United Overseas Bank Limited (U11) Earnings Call Transcript & Summary

Good morning all. Welcome to the UOB Full Year 2019 Results Call. We have participants from both the media and the investment community dialed in. I'm Steven, the moderator. And with me on this call is our Deputy Chairman and Group CEO, Mr. Wee Ee Cheong; our Group Chief Financial Officer, Mr. Lee Wai Fai; and our Group Chief Risk Officer, Mr. Chan Kok Seong. In terms of sequence, Mr. Wee will start with his opening remarks, and he will then hand over to Mr. Lee to run through the financials. After that, we will open the line for Q&A. Without further ado, Mr. Wee, please.

Good morning, and thank you for joining us. We had hoped to meet you in person, with the current situations, we have to take precautions. Thank you for your understanding. The full impact of the virus outbreak is unclear as things are still evolving. What we know is that governments, businesses and communities are doing their very best to overcome these challenges. We are especially grateful to those that are front line, saving lives and bettering the virus. It is heartening to see the world coming together and the human spirit prevail in times of adversity. For UOB as an organization, we have been around for more than 80 years and have likewise weathered storms in the past; wars, financial crisis, SARS, among others. These were valuable lessons learned in the past. We know what it means to stay committed and to persevere with a long-term view in mind. This was why we announced last week a relief package to help impacted companies, especially SMEs to tide over their cash flow needs. We have also taken precautionary measures for our staff welfare. This is in line with the bank's philosophy as a long-term partner who cares for our customers' business and our staff. Economic cycles come and go. Whether markets are up or down, we focus on our fundamentals, serving customer needs, maintaining a strong balance sheet so that we can support our customers and continue investment in our franchise in this region. We believe in doing so in a responsible manner, working closely with our ecosystem partners. Even as we brace ourselves for more volatility ahead, I believe we will overcome this challenge in the coming months. As with many crises in the past, we know that by working together in a concerted effort, we will ride out the storm and emerge stronger. Last year, UOB achieved record profit and maintained a strong balance sheet despite a challenging external environment. Coupled with our strong capital position, we are pleased to share that the Board has recommended a final dividend of $0.55 and a special dividend of $0.20 per ordinary shares. Together with an interim dividend of $0.55, the total dividend for last year amounted to $1.30 per ordinary share, an increase of $0.10. Next, let me share how we are progressing in our business strategies. Our CFO, Wai Fai, will go through with you later the financials in greater detail. Given current conditions, we expect a deceleration in greater China in the first half of 2020. The impact is mainly through services sector, trade channels and investment flows. While the first phase of the U.S.-China trade deal is done, the underlying geopolitical tensions remain. That, together with the recent virus outbreak, are likely to accelerate corporate supply chain diversification. Through this, we expect Southeast Asia to benefit in the long run. We believe trade and FDI opportunities will arise on the shift of key trade corridors. As a result of diversifications between ASEAN and China and reshoring between China and Taiwan, I'm confident that UOB with our integrated regional platform, sectorial specializations and ecosystem partnerships is well positioned to support this diversification. Let me just briefly update the activity we have done for wholesale banking. Last year, our group wholesale banking income rose 6% on the back of continued diversifications, across geographies, sectors and products. In particular, our cross-border revenue grew by 10% and now accounts for 28% of group wholesale banking revenue. At the same time, non-loan income grew by 8%, while income from non-real estate sectors grew 6%. We achieved this through our strong ASEAN presence and sectorial specialization, which help our clients realize their ambitions across Southeast Asia. Being a responsible steward and lender, we have also developed a real estate sustainable finance framework and a green infrastructure framework to drive sustainable financing with our clients and partners across the region. In 2019 alone, UOB extended SGD 950 million of sustainable financing to corporations. Till date, the bank has extended more than SGD 6 billion in sustainable financing, including green loans, sustainability-linked loans and loans for green certified buildings. Let me now touch briefly on retail banking. Wealth management, the bank's network of 48 wealth management centers around the region allow us to tap the rising affluence across Southeast Asia. We saw robust growth from our wealth management business, where income grew 14%. AUM also grew 14%, hitting a new high of SGD 127 billion. Today, 61% of our AUM come from our overseas customers, served through our regional network. Next, housing loans. Housing loan is a key part of our retail business. In terms of asset quality, our portfolio of largely owner-occupied properties remain resilient. My CFO will share more later about the quality of our portfolio and the results of our stress test done in light of the macro environment. Last year in Singapore, market transactions declined by about 25% as a result of property cooling measures. But our market shares of outstanding housing loans remained stable. In the region, our business continues its robust growth. We saw healthy growth momentum across Vietnam, Indonesia, Thailand and Malaysia. However, our 2020 outlook for overall housing loans for the group is flattish. We will press on both new sales and refinancing segment. Let me touch also briefly on our omnichannel approach. At the heart of our customer engagement strategy is our omnichannel approach. We give customer choices, whether online or in person, depending on their needs and preferences. Last year, group retail banking income grew 9%, leveraging our omnichannel strategy and through the ecosystem partnerships we forge. Today, 39% of our customers in Singapore are omnichannel customers and account for 51% of total revenue. There is much interest about the potential impact of the digital banks coming in Singapore and the region. We believe these new entrants will stimulate innovation and healthy competition in the banking industry. We are prepared and ready for the competition. We have the ability and agility to provide innovative online and off-line solutions across our regional franchise. Over the last 6 years, we have invested $2 billion in IT CapEx, including building capabilities centered on our customers' evolving preferences. As a long-term player, we are prepared to invest in the right capabilities rather than focus on short-term profits. For our digitally savvy customers, we added Mighty Insights to our all-in-one UOB Mighty app, offering customers AI-based insights to help them make wiser spending and saving decisions. We also introduced a digital wealth portfolio advisory tool with advanced data analytics capability. It makes product recommendations to help customers optimize their wealth portfolio. While our omnichannel approach caters more to our customers, one multiple touchpoint, UOB Digital Bank: TMRW cater for ASEAN digital generation to date. It is the first mobile-only bank in Southeast Asia to focus on engaging digital natives. Through it, we aim to capture the SGD 10 billion market opportunity of young professionals in ASEAN, based on their lifetime revenue while keeping costs at sustainable levels. I'm pleased to report the good traction that TMRW has made in Thailand since its launch in March last year. Our latest Net Promoter Score is strength among the top 5 banks in Thailand. TMRW is also well within target to be marginal profit positive within 5 years. And this year, we look forward to the launch of TMRW in our next ASEAN country, Indonesia. Complementary, our omnichannel approach is our ecosystem partnerships. As all of you may recall, UOB was the first bank to bring together the largest car ecosystem in Singapore and to offer a fully digital financing solution for car buyers. Similarly, our property ecosystem has helped to transform home buying through digital technology. Together with our ecosystem partners, we also offer small businesses integrated solutions that meet their banking business needs. One example is UOB BizSmart, which offers small businesses solutions that range from payroll management to e-commerce, is to help them with their digital transformation. And I'm pleased to share that 31,000 SME across the region are using our UOB BizSmart solution. 1/3 of this were new-to-bank clients. We will continue to forge collaborations with like-minded partners in strengthening customers' acquisitions and deepening wallet shares. The world is more connected than ever before. And we are in a region with immense long-term potential. Our regional connectivity and capabilities, which we have been building over the years, put us in a sweet spot. We are well placed and confident of supporting our customer in these transformational times. I believe our values will continue to serve us to fight lives ahead and as we balance responsibility with risk opportunity. I will now hand over to Wai Fai, who will give you a detailed update on our financials. Thank you.

