilient results. Banking operations net profit rose 27% to a record $6.39 billion. Net interest income rose to a new high from a 37 basis point NIM expansion and asset growth. Credit card and loan-related fees were higher. Investment performance also improved from a year ago. Wealth management income totaled $4.32 billion and contributed to 1/3 of the group's total income. Assets under management rose 2% year-on-year to SGD 263 billion. GEH's full year profit contribution to the group rose 30% to SGD 636 million, driven by better investment performance. Total weighted new sales and new business embedded value were lower. This was because the increase in sales of regular premium products were offset by lower sales of single premium products. With a favorable shift in product mix to more regular premium products, NBEV margin was higher than a year ago. Our business growth was well supported by strong capital, funding and liquidity positions. All regulatory ratios remain well above requirements. This provides us with ample room to drive business growth and sufficient buffer to navigate uncertainties. These also enable us to maintain our high credit ratings. Our strong credit ratings give us greater access to wholesale funding markets. Notably, we issued Singapore dollars additional Tier 1 perpetual capital securities in August 2023, which achieved the tightest spread on record in the Singapore dollar bond market. Moving on to Slide 8 for more details on our performance trends. Net interest income for full year 2023 rose 25% from a year ago to a record SGD 9.65 billion. This was driven by a 5% average asset growth and 37 basis points, as mentioned in NIM to 2.28%. Margins were higher across all key markets. We benefited from higher interest rates as we continue to proactively manage our balance sheet and funding costs. From the quarterly trend chart, our net interest income had been rising progressively over the course of 2023. Fourth Q NIM was higher quarter-on-quarter at 2.29% attributable to one-off interest adjustments, excluding these one-offs, fourth Q NIM was maintained at 2.27%, while exit NIM in December 2023 was 2.26%. Noninterest income for full year 2023 improved 7% from a year ago to SGD 3.86 billion. Trading and investment income were higher than a year ago. Fee income was slightly lower, largely because of softer wealth fees. I will cover fee income in more details in the next slide. For the fourth quarter, noninterest income rose 25% from a year ago, driven by improved fees, trading and investment income. Against the previous quarter, noninterest income fell 17%. Fees and trading income were generally maintained at third quarter's level despite the typical seasonal slowdown in the fourth quarter. From the chart, you can see that insurance income was significantly lower. This was because of higher-than-expected medical claims. For full year 2023, fee income from credit card and loan related activities were higher. However, wealth-related fee income remains subdued as customers maintain their risk of investment sentiments. While fee income was 3% lower below the previous year, we can see from the quarterly trend chart that fee income has improved and trended higher in the second half as compared to the first half of the year. Moving on to trading income. For the full year 2023, trading income rose 8%, driven by record customer flow treasury income. Noncustomer flow trading income was also higher year-on-year. This is despite a decline in the second half due primarily to declines in the valuation of investments. On operating expenses, our full year operating expenses grew 8% from a year ago, led by higher staff and technology costs. We have also set aside SGD 9 million for the one-off support to help our junior colleagues better cope the rising cost of living. This will benefit close to 14,000 employees across the group. Overall expense growth was mainly driven by our continued investment in building our talent pool and technology capabilities to support business growth and create franchise value. While we raised our spending in strategic initiatives and capability building, we have, at the same time, gradually realized cost savings from operational efficiencies achieved through process streamlining and digitalization. These together with our continued cost discipline in discretionary expenses helped to contain cost growth. As income growth of 20% outpaced the 8% increase in expenses, cost-to-income ratio improved more than 4 percentage points to 38.7%. Our asset quality remained resilient. Total nonperforming assets and NPL ratio have declined sequentially over the last 2 years. As at 31st December 2023, NPL ratio was 1.0%. Total NPAs were SGD 2.9 billion, 17% lower year-on-year as net recoveries, upgrades and write-offs more than offset new NPA formation. Notably, NPAs in all our key markets have trended lower for 4 consecutive quarters. Total credit cost for the year was 20 basis points of loans, which is in line with our guidance. Credit costs for impaired loans remain low at 8 basis points. Total allowances for 2023 were SGD 733 million, up 25% from a year ago. Specific allowances of SGD 333 million were largely for a number of corporate accounts across various sectors with no specific sector stress observed. General allowances of SGD 400 million were set aside on a forward-looking view mainly to reflect updates of macroeconomic variables in our expected credit loss model, shifts in credit risk profiles and adjustments to management overlays. For the fourth quarter, total allowances of SGD 187 million were largely general allowances set aside to reflect changes in portfolio profiles as well as MEV updates. The group's NPA coverage ratio was further raised to 151%. We have added more general allowances this quarter while NPAs have declined quarter-on-quarter. Loan portfolios remain well diversified across geographies and industries. Gross loans grew 2% from a year ago and up 1% from the previous quarter to SGD 297 billion. The increase was led by higher loans in Singapore and overseas markets including Australia, Europe and United Kingdom, as we continue to support our network customers, investing across the regions. In 2023, there was sustained momentum in non-trade corporate and housing loans, which more than compensated for weaker trade loan demand. Our loan growth was also supported by rising demand for sustainable financing, reflecting our continued focus in helping customers transition to net zero with innovative financing solutions. This year, sustainable financing loans grew 29% and now comprise 13% of group loans. We are proactively managing our CRE office portfolio. The group's loans to CRE office sector currently comprise 12% of group loans. Overall, the portfolio quality remains sound and was largely secured with an average LTV between 50% to 60%. In terms of geography, 2/3 of this portfolio are in our 4 key markets: Singapore, Malaysia, Indonesia and Greater China. The remaining 1/3 is largely in the developed markets. CRE office sector loans to develop markets, mainly comprise Australia, the United Kingdom and the United States. Loans to the United States are mostly secured by Grade A office, and these are largely to network customers and strong sponsors. We have also taken management overlays to buffer for uncertainties in this sector. Customer deposits were SGD 364 billion as at end December 2023, up 4% year-on-year, but down 2% Q-on-Q. As loan demand remains soft, we have allowed the higher cost fixed deposits to run off, while continuing to focus on maintaining the low-cost CASA franchise. We continue work on winning new cash management mandates to grow corporate operating accounts, offer competitive products to grow customer base and deepen our retail deposit franchise. Our CASA balances rose 3% from a quarter ago to SGD 177 billion. CASA ratio increased over a consecutive quarter to 48.7%. Group loans-to-deposit ratio was higher at 80.5% as at 31st December 2023. Capital remained sound with CET1 ratio at 15.9%. CET1 ratio was higher than a quarter ago, mainly due to profit accretion and lower risk-weighted assets. Now in the fourth quarter, the additional operational RWA that we set aside arising from the SMS phishing scam in 2021 has been released. This contributed to a 0.2 percentage points increase in our CET1 ratio. Our capital strength provides us with ample room to allocate resources to support both organic and inorganic growth. Our capital strength also provides sufficient buffer to navigate uncertainties while optimizing our shareholders' returns. In 2023, we have signed agreements for 2 strategic acquisitions, namely PT Bank Commonwealth in Indonesia, and AmMetLife Insurance and AmMetLife Takaful in Malaysia. Both acquisitions are in our key markets and complement our businesses and growth plans. With resilient results and strong capital, we will be raising our dividend payout. Our Board has proposed to raise our final dividend to $0.42 per share. This brings our full year dividend to $0.82, up 21% or $0.14 from the previous year. This represents a payout ratio of 53% above our target 50% payout. With this, I end my presentation. Thank you for your attention. I will now pass the floor over to Helen. Helen, please.

