TMBThanachart Bank Public Company Limited (TTB-R.BK) Earnings Call Transcript & Summary

We have Piti Tantakasem, our CEO, to share the opening session with us. And then after that, CFO Somkid Preechasammakul, the performance detail for this year. And Preechasammakul share you our strategy. I believe that we have a lot of things to share you today and a lot of things that you would like to discuss with us. So I will say [indiscernible] over to you.

Thank you for your interest and your time. Let's -- let me separate the data section into maybe 2, 3 step. First, I will discuss about what was the thinking last year. What is the thinking for this year and what happened, what will be happening next. Then we will pass to Khun Somkid, our CFO to deep dive into our previous year performance and then have Khun Naris, our Chief of Strategy and Digital to walk you through the success and what will be next for our digital strategy and the bank's strategy, and then I come back and discuss about the guidance. We start from here. Last year, I tried to communicate to investor and analyst community that loan growth is not a target. I think our objective is the same. For our shareholders, it is to see profit growth and dividend growth. For brand and to our customer is to create a financial wellbeing, and the true objective, it's not equal to loan growth and dividend growth, right? If we can grow the profit by not growing loan aggressively in the area that could create too much of the risk. And at the same time, we can do the right thing for our customers, and that would be the best thing. So you can see that last year, we saw we can deliver more objective. Meaning that we do not roll on, we can manage risk costs well through the product that benefit customer a lot, like debt consolidation, cash your car, cash your home, which result in much better risk adjustment return and bring benefit to tie customers under the rising household debt. I think that is the real goal of what we are trying to achieve. Speaking of this year, if you ask that TTB is a defensive of broad stock, I would call we are a defensive broad stock. It's like American football, right, you have both defensive and offense team, depending on the situation that which cyber team that you would send into the field. This year, as you can see, Thailand always have the problem of declining population, rising household debt. We can also wield this as opportunity or we can see it as a threat. Underwriting household debt, it may seem to be a threat but solution that we offer to the TMB consumer segment is clear that we can help solve their household debt issues. High digital adoption is also a big benefit to us in deploying our digital strategy, right? So this year, we all know that the rate will stay higher for longer with our doors bring into the business plan. We will share you the guidance, but the game would be quite similar to last year. We should continue to be conservative and grow -- the deficit took up against liquidity risk that might arise because of the government initiative, right? Net interest margin should not be the key, key. But it should be net interest margin after risk cost. Meaning that this year, the trend should continue that we will grow very selectively, right? That's why last year, when the market is flat, we decided not to go to one, but recycle our balance sheet, ensure that we grow deposits in the right segment, improving net interest margin, but not at the expense of risk cost or NPL, and continue to drive our cost efficiency. Last year, the fee income remained a challenge, but start to see improvement trend. So all in all, with this strategy, we can manage to bring resolve and on top of that, our CFO, Somkid Preechasammakul will walk you to more details. We benefit from the tax [chief] of the liquidation of Thanachart Bank because we merged the 2 banks together. At the same time, we see that it might be a good idea that we see the gloomy outlook on the used car market, which our portfolio is small anyway and the overall economic outlook. So it might be a good idea if we strengthen our ECL model further by improve the confidence into our model and would think the overlay for economic uncertainty so that we can save the bank from any future economic downfall if it will happen, safeguard again -- we can safeguard again dividend yield and dividend payout ratio. So if we have strong cushion, we don't have to worry about having adequate loan loss reserve or not having enough capital or not because I'm sure that the bottom line for this year will be on the improving trend, for sure. Because we don't have to pay tax, as simple as that. But we should not use all the benefit just for this year. So that would be the plan, that we should grow this year very carefully with 2 main objectives: make sure that what we are doing is good for the customer and for the economy, and what we are going to do would be benefit to the shareholder through the protection of long-term sustainability of our balance sheet, our capital, asset quality and can pretty good growing dividend yield. So that is the thinking in a nutshell. So may I pass to Khun Somkid to walk you through more detail of last year's performance.