Thank you, Ee Cheong, and good morning, everyone, again. Thanks for joining us. Those of you that are dialing in, we have uploaded the slides. I might refer to this for easy reference. So like Ee Cheong said, the group achieved a record net profit of $4.3 billion for the full year of 2019, is up 8% compared with a year ago. Total income rose 10% to cross the $10 billion mark, led by healthy growth in client franchise as well as improvement in trading and investment income. Our balance sheet ended robust with strong capital and well-diversified funding base, while staying committed to our technology and talent investments. The group is well prepared to work with customers to navigate through the uncertain times ahead. Return on equity improved with higher profit with liquidity and capital regulatory ratios well above the minimum requirements. Let's turn to the next slide. For the full year of 2019, total income grew 10%, like I said, to $10 billion. Net interest income grew 6% to $6.6 billion, led mainly by loans growth, which I'll elaborate a little bit later. Fees increased 3% to $2 billion led by double-digit growth in wealth management and our credit cards, though moderated slightly by our lower fund management fees. Other noninterest income rose 54% to $1.4 billion, with stronger treasury flows and improvement to investment gains. Expenses grew 12% as we invested in talent and technology to improve our customer service and product capabilities to anticipate a vastly changing banking landscape. Total allowances increased 11% to $435 million due to higher allowances on impaired loans. For the fourth quarter, our profit grew 10% year-on-year to $1 billion. Net interest income increased 2% to $1.6 billion as loans grew 3% year-on-year. Fee income grew 2% driven, like I said, by healthy momentum in wealth management and credit card fees. Similar trend in other noninterest income which more than doubled to $321 billion (sic) [ $321 million ], led again by stronger treasury flows and improvement in gains from investments as the market recovered. As we compare to the previous quarter, we showed a much -- a decline of 10%. Again, we all know that we always have a seasonally weaker fourth quarter. Net interest income decreased 3%, again on lower loans volume and a lower interest rate environment. Similarly, fees fell 14%, mainly because the loan-related fee is slow and some wealth management fees moderated because of the holiday season. Other noninterest income declined 14%, mainly because of lower trading and investment income. Our variable operating expense declined in line with our lower operating income. From the margin front, our NIM grew steadily through the year with broad-based -- our NII grew steadily through the year with broad-based loans growth. However, towards the fourth quarter, the total net interest income decreased mainly due to a lower volume, again, which I'll explain later, and a slight drop in the NIM margin. For the noninterest income, I think this is where we showed very strong broad-based growth of 6% throughout the year. The strong growth in retail fees, I think, is the result of our success fees focus on our wealth and credit card programs. Fees in wholesale improved with cross-border flows. We noticed that fourth quarter decline was mainly due to a cautious step taken to derisk our balance sheet in certain countries. Other noninterest income improved from higher treasury flows and higher gains from investment securities. On the cost front, we continue to maintain our disciplined approach by controlling shutdown discretionary spending and continue with the long-term strategic investments. The CAR in the fourth quarter, again, was mainly the result of us de-risking our balance sheet resulting in a lower revenue. On the asset quality front, our asset quality remains sound. Total credit costs stood at 18 basis points, slightly higher than last year. Although you noticed that in the third and fourth quarter, we already saw a slight trending to 23, 24 basis points. Our NPA formation increased this quarter, and that's mainly due to one large account. The recoveries of existing NPAs also increased. So at this point, we don't have a widespread concern on our overall portfolio. NPL ratio for the year stayed at 1.5%. Coverage on NPA remained robust, and we are confident that our portfolio will be able to extend the uncertainty of a projected slowdown. Let me turn you to that loans page. If you are ready, turn to Page 11, you'll notice when Ee Cheong said when we decrease our balance sheet, what we mean. We actually grew healthily at 4% loans growth during the first half. And you saw the very strong broad-based growth throughout all geographies. In the second half, the group made a conscious decision to derisk our balance sheet, especially the moderated loans growth in North Asia and certain big accounts in Singapore. As a result, the second half actually showed a decline. Hence, we showed a modest year-on-year, but this puts us on a very good ground to be able to take opportunities that we see is already happening. On the income part, it actually reflects that activity or the focus that we did. The group regional franchise will give us the diversification necessary to cushion the short-term uncertainties. So in line with what I said in loans, the first half income growth was very strong across the group franchise. In the second half, with the uncertainties in North Asia and the Singapore competitive pricing, we decelerated our growth in this 2 areas and instead focused on Southeast Asia, which actually grew 9% in the second half. We are monitoring the market closely, but we have a strong capital and a well-connected regional network to take advantage of structural changes and trade flows that will benefit the region. On the segment itself, I think, overall, all our segments did well in 2019. Group retail grew 8%, like I said, mainly from strong growth in wealth management fees. Wholesale grew 3%, although a weaker second half, as our network franchise is slowing -- showing progress, and you notice that cross-border income has grew 10%. Global market has showed a double-digit growth as we focus on expanding product offerings and tapping on cross-sell opportunities across the franchise. On the liquidity front, I think, the group maintained favor, and we are well above regulatory ratios who already have a big issue. But our very strong funding franchise will be critical to deal with the unexpected -- sorry, to deal with the expected slowdown in the near future. We end the year with a very strong CET1 at 14.3%. I think we have a strong capital and liquidity position like we emphasized, the group is well positioned to steer through macro uncertainties and to continue to support our customers. At the same time, we actually have the ability to react when the market sentiment improved. Like Ee Cheong said, on the back of the very strong earnings and capital, the Board declared a final dividend of $0.55 and a special dividend of $0.20 per ordinary share, in appreciation of the support from our shareholders. So together with the interim, the total dividend amounted to $1.30 and it represents a 50% payout ratio. I think with that, I will pass back the session to my CEO.

