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

Good morning, all. Welcome to the UOB First Half '20 Results Call. We have participants from both the media and the investment community dialed in. I'm Stephen, your moderator, and with me on this call is our Deputy Chairman and CEO, Mr. Wee Ee Cheong; as well as his entire senior management team with us. In terms of proceeding, Mr. Wee will start with his opening remarks, and we'll hand over to our CFO, Mr. Lee, Wai Fai, to run through the financials before opening the line for Q&A. With that, Mr. Wee, please?

Good morning, and thank you for joining us. We hope everyone is staying safe and healthy. We are in the midst of a crisis of a century. The past 6 months have drastically changed how the world operates, and the global economy is now moving into the deepest recession in recent history. At UOB, the silver lining we see come from our starting position of strength. Our strong balance sheet and fundamentals have enabled us to stay disciplined so we can continue to play our role in supporting our customers, our people, and a wider economy through these difficult times. For our people, we have enabled them to work safely from home across our network, serving customers digitally. For our customers, we have upheld our promise to be right by them. To more than 1 million individual and business customers across the region, we extended relief amounting to about 16% of our total loans as at end June. These loans are well diversified and largely on secured basis. In Singapore, we are one of the largest lenders of enterprise Singapore loans to SMEs. The rate of application has tapered off, and we are working with customers to pace drawdowns and ensure sustainability over a longer period. Our customers trust us. Apart from liquidity support, we proactively engage them to help minimize the [ clee ] effect when the moratorium or relief period ends. Beyond financing, we also help SME implement digital solutions to transform their businesses, for example, BizSmart and the FinLab Online. For our community, we have been helping the most vulnerable, such as disadvantaged children. Our financial position in the first half of the year reflected the adverse market conditions. Earnings declined 30% year-on-year to $1.6 billion, due mainly to 2 factors. Margins were impacted by the plunge in benchmark interest rates and the shift to lower-yielding but higher-quality assets. We were also conservatively building up liquidity, even though at a higher cost. We expect rates, which are at all-time lows, to stabilize and margins to recover in the second half. Secondly, we preemptively set aside higher general provisions to cushion against the uncertainty ahead. While it impacted short-term profitability, this is a conservative move to strengthen our coverage and balance sheets to withstand any potential credit migrations. Overall, despite the challenging circumstances, our diversified core franchise has shown resilience, especially so in Southeast Asia outside Singapore, where our operating profit rose 13% year-on-year. And our operations in Vietnam, one of the fastest-growing markets in the region, turned profitable in just 2 years after local incorporation. Our priority is on our balance sheets, to ensure sound liquidity and capital positions. MAS has also affirmed the resilience of local banks, based on stress tests under adverse scenarios. In terms of capital, our ratio are solid with CET1 at 14%. The bank has the capacity to fulfill our earlier guidance of 50% dividend payout ratio. But the MAS directive is to keep dividend at 60% of last year's dividend per share, which work out to be $0.78. As such, the Board has declared an interim dividend of $0.39 per share is firm. We will also offer a scrip dividend as directed by MAS but at 0% discount, given our strong capital position. Now let me briefly comment on our loan book. Through our disciplined credit policies over the years, we have built a well-diversified portfolio with prudent security coverage. Geographically, more than half of our exposure is in Singapore. The rest is spread across several markets and not overly concentrated. By customer segment, 51% of our loans are with large corporates, 15% SMEs and 34% individual customers, all well diversified. While large corporate loans are lower-yielding, they generate healthy risk-adjusted returns. Majority of our SME exposure is in Singapore and Malaysia, with 80% of our book secured by tangible assets. By industry sector, building and construction accounts for about 1/4 of our total loan portfolio. This is an asset class for which we have deep institutional knowledge and strong management track record, given our conservative approach. Our consumer book is mostly in Singapore and Malaysia, well-secured with more than 80% of them in the form of housing loans. We review our exposures to vulnerable sectors regularly, and are comfortable with our portfolio mix and security coverage. Our CFO and CRO, Wai Fai and Kok Seong, will go through the financials and loan portfolio in greater detail. Now let me share briefly on the progress of our -- for our business strategy, starting with wholesale banking. Despite challenging conditions, wholesale banking income was stable, backed by continued diversification across geographic sectors and products. COVID-19 has accelerated some of the trends which we anticipated, for example the reshaping of economic corridors due to ongoing geopolitical tensions. Corporates are looking to diversify and to relocate their business activities and supply chains. And we believe Southeast Asia is set to benefit. UOB has one of the most comprehensive networks in the region, and we are well placed to seize opportunities for the growing China opportunity and investment flows. Cross-border income account for nearly 1/3 of group wholesale banking income. As market dynamics shift, we see new industries and players emerging, potential industry consolidation, and opportunities to reinvent business model. Our sector-specific insights and solutions help to synergize businesses and to mitigate risk across the value chain. Riding on our regional infrastructure, our digitalization efforts are bearing fruits, especially in payments. More than 3/4 of our corporate customers use our cash management platform. We saw a 58% increase in cash management mandates, which contributed to higher transaction volumes. Across our global network, we support institutional customers in their asset acquisitions, leveraging our franchise and comprehensive suite of product capabilities. As a responsible lender, we have in place sustainable financing frameworks for the real estate and infrastructure costs. Today, UOB has extended more than SGD 8 billion in sustainable financing. Next, let me briefly touch on retail banking business. Here we are riding on the growing affluence of the region's middle class with our omnichannel and ecosystem partnership strategy. Group retail income for the first half of the year was also relatively stable. Impact from lower benchmark interest rates and credit card fees was mitigated by strong contribution from wealth management. We maintain our market share across key products such as mortgages, investments and bancassurance. In the last 6 months, our housing loan portfolio, mainly owner-occupied properties, grew across the region and remains resilient. In fact, in Singapore, due to low mortgage interest rates and pent-up demand for 2 months, we saw a strong rebound in new home sales in June. Buyers are mainly HDB upgraders and in top-selling projects, which were reasonably priced. However, overall growth is expected to be flattish this year. And we do not expect widespread job losses in Singapore, given strong government support for SMEs and households. We are encouraged by the progress in our wealth management business. AUM was up 9% in the first half, reaching a high of SGD 129 billion. More than half of our AUM come from our overseas customers, served by our regional network of wealth management centers. We also saw a surge in deposits, particularly CASA balances, reflecting customer trust in UOB in times such as this. Given the rising importance of sustainability, UOB asset management offer the first retail bond fund in Singapore focused on impact investing. Last week, we also launched UOB Asset Management Invest, a robo advisory mobile app, for retail investors in Singapore. This adds on to our digital advisory portal for corporate investors introduced in 2018. At the heart of our customer engagement strategy is our omnichannel approach, where digitalization is a key pillar. Today, more than half of our customers are digitally enabled, and the number of online transactions has increased. Our omnichannel approach has proven to be what our customer wants, and we are ranked top in customer satisfaction among Singapore banks. Our investment in TMRW, our mobile-only digital bank, is progressing according to plan. It has also enabled shared infrastructure and learnings with the rest of the bank. For instance, UOB Mighty version 2, which includes Mighty Insights, is the feature we adopted from TMRW, which has led to growth 17% in our customers and higher frequency of usage. We intend to launch Mighty version 2 in Malaysia and Thailand over the next few months. TMRW enable us to effectively engage with the huge population of young digital natives without the need for physical branches. From our learnings from TMRW's launch in Thailand, we are able to accelerate TMRW entry into Indonesia earlier this year, with an official launch [ this spring ]. With our focus on customer engagement, TMRW has achieved industry-leading Net Promoter Score, both in Thailand and Indonesia. Complementing our omnichannel approach is our ecosystem partnerships. We will continue to widen and to deepen our franchise with ecosystem partners by providing holistic solutions for customers, for example, our digitalized ecosystem of financing solution for car and home buyers. And share business did not come to a standstill even during the [ circuit breaker ] period. Last month, we collaborated with BIBPlus, an FMB platform provider to help merchants set up cost-efficient online channels, complete with digital payment capabilities. We believe in [ helping ] an open architecture. The results have been encouraging, and we will continue with this win-win approach for customers, our partners and ourselves. Our continued investment in technology have enabled us to be operationally resilient and to support customers well during this period. During the lockdown, we saw strong transaction volume across our digital channels for both retail and wholesale business. For example, we saw double-digit growth in our UOB Mighty and BIBPlus transaction volumes in Singapore. This is expected to grow as economies gradually recover. As a long-term player, we will continue to invest in the right capabilities and technology to drive transformation, rather than focus on short-term impact on cost income ratio and returns. We have core infrastructure in place. More than 60% of our investment in recent years is focused on the region and new product capabilities. We believe in ASEAN's growth potential. Our regional connectivity and capabilities, which we have been building over the years, have put us in a sweet spot. We are well placed and confident of supporting our customers in this transformational time. We are confident that together, we will ride through this crisis and emerge stronger. I will now hand over to Wai Fai to elaborate on our financials. Wai Fai, please.