Afternoon, This is the quarterly performance of year of 2023. And I think it's the plan to prove what we have said to be our strategy since the beginning of the year. Starting from the loan side, as we have said since the January that we do not expect any strong growth in the loan balance anymore and that proved that however, behind the thing is that we have done liquidity strategy, you may see that the low yield like the commercial or the corporate side, has dropped portion from 32% to 29%. While the high yield that is our strategic products, such as the retail and the auto loan has grown in the portions. You may see from the second bullet from the bottom is split broad of a -- focus on that. On average, the growth is about 18% to 24% growth here. And that -- however such fraud, we focus on the high-quality customer, especially on the existing customer, is that we have now that behavior or the -- have the financial information will enough. The next page will show the deposit, which may not grow in parallel with the loan. I mean what behind the scene is that the rate that has increased along the year. The TD has in portion from 17% compositions to 32%. And we have done the pre-funded strategy since about in 2022 and it has to be [indiscernible] like in this 2023. On top of that, by the end of the year, we have prepared liquidity more than the [indiscernible] needed, because we foresee the uncertainties in the liquidity of the total bank system, especially from the government policy that would like to do the digital wallet. The CASA remained at about 38%. And next page would show the CR and LCR which is -- the LCR is about 199 above 100% level that which is the minimum requirement after BOT, while the LDR on the top left graph is at 96% for the definition. However, if we include the borrowing, it will be about 92%. Most of the deposit base still coming from the retail deposit and the commercial deposit. And in Page 9, would be to summarize our core loan and deposit that would reflect in the net interest margin, the middle graph. The net interest margin, I think in the fourth quarter will be our peak level at 3.39% or the year is about 3.24%, which is the composition of 76 basis point increase in the yield, while the cost has increased only 47 basis points. However, as I mentioned, that we have offset the liquidity tightening in the overall system. This may not continue much in the 2024. The cost will rise further while the yield or income side would -- will again, stable or a big pressure from the government to manage under a breakdown. I think that's the NII part, while on this page, we showed non-NII compositions split into 2 levels: the fee and service income; and other non-NII. On the fee and service income, we are quite flat year-on-year, especially on the last quarter that we have shown a growth of 5% Q-on-Q, which is the normal on the fourth quarter that is high in the seasonalities. While the non-NII may see the drop 12% year-on-year, which is coming from last year 2022, we have the [AP1] gain around 500, which is equal to the such drop. So its coming from the one-off items, while the rest remain unchanged. Breaking into the fee and service income movement in the following page. The highlights would be on the credit card, the light blue one in the middle. It has turned [ flown ] of 25% year-on-year. This is from the focus of these products, wile the VA quite flat. And one part to mention is that the access fee or the agreement that we have done with the [prove], we have decided to extend the amortization of such access fee from 15 years to the 20 years, which is the contract -- the real contract after such agreement. However, such extent of the amortization would not impact the 2023 performance, it would start in 2024 onwards. On the MF, it may so dropped about 11% year-on-year, which followed the unfavorable market. However, inside the MFP, we start to offer the term funds and structure nodes which is too much bitter with our worst customer ties and to safeguard the bank AUM. While the trade finance may have -- get the positive export momentums and high seasonalities in some sectors, for example, agricultural, automotive, in particular is the EV segment and the energy. And operating expense even next years is one of the proof that we have shown along the year that we are one of the cost-discipline in the banking industry. You may see that the CI ratio has been quite stable at the 43% to 44% even though, the high spending period in the fourth quarter with the key [ about ] 44% and [ year ] is still in the mid-40s, which is our target. And this would be drive further to reach the low 40s within the next 3 years. [PPs OP ] level is increased about 10% and most of the factors coming from the positive trend of the NIIFs I mentioned -- since the beginning of the sections. And ECL. In the fourth quarter, actually, we have set the -- the cost at about THB 4.4 billion after from the normal flow, however, we decided to set another THB 4.9 billion on top as we foresee that the situation in 2024 is still not favorable or the gloomy size is show to us. And overall, we around -- we set the provision around THB 22 billion, equivalent to about 164 basis points on loan and that drives the LR ratio from 138% last year towards 155% by the end of 2023, and summarize will be in this page on the net profit. We have the net profit of THB 18.5 billion. And most of it coming from the core operation with some from the tax benefit that we have realized from the [ end of ] liquidation of the key bank process in November '23. And we are eligible to use that in this '23 as the first year and another 5-year further tax through by end of 2028. However, we foresee that we may use it slightly before the timeline. And the dividend that we have paid as the interim at 55% would be safeguarded even though we have set high provisions, as proven by the following pages that we have a strong capital base, the Tier 1 ratio of 17% and high ratio of 20.7%, which is one of the highest in the industry. And following page would focus on the asset qualities, starting from this page that showed the total composition of the modified portfolio is still at 11% of the total loaned, 7% is from the like modified or orange scheme while another 4% is in the deep modification or the blue schemes. We have a continuing to set the prudent approach on this as driven by the following pages that we uplift the certain criteria in almost all scheme, for example, in Scheme 2, that we previously is setting one, we start to uplift it to be 1 or 2 while Scheme 3 -- from Scheme 2 and 3. And to further prove our stringent approach Stream 3 to 7, we have set the provisions to use the lifetime PD, similarly to the Stage 2 provisioning approach. While management overlay has been set on -- to be the full provisions for the all actual interest of our outflow and under-modified portfolio. And following pages show that spacing, our spacing is tightening more than just the DPD, for example, this Page 1, if we causing only the DPD, it will be only 93% of the portfolio. However, in our setting, which includes a qualitative approach, Stage 1 would be only 88%, while the Stage 2 would be 9%, and Stage 3 would be 3%. That prove that the staging number would be the real one, no any hidden quality -- low-quality customer in the stage 1. And the next page would show the statutory ratio, which dropped to 2.6% and has been showed the trend that we have dropped from almost 2.8% in 2020, the beginning of the COVID period downwards to the 2.6% by this -- by last year end. And this page, this will show the cushion has been reserved across all sales. It would mean that we have reserved the provision to make the cushion more thick, in all across staging, not in only particular one. For example, Stage 1 would increase the provision from 1.1 to 1.3, Stage 2, another 2% from almost 22% to be about 23%, and Stage 3 increased from 45% to 48%. And that would mean that we increase the quality of the provision across all the portfolios to prove that we do not have any hidden case. That's why we have to set another provisions. And last but not least is on the equity interest. And if you have a big fan of, I would know that we have a monitor on equity interest quite strengthened and the increase after equity interest is mostly from the rate increase, not from the EIM and contract rate that has been increased has tone in the last 3 quarters. Yes. I think that is from the performance in 2022 -- in 2023, sorry. So I'll ask to Khun Naris to share us on the strategic directions.