Thank you, Chin Yee, and good morning, everyone. So nice to see all of you coming up to our headquarters on an important day of our group. So again, pleased to report another year of good results. And I think these are solid achievements and we delivered our financial targets as planned for 2023. And including, I think we talked about SGD 3 billion additional revenues, and we did in 2023 delivered what I described as 1/6 of it. So it's quite [indiscernible] on SGD 500 million last year. So Chin Yee did mention that we are having record profits 2 years in a row. That's something that we feel quite proud working together with all the colleagues and the group. These are all possible, of course, because we have strong foundation and including a very steady execution of our corporate strategies. And based on the corporate strategy, we started to talk about in 2022, we have had a lot of new initiatives and of course, capturing the flows and also enhancing our strengths to serve our customers across the Greater China, ASEAN link. And this is supported by many of our international offices and units as well. So net profit this year, I'm happy to say that it crossed the SGD 7 billion mark for the first time. So again, driven by strong income and this is covered by Chin Yee already, so I don't go into the details. Although the first page is quite busy with a lot of messages, but allow me just to go through some of them in a bit more details. I won't talk about where we grow because Chin Yee covered it. But we're happy that as we grow NII on strong expansion in NIM as well. So we benefited, obviously, from high interest rates. But again, from also positively repositioning of our balance sheet and managing our cost of funding. Cost is an important part, but also happy to report that we managed cost well in an inflationary environment. In line with our growth strategy, we invest in talent and technology. Chin Yee mentioned, we have granted support -- one-off support to our junior colleagues, 14,000 of them, and this is about 40%, more than 40% of our workforce. Those in Singapore will receive SGD 1,000, whereas the other colleagues in overseas locations, they will have an equivalent amount based on adjusting for their own local market conditions. Credit cost is well maintained at 20 basis points, and this is with proactive risk management. And this is also amid an uncertain macro environment and uncertainties. And this is important to say that we remain vigilant and balancing between margin and also asset quality in our credit selection. So if you ask me about loan growth, obviously, we're down 2% for the year. They are still in a rather muted loan demand environment, there are still pockets of opportunities in non-trade corporate loans and also our mortgages. Sustainability -- sorry, sustainable finance portfolio expanded 29% to SGD 38 billion as Chin Yee reported. This is against a total commitment of SGD 56 billion. And this is the end of 2023. We surpassed our SGD 50 billion target, which was set for 2025. You may ask me whether I have set new targets, but in a way -- the way I look at the rate of growth, I think setting any new target is to be broken, then I tell my team just continue to work on it and work hard on it. And the key point is to help our customer and to fulfill our commitment on net zero. But I will talk about it a bit later in one of my slides. I just want to mention loan portfolio, of course, we remained sound. NPL ratio is on downward trend over the last 2 years and it's sustained at 1% as at the end of 2023. I see no particular sector or systemic stress, and I'm comfortable with the quality of our loan book. As we have a robust set of results and strong capital position, this enabled us to increase dividend payout this year. Happy to say that if I compare to pre-COVID for 2020 -- the year 2021, we are now -- $0.82 is more than of 50% above the 2019 pre-COVID level of $0.53. And this is reflecting our commitment when we set our target to -- for our dividend policy since last year at the 50% of our profit. And in a way, we did 53% last year, and we also maintained 53 percentage share, beating our target. As we continue to work to optimize our capital to support both organic and inorganic opportunities to drive growth, we also have announced the acquisition in Malaysia, Indonesia to strengthen our growth proposition in ASEAN. I'll talk a little bit more about it as we go on to another slide. One thing I do want to share with you, allow me to take some time on it, is one group approach. When I first shared our refreshed corporate strategy in 2022, I mentioned that one very important factor and focus is to develop a one group approach. And important to work as a team. As you know, we are quite diversified in ASEAN, and we have strong presence in Greater China, but we have our international network. For example, Bank of Singapore also has some big operation in Dubai as well. So together with Great Eastern and Lion Global, we are present in 19 countries. And indeed, how to bring ourselves together in order to serve our customer better, that is indeed a very strong pillar for us to continue to execute on our corporate strategy. So last year, we made a significant move. You have seen that we launched our unified OCBC brand. And this is after the last logo that was changed in about indeed a quarter of a century ago. So it was 25 years ago when we have our last logo, but we have now a uniform logo for all of our banking entities across the markets. So this is accompanied by a new tag line. And I think you have seen it; For now, and beyond. And we are really talking about how we position ourselves, serving our customers, not just for now but forward-looking. This solidifies one group approach as we pursue strong growth based on our corporate strategy. And this signals all our colleagues across the group, the importance to collaborate and work together and present ourselves as one OCBC to our customer. To strengthen our growth proposition, we also launched what we call PVA. We activate purpose, values and ambition statement. And this is in short summarize the purpose OCBC plays, the values we uphold to achieve our ambitions. So we have always exist for 92 years to enable people and communities