Oversea-Chinese Banking Corporation Limited ($O39)

So good morning, everyone. We have our media friends with us here, and we have some of our analysts on virtual first in the room somewhere and of course, from the various offices. So we are going to go through our results for first quarter this year. And because of the HSBC Malaysia International Wealth and Premier Banking that we have done, it's under a nondisclosure agreement. So many of the numbers we will not be able to share, and we ask for your understanding on that. So with that, I will now pass the time to Chin Yee to take us through the results.

Good morning, everyone. Thank you for joining OCBC's first quarter 2026. [indiscernible] OCBC delivered strong performance for first quarter of 2026. Group net profit was SGD 1.97 billion, up 13% Q-on-Q and 5% year-on-year on the back of record total income. ROE was 13% on an annualized basis. Net interest income declined amid lower interest rates, partly cushioned by growth in assets. I will cover more in the later slides. The NII decline was more than compensated by record noninterest income, led by strong growth of our wealth management franchise. Noninterest income grew more than 20% Q-on-Q and year-on-year with broad-based double-digit increase across fee, trading and insurance income. Despite the escalation of conflict in the Middle East during the quarter, wealth management fees recorded robust growth and our customer flow treasury income reached a new high. We continue to be disciplined in expenses with cost-to-income ratio at 39.3%. [indiscernible] growth momentum was sustained, up 9% and 10% year-on-year, respectively. Our asset quality remained resilient with NPL ratio stable at 0.9%. Factoring in the heightened macro uncertainties, additional management overlays were prudently taken this quarter with total credit cost at 23 basis points on an annualized basis. NPA coverage rose to 163%. Our capital position remains strong with fully phased-in CET1 capital adequacy ratio at 15.2%. Moving on to our performance by key business pillars on Slide 5. We continue to deliver resilient growth across our diversified franchise of banking, wealth management and insurance. Banking operations profit was up 9% Q-on-Q and 6% year-on-year, driven by strong fee and trading income. Wealth management income rose 14% Q-on-Q and 11% year-on-year to SGD 1.48 billion, comprising 39% of the group's total income. This was supported by growth across all segments from private to premier banking to insurance. Our Wealth Management franchise continues to attract net new money with $5 billion of inflows for the quarter. Banking AUM grew 12% year-on-year to SGD 342 billion and was broadly unchanged Q-on-Q due to a decline in market valuations. For insurance, profit contribution from GEH was SGD 323 million, up 44% Q-on-Q and generally steady year-on-year. Underlying insurance performance was strong, partly offset by a lower valuation of investments, including those from shareholders' funds. Total weighted new sales and new business embedded value grew 16% and 31% year-on-year, respectively, led by strong sales from Singapore across both agency and banca channels. NPAT margin improved to 48.6% from 43.1% a year ago. Moving on to more details of our group performance trends, starting with net interest income on Slide 8. NII for first Q of '26 was SGD 2.22 billion, 5% down year-on-year and 3% below 4Q of '25. On a day-adjusted basis, NII was slightly lower by 1% Q-on-Q. To highlight, SORA dropped more than 160 basis points, HIBOR more than 120 basis points and SOFR more than 60 basis points from a year ago. These key benchmark rates were also down Q-on-Q. The impact of lower interest rates was partly cushioned by average asset growth and assertive management of deposit costs. Average assets grew 4% Q-on-Q, driven by loan growth and a 7% or SGD 12 billion increase in average balances of high-quality treasury assets. Surplus liquidity from robust deposit growth and a preemptive increase in wholesale funding due to macro uncertainties were deployed into NII accretive high-quality assets. These treasury assets were dilutive to NIM, but added to asset yield compression. First Q '26 NIM narrowed to 1.76%. Our March asset NIM was 1.75%. Income from treasury assets mitigated about 30% of the rate impact on loans. This underscores our approach to protect NII. We intend to continue to build this up, but likely at a slower pace than first quarter. NII sensitivity based on 1 basis point of drop in rates across our 4 major currencies of Sing dollars, U.S. dollars, Malaysian ringgit as well as Hong Kong dollars was about SGD 5 million on an annualized basis with Sing dollar being the key driver of the sensitivity. Moving on to noninterest income. Noninterest income grew by more than 20% to SGD 1.61 billion, which is a quarterly record for us. Fee trading and insurance income all grew by double digits year-on-year and Q-on-Q. Noninterest income now comprised 42% of our group total income. Our first quarter '26 fee income rose 12% Q-on-Q and 24% year-on-year to SGD 675 million, a few million shy of the record we had in third quarter of '25. Fee growth momentum was robust. This is the third quarter in a row that our fee income was above SGD 600 million. In particular, all wealth segments continued to deliver strong performance, reflecting the results of our ongoing efforts in growing our wealth management franchise. Wealth fees rose 34% year-on-year, driven by higher investment activity from customers and our expanded AUM base. Growth was broad-based across all product channels, including private banking, bancassurance, treasury products, unit trust, brokerage as well as fund management. On brokerage and fund management fees are now reported within our wealth segment to better reflect the full spectrum of wealth-related products. Moving on to trading income. First Q '26 net trading income grew 10% Q-on-Q and year-on-year to SGD 434 million, underpinned by record customer flow income. Customer flow income was up 35% year-on-year and crossed SGD 400 million for the first time, driven by both wealth-related activities and corporate customers. Increased market volatility and demand for hedging amid economic uncertainty continued to support transactional flows. Moving on to operating expenses. We continue to maintain cost discipline while being targeted on our investments to support our next frontier corporate strategy. 1Q '26 operating expenses of SGD 1.5 billion were up 6% year-on-year, mainly due to higher costs to support business growth and continued investment in technology. Against 4Q '25, expenses were down 4%. Our cost-to-income ratio was 39%. Moving on to loans. During the quarter, we expanded our loan book by SGD 6 billion or 2% to SGD 347 billion. Growth was largely broad-based across industries. Compared to a year ago, loans was up 9% year-on-year on a constant currency basis. By geography, this was led by Singapore and Malaysia as well as our international markets like U.K. and U.S. The sustained momentum in loan growth reflects the continued traction in our strategic focus areas in wholesale as well as consumer and private banking segments. This includes Singapore residential mortgages, wealth financing, key and key industries, including digital infrastructure and sustainable financing. Our sustainable financing loans increased 17% year-on-year to SGD 59.7 billion, now comprising 17% of our total group loans. Our loan portfolio quality remains sound. NPL ratio was 0.9%, unchanged for 8 consecutive quarters. NPAs were SGD 3.12 billion, 4% lower Q-on-Q as new corporate NPA formation was more than offset by net recoveries and upgrades. 1Q '26 new corporate NPAs were an annualized 14 basis points of period stock loans. This is lower as compared to 39 basis points for FY '25. We are highly watchful of the ongoing Middle East conflict and potential downside risk. We note no significant credit deterioration and continue to refresh our stress test. First order impact is not material at less than 3% of loans or 1% of total assets. This includes petrochemical and refinery sector and other direct Middle East. We continue to actively engage our customers and are closely monitoring for potential second and third quarter impacts should the situation become protected. Total allowances for 1Q '26 were SGD 216 million, up 8% Q-on-Q and 2% year-on-year. Allowances were mostly for non-impaired assets. Additional management overlays were set aside in relation to the elevated macro uncertainties, reflecting our prudent and proactive risk management approach. Total credit costs were 23 basis points on an annualized basis. With the increase in cumulative allowances and drop in our NPAs, NPA coverage ratio was higher at 163%. Our performance loans coverage ratio held steady at 0.9%. Our coverage levels position us well to navigate the uncertainties. Moving on to deposits. Customer deposits grew 10% year-on-year to SGD 444 billion, driven by 13% growth in CASA deposits from both wholesale and consumer segments. CASA ratio rose 1.3 percentage points year-on-year to 50.2%. For the quarter, deposits were up 4% and group loan deposit ratio was 77.2%. The growth in our well-diversified deposit base enables us to continue expanding our balance sheet and increase funding resiliency in an uncertain environment. Our funding base remains balanced with close to 80% from customer deposits. Our liquidity and funding ratios remain well above regulatory requirements. Wrapping up on capital. Transitional CET1 was 17.0% and fully phased-in CET1 was 15.2%. On a pro forma basis for fully phased-in CET1, the payment of our full year '25 final and special dividend will reduce CET1 by 1 percentage point. The acquisition of HSBC Indonesia International Wealth and Premier Banking, which we announced earlier this week, will utilize up to 0.2 percentage points of CET1 when completed in the middle of next year. I will share more of this in his presentation later. Our capital position remains strong, allowing us to support strategic growth opportunities and provide buffer against uncertainties. Our CET1 target of 14% over the medium term remains unchanged. With this, I end my presentation. Thank you very much for your attention. I will now hand the floor over to [indiscernible]