Okay. Thank you, Wai Fai. Now before we go into our Q&A, let me just share our views on the outlook. Given current uncertainties, we are taking a cautious, a measured approach with a focus on stability. It is important to preserve our balance sheet, so we can continue to support customer in these trying times. As a long-term player, we will continue to invest in our infrastructure and franchise, especially in ASEAN. We have seen good momentum in our regional business in recent years, underpinned by positive structural trends. In the meantime, we will stay vigilant and monitor closely our asset quality and costs as we pace investment and improve productivity. Specifically, riding on our second half last year performance, we will continue to focus on our ASEAN franchise. Our cross-border and supply chain focus is showing good results. We will grow selectively and seize opportunities within our target segments. We are in a strong financial position to support our good customers. We expect net interest margin to face downward pressure. However, we will proactively take measures to minimize the impact. And given current conditions, a slight uptick in credit costs can be expected. The concerted action taken by government and industry should help cushion some of the impact. We also have strong provisions in place. We will sustain our momentum in fee income growth led by wealth management and keep cost income ratio stable with paced investment approach. We have previously guided a dividend payout ratio of 50% subject to minimum CET1 ratio of 13.5% and sustainable financial performance. This is still our aim, and we will continue to review as the situation evolves. It is now all the more important that we maintain a strong balance sheet to weather volatilities in an uncertain market to support our customers. Our philosophy has always been to stay disciplined as we balance growth and stability, focus on creating value for shareholders through business cycles. And thank you for your support. Now can I open to questions?