to realize their operations. This is our purpose. Our values are guiding our behaviors and represent what we do and how we do the right things. Ambition is where we're heading to us, and in particular, what we have set out in our corporate strategy, meaning to [indiscernible] leading financial services partner for a sustainable future. So this is what we want to do. In a way, if you look at this slide 4, it's nicely summarized our PVA activation. This is our directive and what is laid as a foundation for our future growth and how we serve our customers to fulfill our ambition. I now will highlight some of our strategic actions and achievements during the year in the next slide. In short, we expanded our customer base and enhance our capabilities and also broaden our products and services. This included the new initiatives that we launched in order to contribute to extra revenue growth. And some of this contributed to what I said, the first year is 1/6 billion of the SGD 3 billion target. And to accelerate our growth in ASEAN, we also have announced 2 strategic acquisitions. Just to give you a touch of the details. The PT Bank Commonwealth acquisition when completed, we will have to grow our strong presence in Indonesia through the addition of more than 1 million customers to our network. And the customer base complement us. It is retail and SME customers, and this would create synergies and strengthen business franchise as well. For Great Eastern, our dear colleagues announcement of acquisition of AmMetLife Insurance and AmMetLife Takaful. This will have an exclusive 20-year distribution partnership with [Indiscernible] bank's network, 3 million customers will allow us to expand our distribution network for our insurance business and to capture more market share as well. If I flip the page, that needs to one of my favorite subjects, sustainability. I always say the One Group approach is how we work together to grow our business and serve our customer, but sustainability is a nonnegotiable pillar of our corporate strategy. It is, as I said, important, nonnegotiable, and our sustainability imperatives are laid out in our framework, our sustainability framework in a refresh, what we call an ABC approach. So you can link up the ABC to, of course, climate change environment and bring an impact to our communities as our social responsibility and also conducting our business in a responsible manner as our governance. So more details will be disclosed in quite a lengthy, but a substantial sustainability report that will be published together with our annual report. Very importantly, I want to say again that we reaffirmed our commitment to net zero by 2050. Last year, we unveiled our science-based sectoral net zero targets for 6 key sectors of our loan book. This is progressing well. Of course, we have 2030 middle of the pathway, and we want to deliver updates along the way as well. We also maintain carbon neutrality for all our banking operations emission since 2022. We'll continue to invest to bring carbon emissions down. We have a customer transition to net zero through launch of innovative products. I particularly want to mention while we service a lot of our large corporate cross-border in different geographies, we also expanded our SME sustainable finance framework across our key markets. We started in Singapore roughly 2.5 years ago. Happy to report that the SME sustainable finance commitment have doubled in 2023 over 2022. So it is to serve our customers across the network and across the different sector segments. Sustainable financing commitments grew 26% year-on-year and crossed the SGD 50 billion mark as we reported and also the outstanding of SGD 38.1 billion has also grown substantially over the previous years as well. So I have also listed some of our actions to bring impact to communities in the middle part of the slide and also how we conduct business responsibly. So I don't go into details for that. So on my last slide, forward-looking or looking ahead. We expect 2024 to be a more challenging year than 2023. It's about uncertainty and global growth slowdown is anticipated. Although we do expect Asia to perform better than the world average. We think there will be continued potential as we optimize in capturing growth opportunities in ASEAN, Greater China link in our corridor. We remain watchful of impacts from geopolitical economics and market developments, watchful on how [indiscernible] high interest rate environment may impact our customers. And we stay vigilant and nimble and meet the increasingly complex market and geopolitical environment. For 2024, we target to deliver ROE of between 13% to 14%. This includes the delivery of 2024 contributions to the $3 billion revenues we announced earlier. We expect a NIM in the region of -- in the range of 2.2% to 2.25% -- this is to trend lower from the second half with forecasts. This is our assumption. So you can say Helen would that be upside? So it depends also on how interest rates environment will actually exhibit in the rest of the year. We are targeting low single-digit loan growth given the external environment. This is how we see a rather muted demand, but we see pockets of opportunities in various sectors including energy, power and utilities. This is always paid up with renewable energy as well because we continue to see demand of our customers going on the net zero path. We also see demand in inflation resistant ROEsegments. This is what we call purpose-built student accommodation, hospitality, et cetera. Technology and digital infrastructure is another area that we see opportunities on as well. We target credit cost between 20 to 25 basis points. No indication of any structural weaknesses in our portfolio. We continue our active risk management in 2024. And we commit to deliver the target of a 50% dividend payout ratio. So if we grow well, if we continue to deliver that would mean a very possible, maintaining a good quantum of our dividend amount as well. But we want the [Indiscernible] policy to be clear to our investors and our shareholders. So thank you. We now move on to questions that you may have. And together with Chin Yee and my four business heads, we will take questions from you and over to [indiscernible]