Thank you, Ee Cheong. Good morning, everybody. I hope you are all keeping well in the midst of this health crisis. Let me go through the financials now. The group reported second quarter profit of $703 million, written down by a $379 million allowances set aside for non-impaired assets, reflecting a deteriorating economic outlook. Our client franchise remains resilient. Total income declined 6% to $2.3 billion from the previous quarter, as net margins fell following the steep benchmark rate cuts across the regional markets. Wealth management and credit card business were weaker as a result of the widespread travel restriction and social distancing measures that disrupted retail shopping. Expenses were well managed, declining 4% Q-on-Q. Cost-to-income ratio increased to 46% amid revenue headwinds. NPL ratio is stable at 1.6% as the loan moratorium and the various government relief programs supported the lower NPA emergence during this period. While the preemptive credit provision taken in this quarter resulted in the total credit cost of 67 basis points, NPA coverage further strengthened to 96%, or 230% with collateral. Our CET1 remains strong at 14%, while LCR for the quarter at 136% and NSFR at 119%. Backed by robust capital and liquidity positions, we are confident that we'll be able to support our customers to ride through these uncertain times. For the first half of 2020, the group achieved net profit of $1.6 billion, 30% lower from a year ago as additional provision allowances for non-impaired assets was set aside in anticipation of a deteriorating macroeconomic outlook. Total income stood at $4.7 billion, 6% lower than a year ago. Net interest income decreased 6% to $3 billion, in line with the interest rate cuts across the regional markets as policymakers attempt to cushion economic headwinds. Fees was 4% lower at $960 million due to lower spend on credit cards and lower loan disbursement fees as economy contracted. Other noninterest income dropped 12% to $657 million, largely due to lower net trading income. Total expenses decreased 3% to $2.1 billion from lower variable staff and discretionary cost spend. Cost-to-income ratio inched up slightly to 45.6% amid revenue headwinds. Total allowances increased to $682 million, mainly from the additional allowances for non-impaired assets. We started the quarter on the back of unprecedented levels of business activities disrupted by the global pandemic. For the second quarter, net profit was $703 million, 18% and 40% lower than the previous quarter and when we compare it to a year ago, respectively. Similarly, the quarter's performance was impacted by falling margins, lower fees and higher allowances set aside for the non-impaired assets. As we continue to navigate this challenging and uncertain environment, the group performance once again demonstrate the benefits of our franchise diversification. For the first half of 2020, while operating profit was 20% lower on margin compression, the Southeast Asia franchise showed an improvement of 13%, as Malaysia and Indonesia benefited from loans growth and improving trading and investment income. Operating profit for Thailand was 2% lower, as healthy loans growth of 10% was offset by the margin compression following the significant policy rate cut. Against last quarter, Singapore and Southeast Asia were impacted by declining margins and business disruptions from lockdown measures amid the COVID-19 pandemic. North Asia, on the other hand, registered a strong growth of 60%, mainly on higher trading income. Our client franchise remains resilient. Against last year, retail operating profit were marginally lower as margin compression more than offset the increase in wealth management fees. Asset under management expanded by 9% to $129 billion, of which 60% was from overseas customer across the group network in Southeast Asia. Wholesale income was stable, with cross-border income easing marginally in line with the slower business activities across the region. Global market performed better as income benefited from the sharp downward movement in interest rate in the earlier part of the year. Compared with the previous quarter, retail profit fell 14% on lower interest income and reduced card and wealth management fees. Wholesale profit grew 11% from healthy volume growth and loans related fees, coupled with tighter cost control. On margin, our net interest income was lower this quarter as net interest margin declined to 1.48% following the sharp and sudden decline in benchmark rates. In addition, the bank took in extra liquidity in light of the market liquidity tightness in the earlier part of the quarter in March and April. We see deposit repricing in line with the market and has since reduced the [ heft ] liquidity as the market liquidity condition ease. We expect NIM to improve in the second half as benchmark rates stabilize. For the first half of the year, fees and commission income increased 4% to $916 million from reduced customer spending on credit cards and lower loans-related fees, while wealth management fees registered double-digit growth of 13% year-on-year. Fees income decreased 14% quarter-on-quarter on lower wealth management and credit card fees, as sales and transaction volumes slowed and movement and travel restriction measures weighed on customer activities. This was partly offset by higher loan-related fees, which grew 10%. We observed that as economies gradually reopened, volume in wealth and credit card started to pick up in June. Trading and investment income rose 31% to $294 million, as financial market recovered from the early shocks of COVID-19, unwinding some unrealized losses from this previous quarter. On expenses, we continue to fall year-on-year and quarter-on-quarter due to tighter cost control management actions on variable staff costs and discretionary spending. Cost-to-income was higher at 46% this quarter amid revenue headwind. While we continue to exercise strong cost discipline during this period, our commitment on technology investment to sharpen digital and product capabilities remain intact. We are constantly reviewing strategic investment, prioritizing those that will enable us to capture opportunities when the economic situation improves, and to better serve our customers such as our investment in TMRW and the Mighty platform. Overall asset quality of our loan portfolio remain intact. NPA formation was low, given the absence of chunky NPAs this quarter. And NPL ratio stood at 1.6%. We are concerned that the various relief programs and loans moratorium put in place of borrowers might result in low NPLs and loan delinquency during this period. While we remain committed to support customers through difficult times, we are also expecting credit costs to rise when loans moratorium end, and not all customers can emerge out of this crisis the same. Hence, if the enduring impact of global economy on -- global dynamics on economy, the group proactively set a additional $400 million on allowance on non-impaired assets this quarter, which brought total credit cost to 57 basis points. Total allowances for non-impaired assets increased 20% to $2.4 billion, which is well above the minimum 1% requirement by MAS. NPA coverage was strengthened to 96%, or 230% after taking collateral into account. For the second quarter, loans slowed to 1% -- loans growth slowed to 1% quarter-on-quarter and 3% from a year ago, partially from institutional loans and the [ interim pricing of ] core loans, supporting SMEs. Customer deposits remain relatively stable with CASA to total deposit ratios rising to 49.6% this quarter. As at 30th of June, our CET 1 ratio was strong at 14% and NSFR at 119%. These are well above the minimum regulatory requirements. With strong funding, liquidity and capital position, we are well positioned to sustain the lending capacity and absorb future economic shock. The Board declared an interim dividend of $0.39 per share with an option for scrip dividend without discount. And this is in line with MAS call for banks to cap their total dividends per share at 60% of prior year DPS, and to make available the option to receive dividends in scrip. The group remains well capitalized and well funded with a strong capacity to support customers and to provide sustainable returns to shareholders in the midterm. We expect the full year 2020 DPS to be in line with MAS directive. With that, I'll pass it back to Ee Cheong.