Operator, please, please open the line for questions and answers.

[Operator Instructions] We'll take our questions -- first question from the line of Harsh Modi from JPMorgan.

The question is more on the risks around asset quality. If -- the segments which you reduced exposure in fourth quarter, could you explain which segments were these? And I see the disclosure you have on Slide 23, on Hong Kong and China. Out of these, when you say the potentially vulnerable industry of $5 billion. How much of these should we expect will slip into NPLs? And what is the working assumption of NPL ratio and credit costs for 2020?

Yes, Kok Chan here. Let me first of all answer you generally that we're looking at the virus impact from the -- direct impact on demand and supply. And that is on some of this particularly vulnerable sector that we highlighted, that we see that the impact is quite marginal. But we also look at the indirect impact from a significant slowdown in the Chinese economy on the regional economy across the various industry. And that's where we see that there is going to be some uptick, but it will be offset by all the proactive measures taken by the various governments, including Singapore. And therefore, we expect the net result to be a slight uptick in the net credit costs.

The Hong Kong exposure?

So, Harsh, maybe just to supplement what Kok Chan has said. And that's a specific question on Hong Kong itself. I think if we realize our Hong Kong, we are mainly in the wholesale side. So we'd definitely be worried, like we said, on the first order impact because we are not in the retail side and are less worried with the major outflow into the second order. We have done 2 things: one, bottom-up from Hong Kong itself. Though the Hong Kong team has gone through the [ fall-over ] accounts and did a bottom up. We have actually increased some of the provisions for this year, for the fourth quarter. On top of that, we did a second macro overlay from head office, okay? In view of a sector assumption of a slowdown. So for Hong Kong itself, we are actually quite confident that we do have enough cushion, unless it's really a lot worse than what we thought. But from where we see and the customers that we deal with because the bottom up, we have confidence to look at the big customers, and we know the impact. We are actually quite comfortable.

Working assumption for...

Right. And any color on some of the supply chain, let's say, freighters, containers, the second order effect with oil prices going down, one big default in China at -- of HNA. As in just the second, third order effect and if I start trying to quantify that in terms of full year credit costs, what should we think about?

Okay. I think there is one way to do it, that we take extreme passive view or we take a moderated view of what we see today. So I think the stress test definitely shows that because of some of the virus and all, there will be a few sectors that will be affected: tourism, hospitality, et cetera. So definitely, this would affect the regional countries where it's very tourist-dependent. There are places like Thailand, who has more than 10%, Singapore, although it's not a big number, but still it's got more than 5%. So also, there will be expected, in the working assumption, some of the second order effect of the weakness of some of this going in. So I think that we have done that, then the issue, I think, at this point, with the concerted effort by all the industry players, with the government and with all the regulators, where they allowed banks to, in a way, support good customers. Hopefully, the second other effect will be less. And that's what the industry is working towards. So I think if you really look at us, we think that a moderate increase, probably, like I said, not surprising if you reach 25 to 30 basis points, that's probably a best case scenario, unless it became drastically a lot worse. So like I said, this is -- we were closing at 23, 24 for the third -- fourth quarter, so you'll see some marginal uptick. But like I said, we do have enough overlays and provisions that we are confident because -- and that's why we de-risk the books. We de-risk the books under 2 regions that we think will be most badly affected. I think we look at it from -- at that time, we are not so -- we didn't have the foresight of the virus. We just look at the economy and the macro flows, and that's why we decided to do some of those activities. So we are -- like I said, if you ask me, yes, there'll be a marginal uptick, like Ee Cheong said, a lot of it will be depending on how long it is last. If it's a 3 to 6 month, I think we'll be okay. If it is going to go U shape, I suppose we can argue how bad it will be. But at this point, I think -- we probably think the discussion will happen and you could argue that if it's U shape, it could be double or triple. I mean anybody can run that assumption depending on how long it is. But that's probably where we are. But we are still very confident that with all the measures coming on, hopefully, you will not be expect -- as what Kok Chan always tell us -- Kok Chan always show the extreme, which is the function of the risk manager. And every rental will bottom-up with other industries to make sure that first order impact is being reviewed, and that's what we are doing to mitigate that.

We will take our next question from the line of Robert Kong from Citi.

Three questions, if I could. #1 is just a follow-up on what Harsh has just talked about on credit quality. What I would suggest is that a number of investors would be, let's just say, skeptical of just saying a few basis points credit cost upside. And when we look at past down cycles, so SARS or the GFC or in the oil and gas in 2016, things seemed to turn out a lot worse at the final count. So I think at the peak of each of those cycles, we were more like 50, 60 basis points at the end of the day, at least at the very peak of the provisioning. So I just want to understand what kind of stress levels that you could look at? I mean, I think you're saying the 25, 30 is the base case. So maybe just trying to understand where the worst case could look in your analysis? The second question is in your new derisking strategy, how does that mean -- what does that mean for your loan growth and your NIMs? Because I think the last time you guided NIMs like 4, 5 to 10 basis points, I think that depended on how many fed cuts? I think Singapore rates are holding up much better than expected. But clearly, you're rebalancing your book. So just to see whether you've got some revised thoughts on that? And the final question is on your dividend payout, is it a commitment of 50%, meaning that if profits were to fall significantly in 2020, then your dividend would also fall. I just want to clarify that? Those are the 3 questions.