Thank you, good afternoon, everyone. So if we may go to the next page. So I think to ask right, I think strategy execution is more of a medium to long-term plan. And this one just to remind everyone that this has been quite a journey for TTB, starting with the merger transaction and the financial posing at the end of 2029. I think as you all may know, that I think after that, then we focus on integration activity, resulting in successful EBT in 2021. After that, I think one of the key projects that we embark on very early on in the journey is on the digital transformation, we're ramping our mobile banking application. We launched a new version of the mobile banking application last year. And I think today, I will show you some of the artifacts in terms of how the new version of the mobile banking successfully transformed the way that we serve and sell to the customer. And when we look ahead into 2024 and beyond, I think what we foresee is probably the bank relying on the digital foundation that we invest in and build over the past couple of years. As an enabler that would help us transform how we operate, how we engage the bank customer going forward. So that's kind of the story of TTB so far. Before I go into the detail, maybe just on the next page really quickly on the revenue realization to date. I think everyone probably have seen this so many times already. We keep showing this over the last 3, 4 years since we communicate the synergy target to the investor. The chart on the left-hand side is the 5 years target that we commit to the investor back in the early days, and I think the number on the right-hand side is the synergy realization to date after 4 years. As you can see from the top line here that I think as of the end of 2023, we have already exceeded the [indiscernible] in terms of the total synergy utilization today. So I think this is probably the last time that I will bore you with all the detail here, but I think when you look at line-by-line, I think we have been very efficient in terms of realizing the balance sheet synergy and the cost synergy really early on in the journey as you know. Revenue synergy is a bit tricky, given that it will take more time and also in the middle of the COVID-19, if you recall. But I think all in all, I think the momentum quickly turned positive. And I think at the end of the day, we managed to reach the lower power of the revenue synergies target and as I will show you in the next couple of pages, I think the momentum is quite promising, given that I think we have been able to engage the customer much better through the digital platform. Next in term of the big picture direction, how you want to run the bank. I don't think it's really changed. I think what we communicated to the investor over the past couple of years remain pretty much valid and that's summarized on the box -- in the box on the right-hand side, right? I think we said we want to optimize for return. We said we want to be more retail -- we want to focus on deepening the relationship to the monologue product relationship into multiproduct relationship. And hopefully, capturing the main relationship with our customer in the end. We said we want to focus on digital. But to ask digital doesn't mean no branch or no human. We want humanized-digital banking. Meaning, our staff still very much relevant but we want to make sure that they are able to work with high productivity and focus on the high-value work rather than the low-value work. And lastly, I think very much -- I think we think that the strategy of being very prudent, fade out quite a bit in the end. And we think that -- I think given the macroeconomic sector that if we look ahead, remain pretty uncertain. So I think the strategy of ensuring that we have sufficient buffer to absorb volatility and ensure that we have a steady return to shareholders remain relevant valid. So we expect to hold to this direction going forward. Next, in terms of the transformation program, I think, as I said earlier, to ask transformation is something that will take time to really materialize. And the direction on this page is nothing new to the investor, I hope. But I think rather -- I think what I want to show here is more on the result of the execution of the transformation program and how we plan to follow through in terms of double down in the area that we are on the right track and how it would hopefully result in a better band, better customer experience and, hopefully, better business activity in terms of revenue generation and hopefully, ultimately return to shareholders. So let's jump into the detail on the first bucket in terms of the digital transformation. As I said earlier, this is probably the most natural part given that we will earn it really early on. On this page, I will not go into the detail, but you can see on most of the tracking that I think things are being migrated to the digital already a lot. I think as of today, many things are happening on the digital platform already and very little less on other channel. But again, I think we still focus on making sure that we squeeze all the fact out or taking the unnecessary transaction out to the digital platform, given that it's the lower cost to serve. Moving on to the next part. So our cost to serve is one angle, and I think it's probably the traditional way into how banks or any company approach the digital channel. But I think another interesting behavior that I tried to show on this page is how the digital channel is also marked better at engaging customer. On the left in terms of reach, number of customers locked into our mobile application on every single month, it's about 10x the footfall to branch and contact center calls. So you can see the power of the digital channel in terms of reaching to the customer in our portfolio. And on the right-hand side, also it shows into the power of the digital channel in terms of deepening the relationship. You can see that the longer our customers stay on the mobile banking platform, the more transaction that they tend to do over a given month. So I think that's also another side that, to us this also mean that digital asset channel can serve as an engagement engine as well so that we remain engaged with our customer in the portfolio. Moving on to the next page. And I guess what we try to do here is when it comes to engagement, we don't want it to be a dry engagement, meaning, standard communication message to all the customer. To us, I think the power of the digital channel is also related to how we can personalize the experience to each individual customer or the so-called segment of one. And this is just an example in terms of how we leverage the digital platform to communicate to each of the customer. On the right-hand side, show some of the strong momentum that we ramp up the concept, right? If you recall, I think this is what we communicated last year as well. But you can see here the year-over-year performance, a lot of uplift in terms of number of impression, number of views, number of clicks. So I think this turned out to be a very powerful and completely change how we engage the customer, how we talk with the customer. On the next page. So why engagement matter? I think this page also helped explain a bit. If we keep engaging with the customer constantly and if we keep talking to them meaningfully over their life cycle. Hopefully, we can also engage with them at the moment of truth when we realize that there may be certain needs that the bank can fulfill. And this is an example that we leverage the personal [I card ] as a tool to give a customer a special offer that eventually result in the cross-selling opportunities. The so-called, the two products like credit card, cash card or CYC. You can see with the [indiscernible] pace that we receive a significant uplift when it comes to digital sales growth, given that we can meaningfully engage the customer and they come to the mobile banking application very frequently. Maybe I move on to Page 34. So besides the push on the digital transformation, I think what we learned over the last year is really that once we have a strong mobile banking application with ability to personalize the experience, it also means that I think certain part of the revenue generation model can also be relisted that given that in the past, when it comes to sale, the bank rely very much on human. Meaning, [indiscernible] in the bank over direct sale that stay at the dealer network, right? However, once mobile banking managed to also have this capability to engage with the customer and to be able to cross-sell. It also means that acquisition cost or cost to convert a given sale is much lower, meaning we can also focus on smaller ticket items or we can also focus on follow-up to products cross-selling rather than just only forecasting on big ticket acquisition sales, right? So these are the examples of what we are working on at the moment. I think on lending, I have discussed it in the past, I think nothing [ new ] is here that customer may come to the bank using the acquisition product when you have used car, but after the customer have demonstrated a good repayment pattern, we may offer them what we call top-up product like CYC, CYS or even a personal loan we have digital channel. The second area that we are exploring at the moment is protection. In the past, we may focus on big ticket insurance policy sold to our customer, right? Given that the cost to serve in the branch network is [indiscernible] so our sales staff better focus on the big-ticket items. But hopefully, going forward, once we manage to work on the digital capabilities, I think we can also start to further penetrate the buy-side insurance as well as the smaller-ticket insurance like auto insurance. And lastly, when it comes to wealth offering also, I think this is also an area that we try to make a shift in terms of how we look at the product development. In the past, maybe we forecast largely on mutual fund with a very good level. But hopefully, going forward, maybe we can focus a bit more on the wellness investment products or even something like FX-related that we focus on a group of customers who may have tipped [ overseas ], for example, and again, mobile banking would serve as a platform that the customer transit in this regard, given that we think that is much more fairly and offer a much faster turnaround times. So that's on the revenue generation model. On the next page, also, I think the important factor that also works hand-in-hand with the revenue generation model is on the ecosystem play. As we discussed earlier, if we focus on the digital channel -- I think on the digital platform, I think customers may have the need beyond banking needs and it would be a pity that we cannot really help them solve some of those either through the internal development as well as through partnership. So last year, we communicated to the investor that we have various platforms that would come up online last year and help serve as the engagement platform for a