We've got Jayden from Macquarie.

Thank you very much for the opportunity and well done on the results. I just have a couple of questions. The first is on the buildup in provisions in the fourth quarter. A lot of the comments that you made, Helen and Chin Yee were that asset quality has been quite strong. We've seen 4 quarters of reductions in NPAs. You went through the commercial real estate review. Just wondering if you sort of see any risks and any real reason to take these extra management overlays. And yes, maybe that's my first question. I'll pause there.

Thank you, Jayden, and good to see you. We did some more provisions on ECL 1 and 2 and it reflects on certain markets where the real estate market demonstrates some weakness. But when we say I think it is prudent to do that, and this is not NPLs, but real estate market showing some weakness, right? But in those markets, and you say, "Hey, Helen why you say that your portfolio is sound? " Because in those markets, most of our exposure on a secured basis, an LTV between like 45% to 50%. So meaning the book remains sound, but we do want to reflect that weakness.

And maybe my next question, just on dividends and capital. I think in the slides, you showed that on a pro forma basis, you've got 15.1% CET1 even after the dividend. I think that there was a review to see where the excess capital is lying in all of the subsidiaries. Can you sort of talk a bit about if it's possible to return any of that or if we should just assume 50% going forward? Because some of your peers are obviously a bit more proactive on this front. So it was just great to get an update there.

Well, at this point in time, as Chin Yee and I mentioned, we committed to the 50%. So we did mention in the past, we're looking at our subsidiaries. That work is ongoing. Not a lot to discuss at this point of time. But when we have update, we can share with our shareholders and you all, but the 15.1%, of course, we are looking at continue to buffer for any uncertainties and also to support, we want to continue to grow organically and inorganically as well. So hopefully, that would offer a good buffer. But again, looking at our capital position, that work is going on and going on intensively.

I think next, we will take from the media. Chanya from Bloomberg.

Good to see you, even though it's virtual. Chin Yee mentioned that OCBC is proactively managing commercial real estate loans. Could you elaborate a bit whether there's any plan to foreclose or to sell properties? What's the outlook? Second question, just going back to the 15.1% CET1 ratio proforma, I mean do you still see much room for further acquisitions? And what does that number 15.1% translate to the amount you could do for inorganic acquisitions?

Shall we do the first one. I think when Chin Yee talked about proactively managing real estate loans portfolio is prudent risk management. I did just mention that there are some geographies that have a weaker real estate market. I'm not saying that we have a weaker portfolio, but a weaker ROE market. So we do also among Chin Yee slides, there is one page that we proactively mentioned the office -- CRE office sector to provide more information. And it just reflect that we constantly look at our portfolio and where we think it it's good to support our customers and where we will be playing a little bit more careful in committing to a new sector. But if you want more details may be later on, I think Teck Long can offer some more views on that if we have questions into certain market.

No sorry, just to follow-up on that because your CRE portfolio accounts for more than 10% of group loans. My question is whether you look to reduce that because its comparatively higher than peers?

I'll call Teck Long to take that.

For the CRE portfolio, we have to look at the different market. So like, for example, the market which I think most of the questions are directed to, I presume is the U.S. commercial real estate market. So for U.S. commercial real estate market, we have stopped financing that for more than a year already, as we foresee a downturn. And that commercial real estate market because our borrowers are primarily strong sponsors, we work with them, there's -- some of them will top out and some of them will restructure the loan. And the ECL2 is because it's a procyclical accounting standard. So therefore, automatically, there will be more ECL2 so get enough overlays and we are quite comfortable with that. So that's the answer. Now going forward, right? The interesting question is that we noticed some activities bottom pickers shall we say, and we will calibrate our strategy when the situation becomes clearer in the overall market.

Chanya, your second question is on capital. And I -- in a way, you asked me what buffer I have for acquisition. I think you have a very direct question. I really cannot share with you a quantum, but I -- we have and among that, we hope will help us if we see the right opportunity. But again, I want to reiterate that well, you can look at the capital in a few manners, right? The first one is we did make a commitment of the 50% payout, and we paid 53%. So I think that is a commitment we made, and we want to live through that. Second thing is we do have a growth strategy. Even though we say the world is uncertain, we continue to actively manage risk. And -- but we say we continue to invest in people and invest in the technology. If you talk to Teck Long, he can tell you what sort of sectors we've been focusing on and what people we have hired in order to give us that capabilities to serve the sectors and capture new opportunities. But putting that aside, I mean, that's organic. But inorganic, we made 2 announcements last year. We are interested, but I'm saying that it has to be the right opportunity coming along.

Aakash from UBS. The first one is just again on capital management, again, sorry to keep asking the same question again. I think in the last 12 months or so, many investors believe that there's been a material shift in the group's thinking around capital management, and that could be because of some of the changes to the Board and just to the management, which happened over the last few years. And by which, by this material shift, what I mean is a much more aggressive payout policy, a much more pronounced approach to optimizing capital similar to, let's say, DPS. But your current payout is very similar to last year, 52%, 53% right around the same. But it doesn't seem to be coming through in the numbers. So can you sort of confirm or deny these expectations that there has been a material shift, there hasn't been the policy thinking remains similar to as it has been in the past.

It's an interesting question. Do we have a shift? Are we more aggressive in communicating and are we taking a much more -- I use the word intensive, right? Look into our capital position? The answer is yes, we do. But we did just announce a change in our dividend policy last year. And this is the second year in a row. And if you look back to -- I did mention that you look back to pre-COVID, 2019 was the height, was a record, our dividend increase has been more than 50% over that. And if you look back to some of our -- most of our dividend payments over the last 10 years before this new communications of our dividend policy, most of the time we were paying on an average of 45%, 46% of our profit. So we are in that sense, that's why we said, indeed, we have a shift in communicating better with you so that you can anticipate what we are going to do. So we live to our commitment, and we did pay more than 50%. So -- but in the future, will we continue to be proactive? Yes, we are. We did say that we will continue to look at the capital of our subsidiaries. We look at where the growth is going to be and what we're going to do. And so in a way, we hope to have some more even more proactive and aggressive targets that we can share, but it is not today. So I hope you understand that.