Can I maybe take the other, it is easier to answer, dividend payout, the answer is yes. Okay? The answer is yes. We are committed to 50%. So technically, like I said, there are 2 bases, if you change the dividend: #1 is the outlook that we have, okay? If we think that there is really not much to do, we could even pay a bit higher or do we think that we have a lot and the opportunity is there, we could pay less. But, like Ee Cheong said, at this point, the outlook where we look at today and the growth that we have, which is an organic growth strategy, mainly, we are comfortable. So the short answer to your question is, I think, it's -- yes. Okay? The second question is on the balancing of our books and the impact on the NIM. I think you're probably right in that sense that the different geography will have different impact. And whether we will then be able to grow our books and look at the profit. So although I do agree that we are still very much of our income is on net interest income, we are also trying to grow the wealth, the fee business for getting there. So that's why we say that on the overall basis, we think that NIM will be marginally weaker, but there are a few things that we can do to try and mitigate this. Like Ee Cheong said, now we are looking at activities whether -- working with customers today whether they want to extend the money market loans to a longer period or whether we even want to look at the leveraging part of the balance sheet that we have not done. So if you really look at UOB compared to DBS and OCBC, we knew that the other non-loan need is where they are a lot stronger because they leverage up their balance sheet and they did treasury activities on that. So that's something that -- I think if you really look at the investor treasury team that we have is something that we are actually might be executing part of it. So there are various things that we are doing to try and, so-called, stem that downward pressure. And the most important part is really funding itself. I think cost of funding, we will have to moderate down, okay? So that's probably the overall challenge. And then if we look at across country itself, while we know that there is a short-term pressure of the regulators come out with policies to trim, but I think that -- we think we'll be at a slower pace. As you really look at the fourth quarter margins that I disclosed behind some of them like -- places like Indonesia and Thailand, in the short term, we're getting the reality that the cost is going up and we're repricing. So we are actually watching those various things to try and mitigate so-called expected moderation in new margin, like Ee Cheong said. So that's probably how we look at it. But we still stand by the -- we will -- our so-called franchise, regional, the cross-border and the domestic supply chain will make our ASEAN franchise a lot stronger, and many people think that -- and we see that happening because I think that we have many questions whether it's happening, it's not happening. Maybe what's happening to the so-called virus situations and some of the worries that -- or doubts that they had because of the trade tension, so we actually expect that to accelerate rather than to decelerate. Okay, a more difficult question is worst case. Okay, I'll pass it to Kok Chan. He is very good at worst case.

Yes. I mean as I have said that if the relief measures that is expected to implement it across the whole region, including specific relief measures as well as monetary easing, we've got some central bank regulatory cut rate. And if the impact is not significant to offset the second order impact, then we will expect that probably the net credit loss would double.

So technically, you could see in the region of 17 to 18, okay, on the very worst case, but we don't think that will happen because for that to happen all the economies will be very affected. And I think the Singapore government will have to come up also with additional measures, which is what they are saying, okay, so 3 months doesn't work through, they will re-look at other measures. But on the worst case, yes, it could double.

Right. Okay. Just one quick clarification back on the dividend. I know you're basically saying 50%. In the past, it really -- in terms of your behavior in the last few years, you've tried to keep the future year dividend at least at the same level as the total dividend of the previous year. If you look at your slide 16, that's been very clear in your behavior. So my question, I guess, is, are you trying -- will you keep your $1.30, even if profits fall fairly materially this year by -- even if for unforeseen reasons?

Actually, during good years, you've never asked me that question, [ were the activity to last ]. So -- but basically if you look at my guidance or where we talk about how much is pressure and how much is core but if you implicate something in the range that, in a bad year, it will be expected to sort of moderate down. If not then, we'll do everything at core. Okay. So basically, if you want to look at that implied assumption, which is hard to tell, that's why I think the Board actually guided a core $1.10 and a special $0.20. As you really think about it, can we maintain at $1.10 or you can run scenarios whether I can maintain at $1.10 or $1.20 or $1.30; $1.30 means fair profit, $1.20 means 5% drop and $1.10 means 15%, 20% drop in profit. So you can run that scenario yourself.

[Operator Instructions] We'll take our next question from Jayden Vantarakis from Macquarie.