specific group of customer. So I think maybe I will share some of the results from this platform that have come to production. But at the end of the day, I think the key point here is rather than trying to focus on everyone at the same time, I think TTB as a bank like to be very focused in terms of who are the core customer of the bank. And these are the 3 group highlights on the left-hand side, the car owner customer which we think we have about 255 million, including about 1 million who have the car financing with us, payroll customer, about 1 million in our portfolio as well as the homeowner customer. So that's kind of the priority that we, in fact, share with the investors in last year. So maybe I share with you some of the results on the execution, maybe on Page 37. On owner ecosystem, I think 2 very important platform to ask what we call My Car as well as [indiscernible]. The positioning of these 2 platforms are slightly different. For My Car business of with check on our mobile banking application. The idea is once we manage to acquire our owner -- if you think about the life cycle of a car owner, there are so many activities happening, so many needs, so many to do that a car owner will need to fulfill. We, as a bank, actually have a lot of information, have a lot of capabilities related to this already. But in the past, it may scatter to many different parts of the application or some may only be available offline. What we did is we combined all of this in one place, call My Car [ with check ]. A customer can come in and get all their needs fulfilled, for example, checking in on their loan balance, make repayment, request a loan top app, renew data insurance, renew their car tax. Pay the [indiscernible] all the way to selling that car at the end of the useful life. So that's what we executed in the past year. And the idea would be that if a car owner in our portfolio have any specific need hopefully, rather than trying to go elsewhere in terms of the solution to fulfill their need, they can come to TTB Cash. They can come to My Car to get those needs fulfilled. So I think that's the thinking. And as you can see here, about 1 year after the launch, we managed to have 680,000 on the platform already. And I think the engagement is quite high. And also through those engagement, we also monetize some of those as well. As you can see here in terms of the motor insurance sale at the bottom or the CYC [indiscernible] conversion at the bottom. Another important car ecosystem platform that we rolled out second half last year is what we call Auto [ Franchise ]. I think this one, the positioning is slightly different. We all know about digital disruption. I think I have discussed how the bank will change the business model or operating model to avoid being disrupt. But when we look around, we also have along with auto dealers as our partner. We also noticed that, I think that business model may be being disrupted as well. So another way that we also try to do this is leverage our digital capability and also help them digitize their business model a bit as well. So we develop a marketplace platform, however [indiscernible] that would help digitize the selling process of our auto car dealers. And given that the bank involved, we make sure that the quality standard of the car listed on this platform is very high because we have a standard Q3 criteria that make sure that all the car on this platform will need to be checked first to make sure that the quality is there. And to ask then the retail customer can come and shorten this platform without a lot of worry in terms of the car quality. And again, through this platform, we can monetize in terms of taking along the car financing through the transaction on this platform. And as you can see here, I think the process has been also very strong in terms of unique visitor, [ hassle ] or even amount that we get financing from this platform. And again, still very much an early day for us. We expect a lot more momentum, a lot more growth from the two platform actually. On top, maybe I touch on the next page very quickly. I think the power of the digital, not only creating a platform for engagement and monetization at the end, it's also helped us change the way we operate as a bank that helped. One really good example for us is a product for CYC. I think we discussed a lot how Cash Your Car is important to us in terms of our flagship product that we expect a lot of growth momentum, and it has shown a lot of growth momentum last year and hopefully this year as well. But when we look at the detail, right, as shown on the top part of the page, clearly, the way that the bank fulfill the CYC application still involve a lot of manual operations. So we have staff at each of the steps, doing the manual work. Even though, in fact, we can also streamline a lot of those already. And this is a work in progress. You can see the customer journey on the bottom part of the page that in the past, from complete application to the disbursement will take about a week. What we will roll out? Hopefully, in the next couple of months would charting that time from 6 to 7-day to less than 10 minutes. And this is a real product that we have in the portfolio, a lot of volumes and imagine how much impact it would have in terms of enhancing the productivity, helping us further streamlining the back office and the middle office. Given that [ we ] go through the digital channel, we will be pretty much spread through end to end. So that's the thinking how we apply digital to help us achieve higher productivity related to car ecosystem. Next page, maybe I'll now go through the detail of the same thinking on car insurance. This is also another area that we are working on at the moment. And hopefully, I think in the future, I can show you the result in terms of the saving or the higher sales conversion coming out of it. Next two case, maybe I won't go into detail. But as discussed, we have 3 ecosystems that we focus on. I go into the detail on time as a lot of activities happening for [indiscernible] ecosystem as well and also next month, we will launch the platform on one ecosystem [ For My Home ]. Maybe turn to Page 42 to have -- as I touch on a bit on CYC already, if you follow the bank, right? During the last 3, 4 years, we have pushed really hard in terms of the cost synergy realization and the driver that was shown on the left-hand side. You can see the number of branches went down from close to 900 to 500 something in a matter of 4 years, right? You can see the number of staff that came down from 19,000 employees to about 15,000 employees now. If we look ahead, right, I think the decree of rationalization of the cost base may not be as high if we keep doing the same thing. And by that, I mean removing duplication because that's what we have done essentially, removing the duplication given that we went through the merger transaction. However, going forward, to us, right, I think we need to change the tactic a little bit, rather than focusing on duplication, focusing on fact, which we don't think there's much left. We need to focus on changing the operating model, making the most of the digital capability that we have developed. So CYC that I discussed, shortening the time from 6, 7 days to less than 10 minutes is one example in terms of how we do that. Another example is how to operate a brand that have essentially -- what we try to do here is given that we have a very powerful mobile banking application and mobile banking application, the function feature, in fact, very similar to the function and feature that the banks have to serve the customer today. However, the process in the banks today a lot still rely on paper -- on paper application. So why not leverage the mobile banking as a way to serve the customer. If you go to the next page, this is what we call the digital-first brand. Last year, we conduct a pilot first starting with 10 branches. We ramp up to 33 branches in September. And this month, we decided to do the nationwide rollout, given that the result of the -- is quite positive. Meaning, once the customer walk into the branch, rather than directing them to the normal process, rather we ask them first, whether they have mobile banking application with them or they are willing to open by banking application account. And if that is the case, then we turn our staff from fulfilling the customer request to be the one who assist the customer to do the request themselves their mobile banking application. Overall NPS cost has improved by over 40%. And I think this is an area that we think is a low-hanging fruit, given that it doesn't really require a lot of further investment beyond what we have already done. But I think for medium-term plan, we're also working on some of the changes in the branch in terms of how the branch will operate. So maybe in the future, I will share some of those a bit more as well. Lastly, on Page 44, really quickly on digital I've talked a lot on digital in terms of how we again focus only in terms of new capabilities coming out of it. Some of the analysts, investors may be concerned in terms of our cost, whether we would have a lot of new investment items or high depreciation that may be even exceed the old cost to operate that we want to say, right? I think this one just to share to everyone here that I think our CFO is monitoring this chart really closely. So I think all in all, in the middle chart, we still saw a positive savings when it comes to cost to operate, even though we invest [indiscernible] on digital and that in the backdrop of 63% increase in terms of number transaction. So when you take that into a trial, the cost per transaction that we operate as a bank has gone down over 40% over the past 3 years. Lastly, in terms of the people, of course, a lot of the changes that I discussed, we also have implications in terms of the organization of TTB as a bank. Definitely, we still need to have a bit more take and probably the people in the organization, given that we start from a very low base. And I think some analysts or some people in the industry may be a bit concerned whether we would have the ability to attract the right talent for the bank or not given that we are a bit late in the game, given that many banks start the journey maybe 3, 4 years ahead of us. I think on the right-hand side, just to reassure everyone that I think we managed to attract and recruit the top talent just by how we ramp up the top talent. The internal unit called TTB's path in the past, right after the merger transaction, we have less than 50 people in this digital unit. I think we have grown over 10x in the past couple of years and have been so far, the momentum has been quite positive, and we expect to use this subbrand TTB Car as a vehicle to attract young blood, the tech and data talents that hopefully will also create further impact to the -- to TTB asset bank. I think that's pretty much for me in terms of strategy update. I'll ask that to Piti in terms of the guidance for 2024.