The second question is just on the weakness in the GE income. And I think you mentioned there were some medical claims, which led to that weakness this quarter. So just trying to understand if you could share more details on that and we should be extrapolating this in any way in the coming quarters?

I would say that, that happened in the fourth quarter, and that contributed to a reduction, but it doesn't mean that it is a phenomenon. But maybe [ Hock Seng ] would you want to just expand on that a little bit? We have CEO of Great Eastern here.

I think the claims volume has increased, but I think the fourth quarter is a sort of stabilized. But I think there are other factors that contributed to some adjustment to earnings in the fourth quarter. I think you should look at it from an overall year basis.

We shouldn't be extrapolating that weakness into the coming quarters -- in Q4?

Not on the claim side, I don't think you will be seeing an increasing trend anymore. That has been sort of, if you want, stabilize towards the fourth quarter.

And just on the net interest margins, then, could you share some more details what was the exit NIM for you for Q4? And then what is the latest sensitivity? So everyone rate that -- how much does that translate into NIMs? And what are the assumptions? You said rate cuts towards the end of the year, but what is the quantum? Are you expecting 3, 4 for the guidance that you have?

Okay. I'll ask Chin to talk about the exit NIM and the impact, but our assumption is forecast beginning in the second half of the year.

Our exit NIM is December 2023 is 2.26%. Okay. And then you also have a question on NIM sensitivity, right? So 1 basis point change in interest rate will lead to about SGD 6 million to SGD 7 million solid impact on our NIM on an annualized basis.

Over our 4 major currencies.

Great. And just last question is on the wealth management side. So in terms of the net new money inflows, has there been any slowdown from the past, say, 7, 8 quarters, which have been exceptionally strong, right? SGD 7 billion every quarter. Did you see any slowdown in Q4?

We see some exceptional -- I wouldn't say exceptional. We see a couple of clients and some move in the private bank. But other than that, I think we are fine. We see some good changing into some positive momentum. But Jason, can I call you to explain that?

Sure. No problem. Thank you very much. So in the fourth quarter, we had a couple of situations where clients consolidated their single stock positions and single stock company where they were insiders of and that was really for personal business reasons, and there were 2 large transactions that happened. That said, we've had a broad inflow from multiple other clients where we've had some good momentum going into this year as well. So we feel positive about this year.

Could you share a number, if possible, [indiscernible] just keep track of the numbers in line with the previous quarters.

I think you see the -- I think we have a page that shows the net...

I think we see the AUM in the presentation. Net new money inflow, which I think was around SGD 6 billion on average previous quarters. Is it possible to share that number?

Can we take a look at that, Chanya and we come back to you.

Okay, sure. Thank you very much.

Okay. Next, [indiscernible].

Congrats on a record earnings. I'm [indiscernible] from Singapore. So a few questions here. I think my first one is just building on NIM. So your 2024 forecast is higher than your peers. And Helen, you mentioned earlier that you expect questions about upside. So is this a target that you've given conservative in your opinion? And could you provide some color on your optimism for NIM this year?

I wouldn't say -- okay. It's not to set a low range in order to overachieve, this is not. But we did say that this is built on some assumptions, right? And our assumption is interest rate come down within forecasts from the second half. So that's the assumption. And based on our portfolio based on how we manage our funding base, that's why we come up with the range of 2.2% to 2.25%. So that is the assumption. And how do we protect it? Of course, we say important is how we manage your funding costs. So deposits is important. And when sometimes you actually see we taken out fixed deposits when we want to maintain a reasonable, a slightly higher but healthy loan deposit ratio, et cetera. I mean this is all the things that we look at by managing. And if we have room to continue to grow our CASA, which we have, and through years of investment in digital and as we launch more of our digital offering and like for our retail business, Sunny can talk about how we launch account opening, right, on a digital basis. As you acquire more customer, you build more CASA. So you'll be able -- if you are able to achieve that, then you maintain the cost of funding lower. So this is how we have think we have done quite well in order to maintain that NIM. And we're still positive going into this year, but still reflecting a drop. If you look at the whole year NIM of 2.28% and exit NIM of 2.26%.

My next question here about ROE, I think this improved to 13.7% from last year, but this is still below your year-end target of above 14%. I think you mentioned in the previous quarter. Could you just provide some context for this shortfall?

When we talk about 14%, it is a medium target, medium to long-term target. For this year, if we do well, hopefully, we'll reach that but to look at our capital position and our target revenues, et cetera, in our plan, we think it will land in between that range.

Right. So next question here about -- could you just share more about the investment securities? Because I know the net gain for the full year, but in the fourth quarter, that gain was down nearly half quarter-on-quarter. And looking ahead, what sort of yields are you likely to have on your securities portfolio in 2024?

Ken, can you take that?

Yes. Sure. I assume when you mentioned -- I mean, you're asking about securities portfolio, these securities that we're investing from our excess liquidity. To give you a background they tend to mainly be [indiscernible]. The duration of the portfolio is relatively short. In terms of debt securities have duration is between 2 to 3 years. They -- mainly in government securities, placements, NCDs of other banks. In terms of the credit bonds that we have, the majority of the portfolios tend to be rated A or better.