I have 2 questions. The first is on the loan-to-deposit ratio. We've seen that come down a little bit. It looks driven by the Sing dollar book. Do you think that there's much scope to increase that through the first half? I'm thinking it could be an interesting lever to offset some of the NIM pressure that you potentially flagged. My second question is on fees. Should we see, I guess, any pressure on fees to say, wealth and cards going through this year. If there's less velocity in the economy, less payments, less consumers going around spending on their cards and more volatile markets. Does that affect those 2 lines because they've been quite strong drivers for you? Those are my 2 questions.

Do you want to take that fee...

Well as far as the fee is concerned, I think we are focusing more on the consumer side. I believe it could -- the momentum seems to be quite robust, especially the insurance side. The bancassurance had been cut across, across the whole region. We are still fairly hopeful on the fee. As far as the loan-to-deposit ratio, at this point in time, frankly, we are -- we have plenty of liquidity, okay? And this is where you can -- you notice our NIM actually drop. It's the challenge, it's the deployment of funds. And being conservative, being -- we tried to protect our balance sheet. This is where, you can see the erosion of NIM. But if you look at it, actually, it's a healthy thing, right, given uncertainty of the market, right, we want to preserve our balance sheet, right? At some point in time, if we find it's challenging to deploy, we can always price out liability down, okay, to preserve our margin. So I think it's a bit of time lag, but I think it's a good thing. Nobody knows what's going to happen. Nobody can read, how certain is the market. I just hope that I'm wrong. We always tend to be a little bit more cautious and because the infrastructure, the whole Southeast Asia platform is there, for us to pick up, I think it's easy. We have demonstrated that our loan growth can be very robust. But in today uncertain world, I think, you as analysts, as shareholders, I think, you appreciate that the bank is willing to take a more cautious view, right? And we will go for the better day.

So maybe just to add to what Ee Cheong has said, the retail outlook, I think, at least, where we are now it still looks robust across country. Whether the scenario would be so bad that people will stop going or stop spending, hopefully not, and we'll need to look at that. But I think the base case is that, we expect to see continuous the activity, probably for the wealth side you will see the product mix happening. Okay, because it's actually when people are at risk or no risk, or it's different product that it features. The second part that affects fees is actually the wholesale part, okay? We actually dropped because it derisks as a result, a lot of those bigger cross-border loans, et cetera, represent SQ. So we see opportunity in there. We see opportunities happening at this point in time. And we hope to capitalize on those. So when that happens, we hope that the wholesale fees might have a time lag, but will be there. So the NIM part, like I said, Ee already explained, it's always a competition for [ payment ] deposits versus how to deploy excess funds. So that's basically the challenge that we have. And now we're actually shifting a lot of focus back to outside Singapore, to make sure that those -- our regional countries reduce the cost of funding, okay, which was a challenge that we had previously. So that'll help push some of the impact on the NIM outside of Singapore. So I think the rest, I think, Ee Cheong has already said it.

I think just to add on to my management point, one reason why we are quite optimistic about wealth management fees this year, this was the first year that we are recognizing the upfront $77 million Prudential bancassurance distribution in 2020. So that will help add on to our wealth management fees this year as well.

Okay. Maybe just 2 follow-ups. First of all, just for the overall LDR, you mentioned that, obviously, the other ASEAN markets trying to get the cost of funds down is a priority. But if I look at where most of the excess liquidity seems to sit, it's more in Singapore. So do you think there's scope to run the overall LDR. You typically look at sort of high 80s, would it be possible to do that again? And second of all, just on the Prudential fee, I think that's interesting. Do you have sort of a time horizon over how many years you'll recognize that through the P&L?

So on the Prudential, it is going to be recognized over 15 years. So every year, $77 million of wealth management fees gets recognized.

So on your second question is although it's Singapore LDR...

Dollar US.

Yes. Okay. I think [indiscernible] was just highlighting that it's not Sing dollars, it's US dollars that we're actually picking -- focusing on.

Focusing on.

So that to us is more important to manage than the Sing dollars side. I can say, your point is taken. We will watch that.

[Operator Instructions] Our next question comes from the line of Rawat Aakash from UBS.

The first question is, could you please help quantify some of the key guidance numbers? So in your mind, what kind of loan growth do you think we could get in 2020? And on NIMs you've -- there's been a bit of discussion. But could you give us a sense of the numbers? Like, are you expecting like a 5, 6 basis point decline, similar to your peers? Or could you think it could be better than that? And then finally, on the CIR, you've I think mentioned that you're expecting a flat CIR in 2020. So that means it should be in the 44.5% to 45% range? So that's the first question. The second question is, so when I look at the decline in the corporate loans in Q4, like you mentioned there was a derisking of the book going on. If you look at the sector breakdown, it seems to be in manufacturing, general commerce, even in building and construction. So general comments, I understand would be North Asia. Is that correct? And which geographies is the manufacturing and building and construction decline coming from? And then the third question is, if I look at the mortgage loans, it does look like that Q4, you saw a big pickup in mortgage loans, around $500 million or so, which is quite fast compared to your peers. Is this one of the reasons why we saw a lot of cash on the asset yields, which declined 13 basis points, sorry, loan yields, which declined 13 basis points Q-on-Q. And if I heard correctly, you said that you're expecting the mortgage loan book to be flat year-on-year in 2020, is that one of the reasons why we should be a little bit more positive on the NIM side as well, like your loan yields will probably not decline as much, given slow growth in mortgages? These are the 3 questions.