Okay. Thank you, Wai Fai. Now before we go into Q&A, let me just share our views on outlook. As disruptive as they can be, crises come and go. We believe the best case is for the pandemic to be contained by end of this year, and for recovery to take place gradually thereafter. In terms of top line, we expect mid-single digit loan growth for this year. Net interest margin is likely to stabilize in the second half, as rates are already at all-time lows. We expect a moderate rebound increase as economies gradually reopen. We aim to keep cost-to-income ratio stable as we pace investment in technology and people to build capabilities for the future. As guided earlier, credit costs are expected to rise to 60 basis points this year. These are top-down estimates. In the meantime, we are adopting a prudent and measured approach with a focus on stability, and we will be selective in pursuing growth opportunities. We continue to monitor our asset quality closely with robust stress testing to anticipate worst-case scenarios. Proactive engagement with our customers will hopefully smoothen the impact post moratorium period. Some credit migrations is inevitable, but we expect to stay profitable and resilient. We have entered this crisis from a position of strength, and we'll continue to set aside GP to build up our balance sheets. We'll focus on balance sheet strength so that we can continue to support our customers. This storm will pass. And we are confident of emerging stronger through concerted efforts with all our stakeholders. Thank you for your continuing support. Before we take any questions, let me just ask Kok Seong, our Chief Risk Officer, to give you more color on our loan book, given that asset quality is a key area of interest. Kok Seong.