Last question here from -- so just one more about CET1 here. I'm going to ask on the dividend part, but I think at 15.9%, this is still higher than the target in the short to medium term for 14% rate. So could you just provide some clarity on how short this run rate is exactly when you want to reach 14% and the rationale for keeping such ample CET1 for this year?

I think to repeat that, it is really to buffer for uncertainties and also to have allowed room to grow organically and inorganically. So I think that is quite clear. It was very difficult to tell you a time line to say that when we will achieve that. But let's see how things are going to come out this year on our growth, whether we deliver that and also whether there's any other opportunities coming along.

Harsh, JPMorgan. Thank you. A few questions. First on the inorganic growth, you touched a lot about it, Helen. Is it going to be more bite-sized like we had last year or are you ready for something bigger, something more transformational? And let's say, in the course of next 2 years, '24, '25. Are there any particular segments or geographies? You could just refresh us on what are you looking at in terms of possibilities?

For organic growth, we continue to focus very much on the core markets, meaning again, Singapore, Malaysia, Indonesia, and Greater China. We do see good opportunities of Indonesia as a growth market. And if you look at our Indonesian entities numbers, they have been growing quite fast. Malaysia, we are also looking at achieving higher growth in 2024 compared to the previous couple of years. Greater China, we still see a lot of opportunity, more onshore -- more offshore less so much onshore China. We continue to see customer interested to bring investments into ASEAN. We have quite good growth in some of the new economy sector. Although this could be a bit more early because it will start from a smaller base, but we do see that as a good opportunity. And Teck Long, you may be able to supplement a bit on what sectors. For example, I think we have done some interesting transactions in the TMT front. So we do have identified various opportunity. And of course, sustainable financing is another part, right? So customer may not be investing a lot in a high interest rate environment. But they have to greenlit that whole portfolio as well. So we are quite good in sustaining them. That's why we're able to actually build a sustainable financing book up quite rapidly. So I think these are various areas that we are looking at. And we continue to have our customers' interest in investing overseas, and we are supporting them in the U.K. in Australia, for example.

I was also interested in organic aspirations that you may have, especially, is it more commercial banking related? Or is it more maybe private banking, insurance or other bids parts of the businesses. Any more detail on that would be great.

Okay. May I say that last year, mid to last year, we did announce plans to achieve SGD 3 billion additional revenues. So we will be talking about another next 3-year plan, but later in the year. So we'll let you know.

We will wait for it. Okay. A couple other questions more on the commercial real estate and more Hong Kong rather than U.S. One, before anything else, are any of your regulators in the home markets in the core markets asking you to reassess the loan to values or reassess the net present value of any of the loans? And are they asking you to take hits or probably not yet? Because some regulators in the Western world are asking banks to take a more conservative view and deep dive on their CRE portfolio.

I think Teck Long can cover a bit on the various markets, the performance of the real estate sector. But I don't think there is any specific regulatory change to say that you have to change the way you land. But the review of how we manage the risk is ongoing all the time. We talk to the regulators all the time in all the markets. Of course, because wherever there is a certain sector that demonstrate more weakness, we communicate with the regulators actively. And we do -- well, we change, for example, we change our model of the stress testing, et cetera, in order to say, "Hey, this market demonstrate more weakness." But if we stretch it even more, how does that portfolio look? So that conversation with the regulators is always ongoing. Teck Long?

Yes. I will supplement a couple of things. Firstly, I think the -- in terms of our credit policy, we actually update valuation at least annually, if not more frequent. So whatever LTV has is the latest LTV. In the Hong Kong market, our average LTV is around 40 over percent for circa loans. And in Hong Kong, [indiscernible] unsecure, but those are relating to the very large conglomerates who has the financial resources. So generally, we have not detected real issue in the Hong Kong market, although we can see valuation being coming down progressively. I think, overall, we are quite comfortable in the Hong Kong market even at this point in time. So I think they are quite well. I think our portfolio is very resilient.

Okay. Can I touch a bit upon the occupancy of your properties. So loan to value, you know how to get there, right? It's more the cash -- the debt servicing ability -- do you see any risks in terms of higher vacancy of any of your properties? And how is that leading to any risks on the ability to service debt to begin with. And also on the loan to value, yes, maybe the pricing has come off. But if you actually want to sell those properties, even if these are prime properties today, at a discount, would you have a buyer for those properties, even if you put a 30% discount. So then I'm trying to figure out what is the net realizable value in case things become really tough in some of the markets?

Okay. You ask a very big question over the very big market. But let me try to kind of like give you few dimensions. Firstly, vacancy rate is going up. I think that we can see. The interesting thing about Hong Kong is that we actually have people who are waiting to buy but the sellers are not there for prime real estate. So that's a very unique Hong Kong problem, which suggests our reading is correct, there's a lot of holding power to the [indiscernible] so basically our debt servicing in short, actually, we find that the strong sponsors actually come in at top up and pay. So it can last for quite a while. I can't predict the future, but I can last quite a while and you also have to take into account this year in the second half of the year, interest rate is widely expected to come down. So that is actually -- that will put, I would say, put a floor to whatever transaction in terms of valuation coming down. So I think this is the tick for the larger sponsors, the larger corporate banking kind of business. For the SME kind of business, right? We have always been looking at if it's based on LTV and also guarantees from sponsors and so on and so forth, even though they are the commercial banking customers. Now if you think about the whole Hong Kong market to answer the question is that the way our ECL2 works is that we actually point ECL2 on a pro-cycle basis. So as we see stress building up in the real estate market, actually, we increased the provision even though LTV is 45%. So which means that the real estate has a drop quite dramatically. And then we still have business for that. So I think that's probably the way I can kind of crystallize for you in a short concise manner.