Yes. First question was specific guidance, and it has been touched on by my CEO. Finally was CIR, I think he guided that -- this. So yes, you should expect that to be around 45%. We guided a moderation of NIM. Probably, I think, if you ask me anything, 5 basis point moderation for the year. We will expect that better over the quarter. I think less for the first quarter, but more in the second half, depending on how the market but our green assumption is it could be down by 5 basis points. Loans growth, we again moderated to a moderate loans growth. I think moderate probably means that, it's a low single-digit, anything below 5%. It depends on opportunity, if we can come back, because you could see some upside, because we actually derisk our loans growth in -- the loans book in December itself. So probably, from a lower base, we could see some upside in there. The green assumption is probably around 5% that we're talking about. So those are very specific questions. You have one question on corporate loans, where we are de-risking and all, you undertake that [ one ] today, in December. So you saw in there, very clear, was not Asia. And a lot of it was Hong Kong and a few in Singapore as well. So Singapore is basically the big -- the big FIs and the big [ GLCs ]. But we need the FIs because, we do have a few sponsors that we decided to hold back and relook at that. And some of it, we are confirming it this year. We'll take it on. North Asia is more generic because of a prudent stand taken by the credit committee to be very cautious. So for any loans that were due for loan renewal, we were pretty cautious. But I think our view is that Hong Kong is still important in the medium term, and we will see some activities back in Hong Kong, although we are cautious [ to sell ]. So probably, Hong Kong has a few mixed in there, between general commerce and probably some of those manufacturing base. So those are the segment levels that we're talking about. And your last question was on mortgage.

Yes. Seeing pressure there.

I think asset pricing, isn't it? The question.

Yes.

Actually, it's a challenge. I always talk about mortgage. I think Ee Cheong will always tell us that we -- everybody says that we should reprice it up. But as the competition comes in, and the corporate side struggles for asset quality, mortgage has the best long-term return RWA, and there will be some so called competitive pricing pressure. But where we are hopeful for is [ offsetting a quarter ]. I think that's where our growth is, right, in the [ long term ].

I think -- I hope you don't get the idea that we are totally negative. I think, we still see some opportunity there. We want to grow selectively. Just like any crisis, there are always opportunities. There are always industry that there is certain area that provide the bright spot. So we will continue to support good customer, a customer with a good initiative. What actually we are looking more is to preserve the balance sheet. We don't want to grow for the sake of growing. And frankly, sometimes, it's easy, it's easy to grow than not to grow, okay? I have a lot of my salespeople there, okay? They're all hungry for growth, right? And the management will have to take a more disciplined approach. They are all, I mean, we have all my credit officers, they're loan officers, they're all selling these. So for us to take a counter-intuitive view is not sometimes, is not so easy. But I think it's important. We've asked you the questions, how do you see the next 3 to 6 months? Nobody can answer me. Say, nobody can answer me. If I don't get an answer, I think, you have to trust our judgment. We talk to many customers, so view from a customer is also equally important. The view from the market, obviously, our own view. We are here to grow, definitely. Otherwise, no point for us to invest in all the infrastructure. We are ready to grow, we are poised to grow, but I think it's a tough [ crop ] facing us. I think we just have to be cautious. Next quarter could be different situation. And we grow, right? We preserve our balance sheet. If there's a V shape turnaround, we will grow. You will be always there -- we are quite enterprising there.

Got it. Can I just ask a couple more follow-up questions. One is on the deposit cost, funding cost. So I think you had a pretty good quarter in terms of deposit growth and CASA growth as CASA ratio rose as well. But despite that, the deposit yields only fell 7 basis points Q-on-Q, which when I compare with, for example, OCBC numbers, they saw a 15 basis point decline Q-on-Q, so is there more to come on this side? Should we see more deposit funding cost decline in the following quarter? And the second question is, I understand your focus on balance sheet. But I think, given that you're already at 14.3%, is there a certain level in your mind, beyond which, you will not go -- like if it gets to 14.8%, 14.9%, that's already too much. I mean, in other words, do you think you already have enough capital to probably not need to build your capital further from here?

Okay. First is the deposit costs, you want to take that?

Yes. I would think that there are room for cost of funds to decline, given our excess fund position. So in the next few months -- for the first quarter, I think, there is room for us to actually reduce a bit more on the cost of funds.