Thank you, Ee Cheong. Good morning to all. As a long-term player, we have always taken a prudent approach in growing our franchise in the region. Our disciplined approach to diversify our customer base, [ aware ] concentration risk and maintain prudent lending standards is an important safeguard to our portfolio quality in a challenging environment. Our loan book by geographical mix reflects our strategy as a regional bank, anchored by a strong home base of Singapore, complemented by a niche strategy in the higher growth market outside Singapore. Singapore currently account for 51% of our loan, and we aim to keep this mix of at least 50%, given that Singapore AAA rating underpin our AA rating. By segment, a lion's share of 51% of our loan is to large cap, 15% to SME and 34% to individuals. Of note, we have been steadily growing our large corporate exposure over the past 3 years, from 45% of loans as of 2017 to 51 as of first half of this year. Within this, we have been securing mandate from renowned global institution pivoting into Asia, backed by our enhanced product capability, integrated network in the region and AA credit rating. We believe that such diversification help to improve our overall credit portfolio quality. And despite lower margin from this top-tier segment, our risk-adjusted returns remain healthy. We continue to defend our traditional strength in serving SME clients. Indeed, we are one of the largest users of government risk tradings team to support our SME client in Singapore in the challenging [ world today ]. Today, only half of the total ESG loans accepted by our customers have been drawn down, signaling that their liquidity position have remained manageable. Our SME book is granular and well-diversified across large number of customers, with low concentration risk. More importantly, more than 80% of our SME portfolio is secure. Majority of our SME clients are mid- to larger SMEs with turnover of between $10 million to $100 million rather than the micro SME with turnover below $1 million. Our SME clients are predominantly in Singapore and Malaysia, which are market where we are deeply familiar and comfortable. Loans to individual account for 34% of our loans, with mortgages making up more than 80% of -- with LTV that is comfortable at around 60%, mainly in our key markets of Singapore and Malaysia. And majority of our mortgage book are owner-occupied properties, though our unsecured portfolio of personal as well as credit card loans is less than 2% of the group loans. Our mortgage business is also intricately linked to our building and construction exposure and serve as the key levers in risk management. By sector, building and construction loan portfolio at 24% -- 25% of loans is an asset class which we are deeply familiar with and have strong track record of management, given our conservative approach and deep institutional knowledge. This portfolio is fairly balanced between investment properties and developers, and well-diversified across various property asset classes. The portfolio is predominantly secured against collateral with average LTV of 50%. While cash flow return may reduce for some of these assets as business adapt to a post-COVID world, our comfortable LTV means that any impact will be manageable. More than 80% of the building and construction loans are to large corp. And about 80% in both Singapore and Hong Kong, which are developed market with sound legal framework. Aside from housing and building and construction loan that I have talked about, the remaining loan exposure is well-diversified across sector. Wai Fai mentioned earlier that our loans under relief measures equal 16%, 1-6, of our total loan, with a fairly balanced split between individual and business customers. Of the total loan under relief, a majority, 90%, are either secured or mitigated via the government risk-sharing scheme, thereby mitigating loan losses in the event of default. In conclusion, notwithstanding the extraordinary relief measures and the gradual reopening of economy across our key markets, credit costs are expected to rise, given the severe impact on the economy. Based on our [ best ] case scenario, which we assume that the pandemic will be broadly under control towards the end of 2020, we expect credit costs to reach a cumulative 120 to 130 basis points over year 2020 to 2021. The moratorium, with varying expiry date in the region, and our proactive restructuring effort to support our customer, may help to spread out the new NPL over the next 1.5 years. For instance, the blanket moratorium in Malaysia is expiring on September 30. And bank regulator in Malaysia has recently extended the loan moratorium and repayment flexibility for targeted individual and SME, reflecting partly regulatory asset [ deteriorating ] effect. In anticipation of such asset quality deterioration, we have preemptively set aside more general provision in Q2 this year. And we expect to continue to do more, such that total credit cost in second half of this year are likely to stay around 70 basis points, with full year credit costs totaling 60 basis points, similar to our earlier guidance. We will provide regular updates as the situation develops. Thank you.

All right. Thank you, operator, and thank you to the management team. Can we start the line opening for the Q&A session?

[Operator Instructions] The first question is coming from Robert Kong.

I'll take 2 questions, if it's okay. First of all, on the total provisions guidance, the 120 to 130 basis points. Can I just confirm what that is in number terms? I calculate it, if I use your loan book, I calculate roughly $3.4 billion to $3.7 billion. So could you confirm that is the correct number? And then what kind of peak NPL ratio are you looking at within that -- within those assumptions? The second question is, could you give us a sense of what your second half NIMs will be? It sounds like that you will manage your liquidity better this half. And we're just trying to work out where your end 2019 -- 2020 NIMs will be. Presumably about 1.5%, but some guidance would be helpful.

You want to start?

I can take both. So I think, Robert, I was trying to -- first, that was very bad in my end. First, your question's on NIM. I'll take the second question, then I'll go back to some -- I think your first question was on credit costs. So the first question is on NIM. And I think that if you really look at our second quarter NIM, like we guided, it is a bit low: mainly, one is a market; and second was the excess equity that we actually built up, which we will be able to get rid of some of them by next quarter. So we are seeing NIM trending up slightly for the next 2 quarters, probably by a few basis points. I think that's probably our NIM guidance. The first question is on credit cost. How much will be NPL? And how much is the total amount? When we did the 50 basis points, it's a total between what we call ST, which is loans that are turned back and those that are performing well. So the -- and what assumptions do you use on the loans that is under moratorium and the existing loans that will turn NPL and how much more GP you need to provide for the new loans? Okay. So it's not a simple mathematics that we just take a certain percentage. I think it's not wrong that you take a number of around $2 billion that we have to build, $2 billion to $3 billion are the numbers that we are talking about in the range, depending on where you think NPA formation would be. Okay. So that's probably where we are. And what we are doing for the quarter probably is a number that will stay for the next few quarters.

Yes. Based on our projection, you will [ typically ] assume that the NPL number should -- in the range of the [ peak ] will be double from the existing 1.6 to 3 to 3.2.

So to just confirm, you're saying that the total provisions guidance for the cumulative for 2 years is between $2 billion as the low case and $3 billion as the high case. Is that correct?

Probably yes.

Okay. So I apologize, I think I miscalculated the number, because I obviously took 60 to 70 based on the loan book. So $2 billion to $3 billion and [ peak ] NPLs at 3.2. Okay.

Your next question is coming from Aakash Rawat.

The first question is on the moratorium. So that you disclosed 16% of the total loans are under some sort of government relief, some sort of relief program. Can you give us a breakup of this across the 3 categories: corporates, SMEs and mortgages? So what is the percentage number for each of these categories? And then a related question is, do you think this is also a good estimate of the total restructuring that you might need when the moratorium ends? Is 16% of the book being restructured? Is that a fair estimate? That's the first question.