As mentioned earlier, the direction for this year will remain pretty much the same. We want to grow loan, but very selectively. And mainly on the customer that we know on the business that we know and on the process that we keep improving. So the flat loan growth does not mean that we do not want to grow loan, but we want to recycle, use the money that got repaid and grow in the area that have good riskless return. On deposit growth, as you can see, we ramp up deposits quite heavily in the fourth quarter to cut ourselves against any liquidity risk in the market if a government were to risk fund to do the stimulus initiative. So we are pretty well prepared on that one. The one that you might have questioned is on the net interest margin, as you might know, when the economy getting weaker, central bank will always become weak and that government would like Central Bank to drop the rate, the policy rate very quickly. And whether it will work or not is a different thing. So if we have the surprise cut, that would be a negative news for banking industry. That's why the range on this one is pretty wide based on [indiscernible] already the low one, the 3.1 based on the situation where we have a surprise cut from Central Bank. If everything is go in a reasonable way, meaning that Thailand will not cut rate before U.S. or the rest of the world, we should be on the other hand of the spectrum on net interest margin. The fee growth, as I mentioned, I think that things will start to recover. But gradually, the new fee base engine based on insurance through digital process, the investment that I start to see things picking up because people worry that the rate on the [ rigid ] peak where we do start to come in and then locked in for fixed income-related investment product, for example. Cost income ratio, I think we will continue to invest in the digital direction. But as already mentioned, it will be invested with good discipline. So the CI ratio will remain to be at mid-40% before it comes down to low 40%. Step 3 might still be on the right because of the weak economy but I don't think that it will go above 2.9%. And with the ECL that we put as a card, we should not see the rising risk costs, so the declining cost should remain at the -- very much the same levels last year. So that is the thinking and the financial guidance that would like to share to everyone today. So let's open for the questions. Thank you, [indiscernible].