Thank you, Chin Yee. Normally, Chin's presentation is the main cause. But today, we have 2 main causes because of the OSBC. First, let me give a very quick reflection of our results. Maybe we can move to the slide. Yes. So we are pleased with our results for the first quarter. It's very strong. We actually check every box in terms of growth. We expanded our loan book. We expanded our deposit book even faster the noninterest income was experienced growth. It's a broad-based growth across all business units. For treasury income, we have been focusing on growing the customer about the treasury income that has come in very strongly at a new high as well. Now all this was achieved in the context of a low interest rate environment. So as a result, our year-on-year growth in terms of profit is 5% Outlook-wise, we remain very concerned about what's happening in the Middle East because it's a very direct impact in Southeast Asia in terms of energy supply and therefore, the prices. So to be prudent, although we don't see credit quality issue in our portfolio, to be prudent, we have put in some provisions, general provisions for [indiscernible] loans is really a third effect, which we are being prudent about. So that will leave our NPA coverage ratio to 1.6x, which I believe is the highest in Outlook-wise, we are very focused on what's the Middle East war and the prices of energy. We are still keeping to our earlier financial guidance, notwithstanding what's happening in the Middle East. Our capital position remains strong. We expect to complete our SGD 2.5 billion capital return plan by financial year 2026, meaning the dividends will be paid out in FY '27. Okay. We go to the HSBC [indiscernible] let's pause for questions. So earlier this week, we announced our acquisition of HSBC International Wealth and Premier Banking portfolio. I shall refer to it as the IP portfolio. If you recall under our Frontier strategy, we said that we are focused on growing wealth as well as deepening our franchise in our core markets, the 3 parts in Hong Kong, Singapore as well as the ASEAN domestic market in Malaysia and Indonesia. When I look at the IP portfolio, I realize this is a perfect fit for our next frontier strategy. Most of the portfolios we have seen in the marketplace available for MA depends to the mix of loans and deposits. But this portfolio is very clean with large deposits and AUM. Why is that a good portfolio? If a portfolio has a loan content, they do worry about 2 things. downside due to credit cost. And secondly, if the portfolio is large, we actually may lose value because of single borrower risk limit concentration. So we have to manage that. So for this portfolio is largely deposits, largely AUM, a small retail loan relating to credit cards. So that's the business we are buying. Now what I really like when I look at the deposits part of the acquisition, they have sizable CASA. So CASA to the bank, if we book on the CASA, we will actually make money straight away because CASA is a low-cost CASA for us to help to fund our loan business. So as a wealth portfolio, IWP is highly complementary to our existing Indonesian franchise with clear synergies across customers and capabilities. It will add further scale to our AUM and customer base. Now this is a big competitive advantage we have in Indonesia. We are one of the top 3 privately owned banks in Indonesia. We enjoy big economy of scale. We can bolt on this acquisition and gain cost synergy very quickly. Not many banks can match our economy of scale in Indonesia. We expect the acquisition to be earnings accretive, excluding onetime integration costs. Under our whole wealth strategy, products, channels, insights belonging to any of our wealth units of OCBC Group will be tapped to support the whole group. We will leverage Bank of Singapore's product capabilities and insights to help further uplift our enlarged wealth franchise in Indonesia. The acquisition also come with a small retail loan book that I referred to just now of SGD 300 million, largely related to the credit card business. It is a nice addition to our credit card business, our credit card balance will increase by 1.5x. Indonesia is still a very important market for us. It is a core market. If you really think about it, ASEAN is still a very good place to be in right now given the global environment. And Indonesia remains the largest economy in ASEAN. Even though there are economic headwinds in the short term, we are still committed to investing and growing our franchise in ASEAN in Indonesia as part of our next strategy. We have a strong capital position. More importantly, we have good local insights in this region. We are well positioned to navigate an uncertain environment and take advantage of any opportunity which may arise. As we speak, we are already one of the top 3 privately owned banks in Indonesia. With this acquisition, we have further expanded our franchise in the largest economy in ASA. Thank you.