Yes. If I understand your question correctly, we are talking about the loans that is under moratorium, currently that is 16% of our loan book, whether they require further restructuring. The answer is yes, there will be some restructuring that's required because at the end of the day, we cannot expect the business to catch up with the so-called -- the clawback for deferment on day 1. So those business [ we're reaching ] is have a [ wide range of ] business model going forward. We will look at it individually, look at the cash flow, look at the business model. And we believe that they are viable, we will actually look at how to do a comprehensive commercial-based restructuring. Now as we have guided earlier on, there is a percentage of debt that is under moratorium may be impact because the business model is no longer viable. And that will be an impairment. We are talking about 10% to 15%, okay? So the remaining one, majority will probably require some more [ showcase ] restructuring, looking at the actual cash flow going forward. I hope I answered your question.

Yes, I think. And do you think this 16% has settled now? Or do you see this rising maybe a little bit more towards the end of the year?

Over next year.

Yes, the 15% -- the 10% to 15%, yes. Most of it would be...

The 16% on the moratorium.

So no, no, no. In terms of overall in talking about the moratorium.

Sorry, I think your question is when will we be hit? And when will they turn NPLs in our models? I think that's his question. Whether the end of the year, now or end of the year?

No, you see at the end of the day, we look at the things proactively. You take into effect the actual time line of the various government across the country in Singapore, Malaysia, Thailand and all that. Before the moratorium expired, we would be actively proactively looking at some of these accounts, too. And if there is evidence that some of this will be permanently impact, we will actually be proactively impair some of this even before the moratorium expires. So there will be some that will flow in. But majority, we expect it to be done or flow in if it impact after the expiring. So it will be a combination of -- a majority is expected to be after the moratorium expires.

Understood. And when you said the 16% are under moratorium, I also want to know if this number you think has kind of settled? Or do you think it will rise as we proceed in the year?

Whether 16% is settled all the way.

It's already settled, yes.

Yes. So like I said, we are all looking at a crystal ball, when will this happen. While we know that it was -- whether it happen, we really don't know. So like we mentioned, we look at various portfolios. Of course, these loans under moratorium will be the major focus of this 16%. How much of it will turn NPL, and how much will be the credit cost is different than NPL, because they are -- a lot of them are [ heavily ] securitized, okay? Now we do not know. But we think that if it happens, it will happen over 2 years, okay? Up to 2021. If it doesn't happen, then probably the world will have stabilized, and probably we'll be more comfortable. So during this period, okay, some of it, like I said, we're proactively managing it, either recognizing it [ ahead ] because if you think that certain customers are already not functioning, the business order is really broken. You might take it a hit, and you're seeing into your [ SP ] earlier. But the total between the 2, if you look at over 2 years, we think that the 60 basis point is enough to cover me between GP and SP. The only thing is that in the initial year, like what you saw this quarter, then the SPs are not coming in, I add GP, okay? I will add GP to make sure that I reach a 60 basis points, so that I am covered financially when it happens. So we can go around saying that when will it actually happen, whether this quarter, next quarter, end of next year. And sectors are viewed today under this environment that the crisis should stabilize by end of the year. And we will see some of them [ that come short say ] falling when the moratorium comes out. Some of it, we might even recognize it earlier because we are proactively looking at customers -- customers' business models that are broken. So it's a combination. So I think it's a crystal ball that we're talking about, which [ comfort ] and how much it will be. But we are comfortable with the 60 basis points that we are putting in, we are comfortable.

Maybe, I just add, the wholesale. Maybe just add a bit of color. I think you did ask a question of the moratorium but I think it's plateaued off. We have seen that for the last almost a month, we don't see many new requests on moratorium creeping in. First thing that we think, it's plateauing because of reopening of the economy. Secondly, I think you also asked the split between the SME and under the relief program that we have approved of the numbers. So roughly around 60% of that, okay? And because most of the government relief program actually focusing on SME, they are not focusing on large corporate. And they, just to give a little color, the large corporate that came in are basically a little bit less of a crisis issue, P&L issue and some of them account for a bit of relief to differ a bit of the [ pricer ] but servicing interest. So I do see as a concerning trend. But the SME portfolio, I think it's [ caution ] early share, okay. And most of them were already eligible for the bridge loan, temporary liquidity line provided by government and [ rundown ] slightly less than 50%, which also shows the SME customer liquidity is not as perceived as high as what we kind of earlier anticipated. So it's more contingency. The other question is, as you know, there's still a government program, co-working capital program. They anticipate as the economy recover, customer money working capital to fund the working capital assets. And that is a $10 million program government, is a reshare program. And the same customer are looking to tap into that as their economic activities, delivery inventories as the companies start coming in. So again, I think the government had think through a lot of programs to ensure wider businesses have been sustained, okay? And look at the industry to fund them. So I think somewhat, that will mitigate what we possibly afraid of the cliff effect and the migration to NPL. So some of this measure and working industry, they [ about ] the relief of the [ IT ] program. [indiscernible] some of the crisis, therefore, would minimize some of the [indiscernible] business into classification of NPLs. So I think it's very encouraged. I'm not putting a lot of efforts to ensure there's no cliff effect. So that I want to share. Hope they're helpful.

Yes, very helpful. The second question is on the dividend. So I just want to understand from your perspective, what do you think has changed -- sorry, led to the change in MAS Director because last time we said they didn't see any need to restrict dividend. And if you look at the stress test results, it's not really any -- doesn't show any red flag, your guidance hasn't changed even. So it doesn't really seem that things have deteriorated significantly. So what really happened with which you think made MAS come up with this dividend -- moderating dividend guidance?

Yes. I think MAS has been cautious, right? And it's nothing wrong been cautious because we are in the middle of a pandemic, okay? And they want us, especially the 3 local banks, to conserve capital. Even though we all have enough capital, but I think it's being cautious and prudent. They want us to continue to support local economy. I think that is the main objective. Now if you look at UOB, we already very disciplined. Our dividend payout is always based on percentage of our earnings. If earning go down, our dividend will come down. That itself is already self discipline. But MAS being the most prudent central bank, I think nothing wrong to prudent at this stage, and they want to position as a strength moving forward.