[Operator Instructions] I received the questions from [ Graf ], JPMorgan. So we would like to ask our CEO above -- he has three questions. First one, what you see the NPL coverage ratio if we are confident in our asset quality? Is there any real increased corporate ratio even further. That's the first question.

Yes. We have raised our coverage ratio by increasing confidence interval on the expense net loss. In fact, I don't think that we really need that because I keep mentioning that most of our portfolio is secured. So the label that we would need, we should always cross-check when we turn our NPL into NPL sale. If the market require us to sell them at a price lower than principal deducted by ECL, it would mean that ECL is too low. But so far, we found that our model is quite precise, meaning that there is no significant loss or often times we see gain on NPL sale. Meaning, ECL model was quite accurate. However, we cannot rely on the number from the past, not taking to how the weaker economy that might impact PD and LGD, so we chip up the model, strengthening the model. But that is the -- just one factor. Another factor is peer pressure. If our friends keep raising LLR ratio, even inside the portfolio, that might look different. But market only looked at the surface, meaning that this magic number. And on top of that, [ Central Bank ] would have to see what the discipline have LLR far lower than other banks, even though no [indiscernible] inside of those numbers we are totally different because of poor nature because of our conservative approach by not using BOT for [indiscernible] benefit but we do not want to be under pressure and have the risk that BOT might hesitate -- might be hesitate for us to pay a dividend at this level or rising level if we have LLR at the lowest level. So that's why I cannot really say what is the right level. From a modeling perspective, this should be more than enough. But from peer pressure, and from a regulatory standpoint, we have to look at our friends. But the good thing is we have THB 15.5 billion in our back pocket. So if we want to further strengthen our ECL model, stress even further, we can use this asset cushion to model strengthening with that way.

So the second question is from Graf as well. Given that you have the tax benefits from TBANK liquidations, it has a possibility to give out the specialty or any buyback?

I think a bit, extra dividend is possible, but buyback might not be a good idea. It is a good idea, but it might not be a good harming, given the economic outlook and have the concern from regulators that they -- if I were a regulator, I would want to see what would turn out after the end of forbearance benefit, right? So if any bank requests for a share buyback, regulator might be very hesitant because it just a year or less than a year after the forbearance will fit in. So future is future, if we have bigger and bigger capital, we have extremely high provision, why we would want to have big LLR, big provision to cut against expected loss. We have already diversified portfolio why would we need capital, big capital be unnecessary to cut against unexpected loss that would be far too much. So -- and if that capital is not needed to roll on at the pace that we want. Because just from the back of the envelope, you can calculate at 50%, 60% dividend payout ratio and to keep capital at 16%, which is very high, 16%, 17%, this profit level would allow them to grow loan up around 4%, 5% each year, which more than necessary. So if we keep rolling in capital at this pace paying dividend at this time, we can still afford to grow loan as much as 5% a year. So we better start from distributing dividend back at good level and then consider about share buyback later if there is no other better options to generate good return to the shareholder.

Last question is from Graf. Given that you gave the guidance -- NIM guidance of around 3.1% to 3.25%, can you give us some idea in terms of the asset yield or -- and also the cost of [indiscernible] on that scenario?

Yes. Until -- there should be scenario, we should be on the fire end of this guidance, meaning that we can recycle our balance sheet, move more toward better risk adjusted return asset. And since we refund our deposit book quite heavily in the fourth quarter, the pressure on deposit should be less. However, we could be impacted by surprise cut, as I mentioned. That's why the range can be quite wide on this one. But based on the business strategy, the NIM [ meaning ] at the NIM expansion should already pass its peak. But whether it will come down sharply, I don't think so, just with one exception, again, surprise cut.