And the last question, if I may, is on net interest margin. Where do you see incremental competition? Is it more on the -- still the funding side or funding side is becoming easier? And is it more on the asset side, especially mortgages, I see pricing coming off quite dramatically below 3% in some cases. Do you see that continuing, especially if you expect rate cuts? That's about it.

I think I look at that question with 2 answers. In a more challenging market, actually, it is more competitive in terms of the loan margin. You think you will price it, but because people are -- there are more fights for quality assets. So mortgage is one of the quality asset, right? So in a way, when we say you work on the NIM in an environment like this, it's really more work on your funding costs. So working on CASA is very important. We have a very balanced portfolio with our large corporate deposits. And our SME deposits, we have a big SME base. And that deposit is more fundamentally CASA than fixed deposit. And of course, for our retail portfolio, we also have a big customer base. That would be -- I wouldn't say more volatile, but the interest cost do follow how our competitors offer, right? But in a way, building the accounts, in particular, what we call working capital accounts is most important because if your customers maintain their working capital accounts with you, they can't just necessarily place them all into fixed deposit to earn a higher interest rate because that's the operating capital. So for us, in the last few years, we've been investing digitally in order to make sure that we capture more of these working capital accounts and both on the commercial banking side, the smaller to medium-sized company, but also in the larger corporate side, because of certain products they need, if we can offer them, then they will put their working capital accounts with us and on a regional basis as well. That's why we said this is really part of our corporate strategy. If you can serve your customer across more country, they keep their working capital account with you.

Okay. We have Prisca from Straits Times.

A question on deposit rates. When do you see rates on FTE and savings accounts coming down and maybe coming down more sharply to manage higher funding costs? And also a question on real estate. Could you give a little bit more color on China real estate? And are you worried about that as well as the impact of the consumer market slowdown on your network clients?

Thank you. Sunny, you want to take deposit rates? I thought you will be referring more to the retail portfolio.

Yes. Thanks, Helen. On the fixed deposit front, I think we will always make sure that we are priced very competitively. Of course, we are looking at the cost of the fixed deposits. We actually did a round of fixed deposit [indiscernible]. But again, we're just monitoring the rates to make sure that we are always competitive in line with the market.

For China, our onshore portfolio remained to be quite small of the total loan book. And in a way, they are mainly to our network customers, meaning customers that invest in China from overseas. So Teck Long, you have something to add on that?

Yes. As a foreign bank operating in China, our customers are largely only [indiscernible] customers and some very large SOE, which is not in the market for any credit stress. So those in the market, obvious names I shall not mention, we are not involved.

Okay. Melissa, [ Goldman ].

Maybe just back in terms of capital again. Sorry about that. In terms of your ROEs, you're targeting about 14%, right, in terms of loans growth, maybe mid-single. So at that pace, we are still building CET1 over time? So how do we think about that when you talk about bringing your CET1 down to 14%. Also with interest rates coming down, maybe perhaps you might see net income getting compressed over time. So is there any commitment in terms of the EPS itself? I think I'm asking that in relation to a EPS so dividend per share. So is there any commitment, like you mentioned 2019 and now you've seen almost a doubling of it. So is there any commitment that we will continue to see at least EPS flat to up even if net income does decline, if rates do actually come down quite sharply. The reason I'm asking that is also because we've seen Great Eastern and their commitment to actually pay out higher dividend this year in terms of EPS, right? So your subsidiary is really working hard to help. So what about you at the parent level? Is there some commitment as well to work hard to actually help shareholders at this end. I'll just stop here. I have another question later.

Thank you for that very interesting question. I am very happy that our subsidiaries are working very hard. And indeed, Great Eastern did increase the dividend payout, right. And you look at the payout ratio, it has increased. In a way, that flows through to us to our profit. In that case, it flows through to our shareholders of OCBC. It shows through. So if we continue to commit to pay 50%. And of course, you've seen 2 years in a row, we pay about 50%. So I think whatever our dividend we receive from a subsidiary should help us to do that as well, meaning that they are not keeping capital there that they are distributing it up. So I think that's a good sign. As you say, commitment, and we're committing 50% at least already, right? And if we see that in ways to actually distribute that in the manner that we think we have planned for that we cater for things that we want to do and cater for uncertainty then there is always upside from that. As I said earlier on, if we perform, if we do better in 2024, of course, based on that 50%, it will be a higher quantum too. It doesn't mean that we will not consider keeping a good quantum. But it's not -- you either commit that side or this side, right? If we commit 50%, it's very difficult to say then every year you will pay more. Yes, that means you're committing that you will prove every year no matter what the market condition is.

That's why that's your peer, right? On the inventory growth at EPS every year.

Yes, we have a strong commitment to grow, yes.

Yes. Then I guess, our next question, maybe since Great Eastern is in the room. In terms of your returns, it has been quite [indiscernible] this year. Maybe if there's any comments on what you see for 2024 in terms of your ROEs? And any guidance from there would be quite helpful.

Looks a direct question for you, Ronnie. Ronnie is our CFO.

Okay. I think for insurance -- as an insurance company, we generally do not commit or give guidance on profit and ROE because our earnings and -- quite a bit due to investment environment. So from Great Eastern's announcement, you see we generally don't give guidance. We don't omit. So I'll just give you...

But you have to recognize that last year is a year of change for the insurance industry with IFRS 17 kicking in. So it's not that easy to just to say how that actually changed the model of reporting of profits. And indeed, there's a big change. So with one year of experience of IFRS 17, I think coming to transition, it will be an easier way to look at how profit change. Because largely it's just a new way of accounting for it. So we take it as not that easy to explain to investors why profits shift like that. We try -- I think we try, I think you all understand that. But I think this year will be a better year to look at how we compare to last year.

And then just lastly, in terms of your SGD 3 billion top line, right? You said you achieve [ SGD 1.6 billion ]. Can you just explain where can we see it? And where is it exactly coming from? So then we can kind of look forward in 2024 and better understand when you tell us you have achieved more like where should we account it for?