So what's your thinking for next year? Do you think you'll be in a position to resume the dividend for '21? And is there any scope for special dividend?

One? So I think if you look at the MAS announcement, they're talking about 2020 dividend payout. They were silent and probably, which means that they want to look at where the economy will be. But today, the guidance or the restriction is only for 2020 at the [indiscernible]

So the next question is coming from Harsh Wardhan Modi.

Two questions. First on asset quality. We have a couple of things happening simultaneously. Some degree of [ $4 billion ] soft loans on one side. And on the other side, government support on job credit scheme and [indiscernible] So if you like to look 6 months out, let's say, if some of the government support measures reduce, do you have a sense of which of your borrowers are kind of able to sustain right now because of some of these support and if that some of these support goes away, what proportion can go into NPL? And have you already factored docking in your NPL formation number, this 3.5% to 3.25%? Or how should we think about that sample?

You want to take it? Okay. You want to take it? You want to take -- okay.

What is the question again? Because…

Having difficulty hearing. Actually, I think your question...

Let me clarify that.

No, no. I know. Let me just answer that question whether I get you right. So you're asking for the portfolio under government relief and moratorium. Do we have visibility of how much of this will be back and what's the percentage? Then they are saying that that's my bigger portfolio at large, how do we make sure that they themselves do not turn back, et cetera. So like I started this conversation to say that we actually monitor both, okay, because there is a wider change in the economy. Certain industries are factored, and those are something that whether they go into government support at all will be under constant review, okay? Then the second question -- then the second part is totally under focused for [indiscernible] government scheme, which is then a bottom-up thing that we do. We actually have already formed restructuring team, okay, where we have actually identified some of this and look at this because there are some people who apply for the scheme just for some time for relief, but they are not stressed. Their cash flows are actually okay. But we actually will go through a bottom-up and look at how much of this are really at the high-risk case and see whether we can do some restructuring ahead, or if not, that we may have to exit that relationship a bit earlier. So I think that's how you -- the question. And I think Kok Chan already mentioned that within this so-called 16%, we are talking about around 10% of this debt, we think, okay? And we think we turned NPL. And that is very much, a very high top down, but we're actually managing it and we are quite hopeful that the actual numbers will be lower. Then the other part is something that we are actually looking at as to how much of it has been changed because of the industry -- because COVID has changed operating models and all. That to us is, which we call the pre-COVID data, okay? Which we think that the NPL formation were back to normal, okay, where we think that if you actually model the $300 million to $400 million that we said about, that will be the model that you actually can build in. And in total, that will give you the so-called NPL formation over a period. Okay. Then the challenge is the credit cost relating to it and that's just where we came into that. So technically, if you want to book the model [indiscernible] order coverage as well as about.

Okay. Just maybe to add on to what Wai Fai say, Harsh, is that you look at the so-called net credit loss track record or historical pattern. Looking at past recession and history. The difference between this round and compared to the Asian financial crisis, for example, when you look at the net credit losses peaking at 150 basis points in 1 financial year. We are talking about 100 to 130 basis points over the 2 financial years. Why is it so? It's because we think that even though the fact that there is a very sharp contraction in the second quarter, the difference is that in the Asian financial crisis, there is a very wide spread credit crunch, coupled with simultaneous significant decline in asset prices in equity, in property, across the board at the same time. So -- and it happened during 1 financial year. And that is the reason why the credit losses is very wide spread. We all expect actually these credit losses for us to be spread out for this round over 2 financial years. And because the support that is given in terms of credit accommodation across the region and the world made a lot of difference for many businesses because liquidity to more than anything else. So it is important to understand that at the same time, asset prices, our call is it's unlikely to collapse because of the support mechanism that is in place throughout the world. So we do not see that kind of same situation play out as in the Asian financial crisis. But we are not discounting the fact that there is a severe adjustment that required in the real economy because of the contraction that happened for this -- within this short period of time because of the lockdown. So there will be businesses that require significant restructuring. But many of them with the liquidity support, they will survive. So that is the difference. We want to make some comparison with the past. So based on our experience, we think the net credit losses impact will be quite moderate compared to the Asian financial crisis situation. Harsh...

Yes. That makes a lot of sense. If I could ask one housekeeping question, which is it looks like your moratorium loan volume is very high. Is it partly because of Malaysia, where a big chunk of your book would be in moratorium? Could you share that number? What portion of your Malaysia book is in moratorium?

Yes, actually based on Singapore, we are around 10%, under moratorium, okay? So you add on Singapore -- you add on Malaysia, Malaysia is around [ 60% ] because there is also -- and then you'll pop up. And then Thailand also have a similar program. They are around [ 30% ]. So we average out the group is 16%.

Okay. And final question, this is on margins, that if I think about interest rates are going -- are already low. And what is your operating assumption on how long does it remain low? Because what I'm trying to understand is there are 2 ways we can deal with. One is, say, let's try to minimize the asset with pressure in the next 6, 12 months? Or second, is say, all right, we think the rates are going to remain low for the next 5 years, let's say, or 3 years. So let's try to gain as much market share as we can and lock in for next 3 years, in which case, my next 6 months are when we look horrible on asset yield. But hopefully, I will be able to protect 2021, 2022. So [ what is this strong? ] One, what is your operating assumption on how low the rates remain? And how are you thinking about a 2-year view on active yield outlook?

Wai Fai, you want to?

Okay. I think he's asking the fact that interest rate is going to stay low for long. What is our strategy going forward, whether we want to lock in longer-term yield in order to enjoy better straight. In overall, I think in the overall scheme, I think, generally, our position is that the -- most of our borrowers, by and large, generally offer so-called floating, probably in the range in currently nearly 70%, 80% is floating. You may see some incremental step up, some of them may opt for fixed rate because of the fact that rate is so low. So you can see that some incremental increase. But majority was still probably sure fixed rate. I mean for floating rate. So I think in terms of opportunity for better margin, it's more of the fact that I think we need to reprice credit risk going forward, and the industry will probably be looking towards the market generally would hopefully come together to reprice some of the risks going forward, and therefore, hopefully, we will get a better margin from the credit spread.