The next analyst we have from Goldman's, Melissa. I received diversions based on the following questions with Graf. Melissa also have the same questions on [indiscernible] as well. So to us to [indiscernible] outlook without rate cut in year [indiscernible] and at 3.25%. For year 2024, your NIM in 4Q in at around 3.40 [indiscernible] check, what is your mean in December? Why is the NIM falling from 4Q, given that you're allocating to higher yield segment, that is your strategy.

Yes. Allocating loan to high yield will gradually come in. But as deposit has to be repriced once the old term to come to maturity, right? That will catch up faster, very similar when the yield rise if you rise faster than the deposit. But once the admin grade, MLR, [ ML ], those corporate stop rising. Meaning, that the loan yield will improve only when we can deploy recycling effectively. But the recycling clean part is small comparing to a total balance sheet. But the deficit that keep maturing is a much bigger part. And it will end soon. But definitely, obviously, it does not end by the end of calendar year last year. We refund, we utilize the benefit and those free fund would end and we start with free fund again in Q4, anticipating that the competition on deposit will remain for quite a while, before it starts to drop maybe sometime this year after the U.S. Fed start to cut the rate, then the Asian country and the rest of the world can follow suit on that one. So as already shot, the NIM will start to decline bit-by-bit because of the impact on deposit price would be faster than the [ you ] rights.

The next question is from Melissa. And how about loan growth? What would take us to see loan growth from TTB? What macro indicators do you think that you need to be there before you can see your growth before you growing your loan growth?

First of all, the real GDP growth, real GDP growth meaning that the growth does not come from one part of [ stimulant ]. The cost metric one time, they will -- does not ensure that the economies start to pick up. If you look at [indiscernible] similar to other economy, we rely on export to a recent local consumption, private investment and government spending. Four out of 5, I think all around the world, we have struggled and that policy from pickup in tourism for Thailand. But far away from the peak because Chinese tourists already came down by half, not only for the case of Thailand around the world already this phenomena that Chinese because of their own shoes, they travel more inland and the number of tourists coming out from China came down by half -- even Thailand remain top recipient of that benefit, but the benefit came down by half. So tourism will be quite all right, but far from peak local consumption can be difficult because of the high rate and high household debt. Export can be very challenging because of the weak global economy. That private investment will not follow for sure, if the three -- the first 3 are not strong. So the only thing that we can put solid hope on that one is the government spending because now we have a full function elected government and the public debt level, not that high, companies have grown to stimulate through infrastructure investment, the kind of government spending. So the Thai coming this year, definitely, it's not a year to be aggressive in growing loan portfolio. So selective growth would continue to be in the strategy. That's why I said that we want to play a different so that when the market -- the option to open, we can play offense with our anything to worry on our back.

The next question that I have -- I sum it up because it's the same questions from Goldman and JP as well about the [ capital ]. So can you share how way you use this [capital] for the tax credits can be utilized forward. And you mentioned that you will utilize it earlier than 2028. Is there any more detail on timeline for that?

The tax year of THB 15.5 billion legally can be used for 5 years from now. So that is the loss carryforward that by law, it is allowed. Based on the profit projection at this level, it should be fully utilized before 5 years based on the profit level that you have projected, you can project. But how we utilize it, as mentioned, we have to look at the friends, peers. We have to look at many factors. So it should not be as simple as do the profit projection and apply the audit tax shield and trend onward everything back into bottom line. It would not be as simple as that. So we have to look at many factors because we have some flexibility, but not full flexibility, right? For sure, the constraint is, it has to be used within 5 years. Otherwise, anything left would be -- would not be able to utilize. We do not have free hand to put anything into management overlay or ECL is constraint on the model. Even we want to put everything to ECL or would not allow that because we have to look at it, I&I. We have to look at the possibility of strengthening the borders. So everything has to be used within the possible territory based on the macro and microeconomic indicate. But the good thing is having THB 15.5 billion in the back pocket is better than having nothing, and it would give us big, big flexibility in handling the bank, given the headwind that everyone is facing.

The next question is coming from [indiscernible]. He is asking, do you expect funding costs to peak in the first half this year or second half? Is there a meaningful net between the rise in asset view versus funding costs in your portfolio?

First of all, funding cost is rising because of anticipation of the fight for money. First, everyone, I mean everyone been worried about the price for from fixed income, the bonds that come in due. I think that, that concern is getting less because noninvestment grade, let's say, bad bonds. No matter how high the rate is people start to worry. So banks are not fighting with high yield anymore. Second worry is about fighting with the government. I think this is still very much valid. Even the risk is coming down because of the digital wallet initiative that would bring out have a trailing part from the market in almost one goal, this is a real risk. That's why most bank want to save that risk by raising deposits and put into a repo more than they would want. If the first two risks become clear and clear that it is no longer a risk. There is no fight for the bank to file which is a turn to stop the deposit more than they would want sort of the fight for deposit will be less in the funding cost to reach it peak by the second quarter when all the dust becomes settled, which I think might [indiscernible] it should become clear whether it will start to cut the rate, it will become very clear that high monitory policy committee will not further rise the rate and may start to follow effect by when. So once things become clear, the red, right? Rising cycle on the deposit side will stop and it will start to come down a bit by bit.