Okay. Some of this is from our investments into account opening. I think we have on one of my slides talk about how many new accounts and how digital we are that -- so some of those initiatives, as we invest as we work together or we launch products across different geographies contribute to that. So to us, of course, we track it, right? We promise it. Of course, we have to track it. So we don't know which initiatives will bring along what and eventually the revenues that come from it. So if you ask me, "Hey, you said we performed quite well in NIM." So part of it is from that. right? We performed perhaps better, and part of it is from there. But if you ask me to put into it, that means I have to show you my whole spreadsheet. That's not going to be very easy. But we did make our -- we think that this is the initiatives. If we achieve it, then this revenue should come in and we can measure it. So that's how we come up with a SGD 3 billion number. And we did say it will be because you start to emerge, you start to build, you start to be acting as one group. So we did say it's [ SGD 1.6 billion ] for the first year. So that means SGD 500 million and then it will be [indiscernible] for the second year of 2024 that will be SGD 1 billion. And then it will be -- we say that would be [ SGD 0.5 million ] for the third year, that will be 2025, right? Well we're looking at 2026, of course, but in a way, it's easy to say those are additional because without the things that we put in, I don't think we can potentially generate. I mean, if you follow on the old trajectory, maybe the NIM will be lower, maybe some of the fee income will be lower. Maybe your loan is even flat growth rather than 2%. So I think I just tried to explain it that way.

Okay. Yang Hong from Citi.

As a start, you'll remind us again, what is the Basel IV impact on an initial basis and on a fully [indiscernible] basis?

I didn't get it, sorry.

Basel IV impact your capital ratios, '23 basis and on a fully basis.

So on Basel IV or Basel III reform, as you called it, that's expected to provide an uplift during the transitional period of up to 2 percentage points to our CET1 that's transitional when that was slowly rolled upon the transitional period because of the implementation of what we call the output [indiscernible] based on the revised standardized approach, right? So upon full implementation, our CET1 capital adequacy ratio is expected to still remain above our 14% target.

Okay. So will this 2% eventually become neutral or you'll be still negative [indiscernible] capital position. But this 2% slowly [indiscernible]

Yes, because the uplift, right? Up to 2 percentage points, that was slowly erode as the output for [indiscernible]

So it would not be aggressive.

It will not be 2% all the time, it will fall back down to above our 14% target.

All right. And given looking at growth guidance, low single-digit ROE low teens, I think your RWA growth will be quite limited, at least in your transitory basis, you'd be comfortable with your CET1 ratio at 17%, 18% ever.

I think we -- [indiscernible] can explain that a bit further because this year, we still have some optimization. So part of that growth in CET1 is from some of the capital optimization. And if you take away that, that means our growth will tick up some of our capital, yes? So I think, [indiscernible], maybe you can cite one or two examples on the capital -- the [indiscernible] optimization that we have achieved.

Yes. We have been conducting RWA optimization over the years. And in fact, in 2023, we did have quite a sizable optimization whereby the single premium insurance financing. So our portfolio were optimized to [ AIRB ] approach, and that's where we actually realized the savings in terms of RWA of SGD 5 billion to SGD 6 billion. So and that -- this optimization over the years, right, was the reason why I was core equity Tier 1 has been going up all this while. Yes. But now that most of the optimization has generally been already executed. Going forward, the RWA growth will drag the loan growth as well as the impact of the Basel III reforms along with this law kicking in over the transitional period.

Okay. Got it. Maybe just a short-term strategy. Given the uncertainty of the China recovery in longer term, we obviously hope for a good nice China recovery, at least in the near term, what is your game plan? Are you going to be more aggressive for growth in ASEAN?

China, we do see some signs of potential bottling out of the current more negative sentiment. But having said that, of course, we remain vigilant on the market. But that doesn't stop us to continue with our corporate strategy because we are not focusing -- we're focusing -- we think we have the right to win to link up China with ASEAN. So if you look at our growth of our China business, a lot is offshore, meaning we are serving customers that are investing in this region. When they come to invest in this region, they need to set up companies, they need to start account with us. They need to put the money in. They need to build up what I call the working capital account with us, they need to affix, the they need to start to have some trade facilities. And if they further into looking to buying something, then we will be financing and advising them. So I think that trend is on and is still on. And I think we have grown quite substantially in serving the Chinese companies hovering this way with the fact that we have to increase the size and the capabilities of our China business offices in the ASEAN countries, we have to build up the team as well. So that reflects actually opportunities are still there.

Maybe just a small follow-up. I think just looking at our loans, I think the only country that is growing is Singapore. I think it appears that you are saying that you're still capturing cross-border flows from Greater China into ASEAN. I think looking at your ASEAN loans growth, I think it is really quite good. But I just wanted to understand where are these translating to your numbers?

If you look at constant currency growth, our -- some of our centers, Indonesia is actually going quite fast. The loan book grew high single digit. And if you look at Hong Kong last year, I think we have some growth as well. So it's a slight -- as a Singapore market, sometimes you see it growth is not potential entirely Singapore names. It could be in external investors coming to Singapore setting up shops here. But of course, we did grow our mortgage locally as well, right? And in a way, we support a lot of Singapore companies going overseas. So if you see our growth in London is potential a Singapore companies doing things in the U.K. as well, or we have investors going from Hong Kong to Australia, for example who look at infrastructure investment. So these are the various examples. So that is why it is important that we can link up everywhere of our people so that we can offer our solutions to our customers as a whole. And loan is one thing, but loan brings along a lot of ancillary. I think that is what is important.

Okay. I believe there are no more questions. On that note, thank you very much for joining us this morning.