And also our total customer profitability with not just NII but at the loan-related fees as well, which I think did well again this quarter.

The next question is coming from Jayden Vantarakis.

All right. Thank you very much for the presentation and the update. I have a couple of questions. The first is just coming back to the NIM and some of the dynamics. Just wanted to get your view on cost of funds. If I look at deposits, there's been good growth in low-cost deposits over the past year and time deposits seem to be flat in terms of balances. How much do you think that UOB can reprice funding going forward? Because it sounds like that's one of the main benefits we're looking for on the NIM. Just wanted to understand the dynamics there. And my second and final question is just on risk-weighted assets and the interplay with capital. Risk-weighted assets tend to be very stable, $232 billion. How much, I guess, migration, do you expect in terms of credit risk over the next 6, 12 months from what we're seeing, noting the push into lower credit risk corporate loans, the government assistance, how does that all come in and affect RWAs? Those are my 2 questions.

Yes. I think in terms of repricing for deposit and cost of funds, we see definite opportunities because our liquidity is very flat. Going forward, we expect that to be continuing for a period of time. So certainly, there are opportunity for us to bring down the cost of funds generally. That is -- I mean, across the industry. In terms of RWA rating migration, you have to expect there will be some. But by and large, I think working in concert with the industry and the authority throughout the region. There is a view that we try to mitigate all this strict effect as well as the so-called M block downgrading of credit rating, just purely because of the moratorium program or accommodation they've given. In the normal circumstances, generally when you do accommodation, the general rule is that you should then downgrade, right? But the intervention, currently, the guidance given across the world, including in Singapore and the regional country, very clearly, we have to look through the pandemic crisis as temporary and look at the longer-term viability of the business before you actually require to do downgrade. So we will do it selectively. There will be a percentage. You expect it to be higher than the normal rate of normal migration in a mild recession. Internally, we assume double the rate of a mild recession. Okay?

Yes. And maybe just to follow-up on the funding costs, just if I can. Any view on the quantum of how much we could be saving if we're looking over the next couple of quarters? That will be helpful.

Well, the rate is almost 0. So you can be starting next fiscal. So I think the reality is that for banks, commercial retail banks is not so-called feasible generally to charge negative interest across the world, the experience that you see in Europe. So there is some opportunity, but we have to be realistic. Maybe, Eddie, you want to add any on repricing of deposits?

Yes. Okay. Maybe I share a bit on the retail strategy. And that it's -- I think this is we have been building deposits largely savings, a big bulk of it from Singapore. And I think it's not just deposit, of course, at this rate, it's cheap and include [indiscernible] funding, but it's more franchise building as well. Because when you bring in deposit customers, and obviously, you heard about Mighty, where we provided a very good platform for transactions. You get very sticky customers as picking money. And I think that's important because we are starting to build a relationship that will lead into wealth management over time. As customers -- the young customers goes into middle age. And I think that to me is important as a source of franchise building.

It is coming from Nick Lord.

A couple of questions from me. First of all, just back on margin point. I mean, obviously, there's 2 factors interplaying here. There's what's happening to rates and what's happening in terms of your own balance sheet. And I heard what you said about sort of shedding, sort of lower yield assets, and I guess that's the driver uplift in NIM in the second half. But can we -- can you just maybe give us a little bit of context maybe around about the absolute number because obviously, your NIM is going to be dependent on your balance sheet. So we've just seen sort of $2.5 billion NIM in the second quarter. If your guidance is that net interest margin increases in the second half, would our expectation be that, that NII can go up as well? Or would it be the NII would stay broadly stable because the balance sheet reduction would offset the benefit on the NIM? And then my second question is on fees. And obviously, the lockdown meant that, that fee income was pretty weak in the second quarter. But I just wonder if you could comment on where activity levels are today relative to, say, a normal run rate for sort of wealth and credit cards and all that sort of stuff.

Maybe I'll take the first question on margin. I think we benefited from the very first strong first quarter. So -- but second quarter, we will hit quite that [ leg ] to EUR 1.48 billion. So you asked me the recovery from the second quarter NII, whether it will be positive going forward for the next 2 quarters. And if rates remain low or remains at is now, we are confident that the absolute NII will improve, okay, against the second quarter. So that's the first question that you talked about. The second question is on fees. Some color on that. Maybe, Eddie, you can share some because we did, like say we see some increased activity in June and July, we had just closed. Eddie can add color?

Yes. Actually, for fees, quarter 1 was good because the quarter 1, the lockdown did happen. So quarter 1 was a very, very good month for us. When it came to April and May, we saw a big decline, right? And that was because the pandemic, there was lockdown and people had to work from home. But during that 2 months or so, we adjusted our process so that we can serve clients and we can engage clients from home. Most all our RMs are working from home. So -- but came June, we started to be able to call in and talk to customers. And in fact, we see a very strong pickup in June. July is also a very strong month. On the credit cut part of it, obviously, when you have the lockdown, selling was low. No traveling. A big part of our fee income is coming from travel. And obviously, the online commerce, the e-commerce picked up, more than double, but that wasn't enough to offset the drop because of the lockdown. But we hope that we are seeing a comeback in July. We hope for a strong Q3 leading to even stronger Q4 as we reach the festive season. But we don't see much upside from fees from travel on the travel segment.

Yes. Maybe just then to add on to the second question -- to answer the second question about the activities that we see. Obviously, the lock down we see in the second quarter where across the world, there is a severe disruption in economic activity. And therefore, you can see very sharp GDP decline in the second quarter. And that is happening across the world and the region. And Singapore, there is no difference. Now the question is that what is the activity today? We see that actually there is a resumption of recurring activities across the board from that low base. And going forward, our call is that it's -- what is likely going to happen is that there will be a lot more targeted approach in ring fencing, in contact tracing, in testing, in isolation rather than a system-wide, nationwide lockdown just because there is a split, right? [indiscernible] is happening in Vietnam. So that will be likely to be the case that will allow some resumption of economic activities. So our call is that the pace of economic recovery will depend on how widespread is this infection going to be, but we do not see a repeat of a complete lockdown across the world, like what we see in the second quarter. Therefore, the [ IMI ] activities will be higher than what we have seen in the second quarter. But how fast we reach pre COVID, that will depend on I would say the spread rate of infection as well as the availability of the vaccine -- what availability of that vaccine eventually, maybe in a year time or 18 months' time. So that will be our call. So economic activity is definitely higher than the second quarter.