So I think, what we have focused on is that to relook at incremental funding. And as far as [indiscernible] are doing, so we actually are scrutinizing that because if I'm not aggressively building out my balance sheet and selective on it, I can be also selective to turn away the high-cost deposits that we needed to fund aggressive balance sheet growth, that we had in the earlier part of the year. So that's probably the deposit. Second part is balance sheet, CET1, what level, am I comfortable with 14.3%, et cetera? Like I said, we are comfortable with anything above 13.5%. So hence, we'll pay back half. And the question is, is there growth opportunity in? And our view is that, there are still growth opportunity in the region. We still feel strongly that, we can actually utilize to grow it. Some of the momentum is coming in, and we thank shareholders for their patience, because it's not easy to build a connected ASEAN footprint. We are not talking about individual country by the integrated ASEAN footprint that can take advantage of flows that -- to connect customers across different parts of ASEAN footprint. So I think we thank shareholders and you for your patience, but we'll continue. We think that we can grow the region and that's what we were -- we're going to focus a lot of our effort on going forward. So basically, at the CET1 level that we're talking about.

We'll take our next question from the line [ Shania Shanjorwin ] from Bloomberg News.

I would like to ask 2 questions. Are you going to introduce digital-only bank in Singapore, the same way you did in Thailand and in Indonesia? And also how much you are spending on your digital banking capability currently? The next question, how are you going to further build your wealth franchise? Is the focus from now going to be on private banks or the lower [ run ] wealth management, in general?

[Foreign Language] I think -- yes, I think we -- Thailand is the first country. I think the traction seems to be good. We continue to build on that. And we go for country that has a huge population base, Thailand, Indonesia, and it is successful, maybe country like Vietnam, these are the biggest country in the whole ASEAN region. You asked about Singapore. Singapore is our headquarters, okay? And if we have all the technical capability, Singapore will be the easiest one for us to have a digital bank. But I think our effort now is going for country that has the bigger potential for us. The wealth management, as I said many, many times, we look at the whole wealth management, the whole piece, the privilege banking, the mass risks, the mass affluence, my speech already said, most -- the majority of the wealth is actually come from our network outside of Singapore. So that we will continue to push. This is where our franchise value is. This is where our networking is. Yes, private banking, we have a private banking. But in relative term our private banking is small compared to the rest. But my AUM continued to grow. What I want to see is more sustainable rather than depend on a few individuals to generate the AUM. I hope I answered your questions?

Yes, Yes. But could you also say how much you are spending in dollars term for your digital bank franchise outside of Singapore per year?

So [ Shania ], there are two things that we talk about spending, okay? One is the cost of doing that, so that's a lot of it, like I said, this acquisition costs and marketing costs. And of course, there is another one, is the cost of the investment into the infrastructure. Most of our infrastructure cost has been done. So that could be a marginal cost, that we're talking about, digital per se, and our definition of digitation is actually on two fronts: the pure digital that is tomorrow and the digital defense of my team. Okay. So we actually look at the digital in two fronts because our strategy of defending the omnichannel is as important as the importance of opening a new frontier to tomorrow. So that's how we look at it. In the infrastructure cost for tomorrow, most of it, I think it's done. Okay? So we will need to spend a little bit because we go to the next country and like Ee Cheong said Indonesia, we're going to do it this year, but it's actually marginal. A lot of those costs is actually the acquisition cost and the marketing cost to bring in customers, okay? So if you want to have a few, we are talking about around 1% of my [ CRR ] which is around $100 million, okay, so that is the cost for digital. The cost of IT, we need to do some infrastructure change. They're not big, because we actually need to change it, to respond to the digital challenge of a new digital banking in Singapore. So tech part is something that we are investing some infrastructure. Again, it's not big. Whereas the part itself, the marketing cost itself is more contained because it's part of my omnichannel infrastructure. So that's how we look at both, and we are investing in both and just not 1 engine per se. But just pure digital, I think, around $100 million, so just to upgrade to -- so it's how much I want to do to scale it up. Not so much. And like Ee Cheong said, that cost will go down because as it becomes more successful across our acquisition and marketing costs will go down, and which is what we actually expect. That's why we are hoping for it to be breakeven and the margin up by this year, we push Thailand.

I think cost is also one aspect of it. I think the speed-to-market is also very important, right? Because if you look at the way we launched Thailand, about 1, 1.5 years ago, now we are ready for Indonesia. Because these are the same infrastructure. We -- because of our standardization of our technology platform, we are able to roll that out very fast. And for any of our competitor on the stand-alone basis, if they want to set up a stand-alone digital bank, it will take a while. So we do have a central kitchen, that is our IT infrastructure to cater for all the digital initiative. In it might be digital bank. I think we are here to -- so cost is one part of it. But I think there is also a cost, right? If you cannot deliver on time. So this is the speed-to-market is very important. We want to be -- have the first-mover advantage we go in.

That is great. I was asking a lot about digital in Singapore because the recent development with MUFG, partnering with Grab to target Singapore. What do you make of that? Because this is no longer new comer -- newcomer bank fully anymore?

Digital license in Singapore.

New digital bank. New digital bank.

New digital license in Singapore. I'll give you this...

I'm asking about MUFG.