Thank you. We will take questions from the media. And analysts online, you are free to stay on. Otherwise, we will see you later at about 10:30. So we'll start with the media now, questions.

Congratulations and also share price while going down [indiscernible] So I'd like to ask first 3 questions. First, how do you expect to maintain the earnings momentum for the rest of the year given the NII slowdown and your NIM contraction on a quarterly basis is quite sharp. The second question, with departures in the Middle East and that of Singapore, do you see impact on the AUM in terms of? The departure [indiscernible] in Dubai, and we are now expecting more departures from that front. Do you see much impact on AUM on wealth? For Indonesia, can you give a bit more color on valuation given high liabilities of the unit that some people expect, meaning that are you getting a very good discount because of the bank's debt obligations? I took note of your commitment to [indiscernible], but do you expect this to be short term given concerns and also [indiscernible]

I'm sorry, just to clarify the question about discount you referred to...

I mean you did -- I think mentioned a premium to NAV, but NAV is not available. I think some analysts expect like say that...

I see because...

Indeed. So basically, you get it. Is it something that we could confirm...

So first question is that are we able to maintain our earnings momentum given interest rate which may continue to decline. Actually, the decline has slowed down. So the quarter-to-quarter fluctuation is because we got some recovery of NPL, which adds on to the interest rate recovery. In the NPL management, we are conservative. The moment we put a case into NPL, we actually do not recognize interest. And we so happen to have put some cases into NPL quite early on, and therefore, the interest later. So it's a one-off when we recover. So it's actually good news. It proves that we have been prudent in managing our NPLs or our loan book and then we get some recovery now and then. So that's good. So to answer your question, the interest rate decline has slowed down. Our fee business is what we are focusing on consistent with our next strategy. The second question is about what's happening in Dubai. Dubai, while it's a center for Bank of Singapore, the contribution from Dubai is actually not that much. So even if we have some temporary outflow or temporary impact, we don't expect material impact to our franchise. Anyway, Dubai at the moment is still under state of day is a war. So we have to see what's happening. So overall, structurally, we do see some increased inquiries from Dubai customers in general. So I think that will also mitigate the impact of any staff.

Yes, and the war is still going on, but your operations remain there. You haven't -- have you moved any relocated?

When the war, I mean, now is some sort, earlier on, when things were a lot more, some staff on their own decided to leave the country. So we have maybe 10%, 10% of staff on a voluntary basis left the country. It doesn't impact our operation. In fact, throughout the whole situation, we have been operating so it's BAU, but our staff work remotely from home.

So about 10% to 20% already.

They're still working remotely. But the staff in Dubai also work remotely. You have quite a number of points relating to the HSBC acquisition in Indonesia. I think firstly, maybe let me explain the structure of this. So deposits to a bank is a liability, right? But it's what we want to grow, unlike other companies. So for most companies, we talk about liabilities in the negative sense because you own people money. But for the bank, we like it because our liability is not about us owning people money, it's actually deposits kept with us. So technically, it's a liability. So because of this, right, we can estimate the cash flow stream from the liabilities as well as the AUM business. Now on the asset side, because it happened to be so small, which is only a SGD 300 million loan book, the total AUM deposit is like 10x more. So than -- so because of this characteristic, it makes. So in other words, if you think about it from a banking viewpoint, we have a portfolio which we have minimal credit risk, but it provide us.

You see, I mean, Indonesia is well featured about, [indiscernible] you at all a short-term thing?

I think I can comment this way. For Indonesia, we have been there for more than years many, many sectors. Alluded to that to operate in this part of the world, we need a lot of capabilities and insights. So in a way, the barriers to entry is quite high. What we are seeing are some banks reducing their operation in Indonesia. But as you can see in our Indonesia business, we remain very committed. On a BAU basis, we continue to expand. And now there's opportunity we manage buy it. So we are -- we will be able to run. So our view on Indonesia is that there will be ups and downs. And over a long period of time, the outlook is good.