The next question is coming from [indiscernible]. So I'd like you to explain why on how you would change your balance sheet in terms of port or mix or customer mix going forward to achieve long-term sustainable balance sheet in your aspirations?

Okay. Maybe start from retail portfolio. We used to be very much a new whole mortgage loan, right? We are moving well too much cash your home, home refinance, not a new home because with just a return is much better. For the refinance home, the yield might not be high, but the risk is much lower than financing the new home because LTV is lower, we refinanced the customer will have good track record with other financial institutions. Doing cash your home on top of the New home we financed a few years back then, would help enhance a return without adding too much risk on top of the current portfolio. So when we talk about mortgage, the mix, even the color remains the same, but the mix in size is totally different. Origination wise, more would be from home refinancing from cash your home. On retail HP, you can see that the used car profit will keep declining many years back because we see that used car PD is always high. But [ LTD ] is not -- was not that bad because the price already dropped from the new hub. But with the coming of EV, the used car price crash badly and the PD is high in this nature. That's why we slowed our used car a lot and similar to with the new home, since we have a big portion in new home where the useful lives remain long and we know our customer base, that's why we watch more and more on casual car. Next would be the casual book that we will offer a group who might need not that big amount of our money to use Cash Your Book instead of Cash Your Car for that flexibility or Cash Your Book revolving, which is a product that we will launch to tap into the current customer base. So when we talk about, we cannot just look at this case at high level that retail HP, retail market, the mix inside will start to change quite significantly where corporate and SME, we will continue to grow, but very selectively on the sector that we think it has opportunity. Thailand has comparative advantage to the rest of the world. SME would be more on the not high risk, high yield but on selective industry and will be very much collateral-based lending, not cash flow based lending just like in the past because it's getting more and more difficult to predict future cash flow or cash flow based lending on SME would be quite challenging for years to come. So that is the detailed change in the mix -- of the mix, right? So we have to look at the mix inside, not to latest top line mix.

The next question is regarding to the amortization period of [indiscernible]. Can the bank share and elaborate more on what would be the financial impact to the bank?

The original contract that we made in financial is a cap of 20 years, no matter how much we can sell. Put the x-ray, if we keep, you cannot sell anything the contract will end by year anyway. With the original projection, the business to be delivered to credential should be completed by year '15 not year '20. That is the very, very original projection, but because of the COVID because of the Thailand economic situation for situation and we lost almost three years from COVID. So we decided to go to another extreme for conservation. That -- let as sold that things will stay extremely bad for many, many years to come, then the maximum amortization, meaning that the yields remain should be used, assuming that we stay until year '20, right? So that should be the minimum income that we should recognize through P&L. So that should be the minimum, minimum. If that is the assumption we are safe, nothing can be lower than this. Will it impact bottom line? Not really because we have what we call the purchase prior location, meaning that it's a negative impact to P&L. If you may recall, this number will get smaller each year because it is high at the beginning of the period after the merger but the number will get smaller each year. So the benefit from lower PPA expense and we will net off with the lower in revenue from prudential amortization it is about the same money, the same amount of magnitude. So the tool would be pretty much canceled out each are at the bottom line level.

I received the last questions in my chatbox from Melissa about dividend. What would be your comfortable level of dividend payout ratio? Would it be closer to midyear that you pay 55% payout. Could we see a trend higher? Additionally, you mentioned about [ 3Q ] is high, and that is sufficient. With 55% payout [abnormal]indiscernible] Growth capital is building, what do you still view on pay out the special dividends to reduce the CET1?

Special dividend might be a bit too soon. But as I mentioned, as a rule of thumb, 55%, 60% dividend payout ratio. The rest would be rolled in and grow in that capital would allow us to grow loan each year of 4%, 5%, while maintaining car ratio core Tier 1 ratio of around 16%. So it's ample group because growing quality loans, net of repayment each year because our portfolio is mainly in mortgage and car loan, right, every minute, customer payback. So we can utilize that money to lend again. It does not mean that we do not grow. So growing loan, quality loan above 4%, 5%, given this market situation, net loan growth positive 4% 5%, is already a very high number. And as mentioned, we do not need to even grow loan at all to give a good return to shareholders. Not growing loan does not mean that we are a bad bank, we do not want to lend to customers because we can do a lot of debt consolidation to help customer reducing household debt, win-win big time last year, we can continue to extend Cash Your Car, Cash Your Home. Win-win meaning, we give good deal, good return, and customers can unlock themselves from big household debt by doing this product. So again, dividend payout ratio back to the business strategy back to the capital adequacy 55%, 60% is very much very comfortable level that we can continue for at least a couple of years to come without changing any direction.

I don't see any questions from the chatbox. So maybe we wait for 2 minutes. All right. I think we pretty much cover everything. Khun Piti, how do you like to conclude before leaving?

Thank you for your time again, and thank you for your vote of confidence in us. Good paper that we always recruit very attentively every word that you mentioned about, every concern that you have. We always use your input as a feedback load that if we might miss anything, we might not look at things carefully enough. So you would back always a positive and beneficial power to help drive this bank to this level. So I would appreciate every comment through questions to research paper because we, again, read every sentence, every research that you put a lot of energy into it and use as input to help improve our business strategy, improve our execution and hopefully, that with this back and forth positive reinforcement that we always have, you can see better year, and thank you for this effort.