On the wealth talent, right? Are you planning to expand that headcount? And I think among all the local bank more stable sort of headcount [indiscernible] the wealth talent you also expect overall headcount to sort of remain stable year-to-year and also the competition amongst the banks, right because every bank is also chasing wealth management income. Is there more you think for such talent and also when you do the M&As when you are bidding for the business, is there more competition? And how do you navigate this?

The headcount you're referring to the whole banking group [indiscernible]. So for the whole banking group, we still maintain high cost discipline. headcount which are relating to sales, we will continue to expand it. So because it's crucial for us to have the talent to help us expand the wealth business. So I hope that answered the first part of your question. The second part of the question, are we seeing more competition? Well, the way I think about it is that competition has been intense over the last 10 years. It's not new to us. But the more important thing is about our capabilities. So I will describe it in 2 ways. One, the competitive landscape in A. Interestingly, we see ex of some players once it's actually less crowded. And we have a good franchise in the ASEAN core markets because we have product capabilities in the group, whether it's the Bank of Singapore or OCBC Singapore, we do have very strong product capabilities. In each of the countries, we have tailored the products will be launched in these countries. So there's a lot of comm sharing, which we can do under our whole wealth strategy. So in a sense, that is a differentiating advantage for us.

I know you mentioned regarding the third order effect that you're being prudent about -- can you elaborate a bit on that in terms of sectors or sectors or markets where you are kind of a bit more about? And on the wealth side, apart from the increased inquiries from Dubai, where else do you see the greatest opportunities within the region and the rest of the world?

When we actually -- so first order, second and third order effect to us, first order effect are those industries which are directly impacted by the Middle Eastern situation. The second order impact are the industries who might experience some pickup in the supply chain due to the Middle Eastern impact. So this is a general sizing. The third order impact to be more accurately described is actually a macroeconomic impact. So what we have is actually for the third quarter. Your second question is relating to opportunities [indiscernible] Our wealth business is actually very diversified. So we draw from all over the world. So that's one. So that opportunity remain because if you look at it, Singapore is actually a very attractive place to be a wealth hub. So that competitive advantage remains. The second is the rising affluence. So in the ASEAN, we continue to see economic growth and we continue to see rising affluence. So this is another we want to -- sorry, I forgot to add domestic market. Our strategy is hub. So Hong Kong also capture China, Hong Kong flows, and there's also a lot of wealth within Hong Kong and also neighboring Hong Kong, the Greater Bay region. So this is not a high net worth ultra-high net worth business. So we won both. We won ultra-high net worth business. We also won our DPC premier wealth business.

Our OCC premier private clients the higher [indiscernible]

One is on the dividends and the capital return. So there is a share buyback portion of that. How much have you completed? And do you -- what will you do if you don't complete it? Will you return the rest of it to the shareholders? That's one question on that. Another question is, I don't know whether this is the right place to ask. But under current of all this competition between the 3 local banks. The one you came from has a specific competitive advantage in its treasury business. And I think you were part of that whole you bring some of that under competition to bring some of that so that OCBC [indiscernible] the other CEO that OCBC has had. So if you [indiscernible]

I'll take the question on the dividend, share buyback as well as capital return. So for the share buyback for cancellation, we have completed 20%. So there's about [indiscernible]. That means we have left about SGD 800 million or so. Yes. So we will be monitoring the situation to see whether conditions is feasible or conducive for further buyback. If not, we are flexible in terms of returning in the form of special dividend. Now also mentioned during the full year financial results February this year that given our retail -- our sort of investor base are the long-term sort of shareholders, the preference will be for special dividend personally -- so that is certainly an area for us. And just now mention that if we were to return that in the form of special dividend, we will complete the entire SGD 2.5 billion of capital return by full year financial year 2026, meaning if the special dividend payout, that will be for final year '26 dividend paying out typically in May of 2027.

Okay. On treasury business, thank you for the question. You give me a chance to elaborate on this business. The treasury business is a very important business for us. We have to think about treasury business in 2 parts. Even though it's described trading income in our accounting term is actually 2 parts. One part is trading as people may perceive it to be. The second part is more important to us, which is trying to grow the customer flows using treasury products. So that's classified under trading income. So this is the part which we are building up. Talent, we do have a very good talent bench strength at OCBC to start. We have been executing it. If you look carefully at the quarterly results, the customer flow has been going higher and higher. So to continue to sustain that growth, we have onboarded some talent mainly in different product categories and in sales. So the product category is important because the product capability will help to drive the growth of the fund-facing business, in particular, the wealth business as well is about structuring products for sale. So this is very important. So think of it as this way. Treasury business will continue to grow. We add resources to support the growth of the customer flow business in both wealth and the corporates.

And do you have like a certain amount you think will be treasury income per quarter? Do you look at it that way?

I think for this particular meeting, I think we should look at the path and project forward. We have, of course, in fact, in our strategy in the next go back to the strategy, we actually speed up that we want to scale up in Hong Kong because Hong Kong is a big as well.

Any other questions?

On AI, what's your thoughts on like do you see that Singapore banks will have access [indiscernible]

[indiscernible] indeed a cause of concern, and we are monitoring the situation quite closely. Internally, we accelerated scanning our system to make it as strong as it can be in terms of protecting us cycle risk. Now [indiscernible] is a new development. Currently it is released to selected tech vendors and selected American banks. The tech vendors are also our vendors. And the tech vendors discover the vulnerabilities, we also stand by to hatch any vulnerabilities they discover. For us, I don't think we can tender this risk as a bank alone. We will be a lot -- we will have a lot more safe if we can approach it together with our peers, together with our vendors and together with the government agencies. So this is something which is development, and we are paying close attention to it. Just curious following China question. How does this change OCT way of using third-party AI? And the other question is, do you still see AI as a net benefit to profit and productivity or you rather see it as a new cost or a new kind of risk in terms of your -- so there are a couple of parts to the question. It doesn't stop us from using third-party AI. In fact, using third-party AI as benefits. It could be a lot cheaper. It could be a lot more rigorous. It's tested by more people. But this AI is more like plugging in into certain parts of the operation. The more important thing in terms of our approach is that we actually see -- we have an ADV strategy, which we see AI as being plugin fit for purpose. And one of consideration for fit for purpose besides capability is also the cost because a lot of people may think that AI solve everything. But AI can be very expensive if you are too early adopter. So our strategy contemplates the cost and the benefit equation when we adopt AI. So that's how we -- now does AI bring new risk? Yes. DO is a new risk. The rest of AI risk, I think, has been well articulated, like, for example, hallucination and to what extent you should -- you can get the AI use AI. So we are very, very careful with that. Most of the AI we are using are related to augmenting our operation. So therefore, there's a human using that to improve its productivity. But AI, we can only use it in a very limited way. We have a very good risk framework to decide where we can go and where we cannot.

I ask one more question, how much of the record noninterest income you saw this quarter attribute to the new front strategy, right, your whole wealth proposition?

This is the toughest question so far. The reason is because I was appointed the Deputy Group CEO last July, right? And also under Helen's leadership, when she transit to me, there's a lot of continuity. Some of the next front strategy, especially the past which we so far have not talked about, which are really important like the shift, which is how to write the technology wave to increase revenue for the bank. We have been executing that for a while, and it continues to be a high-growth industry, and we'll continue to have that zero shift, we have been talking about executing it that continues. We have actually started talking and organizing ourselves more wealth even during time. But after I became the Deputy Group CEO, we also accelerated the organizational construct to facilitate our wealth business. So that goes to the next strategy, some of which we started executing some of which we started execution last year. I did not spend time to say which part is which. I mean there's continuity in leadership transition, which is a very smooth one. [indiscernible]

[indiscernible] So you have any specific target to achieve in terms of the AUM and also in [indiscernible]

We expect a double-digit growth. So it's in our plan.

What's your net new money for this quarter?

SGD 5 billion.

It looks like we are good. [indiscernible] Friends here are okay. Okay, good. So thank you very much for your questions, and thank you for joining us this morning.