I mean ex travel, and that's obviously the thing that won't resume quickly. I mean, where are we sort of 18 -- 80% of pre-COVID activity in terms of sort of loan demand and wealth? Or are we a 100%, I mean...

Just absolutely, that will depend on the industry, right? Because we're talking about innovation, they are very far from the pre-COVID, but there some activities will be actually close to more than -- maybe Fai can give more color.

Yes, maybe where we see coming from is guided by our CEO earlier, where we see the loan growth. Actually, they are quite targeted. Again, if you look at the corporate -- the large corporate institution space, a large corporate in the past might not borrow money. By giving a lockdown enough for 6 months, some of the suppose cash might be depleted. Our balance sheet is not leveraged. So you see some of these corporates are coming in to start picking for some credit. We either stand by or start really funding their picking on the economic activities. So we see opportunity within our existing client base. They have new credit demand coming from some of these corporate. At the same time, we also see earlier what we alluded to, we have some real shift of new production or into ASEAN region, particularly some of the countries, we already saw the trends emerging. And Singapore also benefiting, like we see some of the regional big corporates or even selective multinational, relocating some of the regional treasury into Singapore, which you can follow some of the stats from governments who are opening offices here. So you can see those activities as our CEO alluded to, we have been focusing on connectivity on our franchise for many, many years now. And building the platform to connect the door. So we are picking up. If I look at the numbers, whether our trade numbers, whether working capital loan numbers, despite the volume drop in the region, we're actually maintaining our volumes. So I think there's a segment that we are actually getting our wallet share or maybe getting more than fair share of our wallet. So this is a trend we saw if the economy indeed going to pick up, we hope our share of wallet will continue to increase in the right trajectory. So this one, give us a little bit how we project where the credit demand come from. Again, this is a difficult environment. We are very targeted in making sure those credits that we generate are good credits. And these are good [ LIBOR ] businesses. As we said, we stay with our customers. So we are very targeted, not many new customer acquisition, but really within our existing portfolio, right? That credit, we understand, market, we understand. So there's some other growth. And obviously, the opportunity within government program, [ ESG ]. There's clearly a new loan growth for us. As we said, it's over $2 billion withdrawn, and we anticipate that [ run ] will provide some new loan growth. At the same time, as economies start picking up, the working capital line under ESG yet to be kept, will provide another avenue for some selected loan growth in the portfolio. So what we see in next 12 months, 6, 12 months is basically very targeted loan growth. And this, we are talking about ensuring quality loan growth, while proactively managing our portfolio to minimize the risk migration and NPLs. And so that has been our priority to focus on our book.

It is coming from Melissa Kuang.

I have 2 questions. Firstly, on the margins. I suspect -- I mean, I guess that you meant that in the second half, you'll see cost of funds kind of go down lower, faster than the repricing of the loan yield. But I also wanted to ask in terms of your method of your -- the [indiscernible] moratorium. You are still on the accrual basis, right? So as the NPLs do come in, then do we then have to see more pressure on the margins? Will it be this year? Or will it be next year that the margin pressures on the NPL will start to show through? Secondly, in terms of your NPL peaks, I think you're kind of saying that it will be in 1.5 years, which perhaps would be 2021. But hearing from the Thai banks and the [ annual ] banks, it seems as though things would be quite bad until 2022. So given that you do have subsidiaries there in those regions, how are you expecting then NPLs from those regions to attribute to the group number? And perhaps NPLs could rise also in 2022?

Yes. Melissa, your first question is a technical question. Yes, today, we are -- monitoring the accruing income. And at the end of it, we are going to recontract them at the end of the loan material and really look at the cash flows. If they pay, then life goes on. If [ they ] don't and become NPL, then technically, we will reverse the income. But from a group standpoint, after -- I mean, despite all the things that we said, it is not going to be significant. Okay. Because it is significant, auditors would have qualified my account. Base of...

15% of the 16%.

No, no, no. So it's not significant in the interest accrual, especially under such low interest rate environment. So that's my first question. Your second question was -- okay. On the countries themselves. If you understand how we operate, right, we are very targeted in the region. While the macro affect us, but we are very targeted. That's why we are not after big market share, and we can be less [indiscernible] and we can be [indiscernible]. So you see that happening today in Thailand, in Malaysia especially, where we knew that it will come down and yet through the cycle. So it's something that we are watching, okay? It's something that we're watching, but the impact to the group obviously is significantly less because each of them as a contribution is not a big impact to the group, okay? Collectively, okay, they might be big, but they are not big. So we are actually watching some of this. We knew that the margins has collected [ tie ], okay, because the bank surely has come down so low that it's actually even way below the last crisis level. But I think we are watching. We are watching in the sense that it's something that we will watch, which -- okay, Kok Chan will be making sure that you can sleep at night. Maybe let's [indiscernible] Kok Chan.

Just a general comment on this are the fact that you look at the regional country, obviously, you expect still be increased or incremental comparatively higher net credit losses, but we -- looking at our portfolio, we are very confident that each of these countries in Malaysia, in Thailand, Indonesia will remain profitable, profitable. So the net credit losses is not something that is going to run away. It's manageable in each of this country, given the portfolio we have, okay? For example, in Thailand, more than 60% -- around 60% of this is retail, right, which is fine, right? And the component of SME proportion in the wholesale is relatively small. So the answer is that there will be increase, yes, but it's manageable.

I had to say the increase in NPLs that you are expecting, a large portion would come from your Singapore bond?

Yes. Because the majority of our loan is in Singapore.

Okay. And within that, would it mostly be the SME sector? Or are you expecting a equal split between SMEs and retail?

Yes, there will be a combination of individual SMB and the other corporates.

The next one is coming from [ Ula Warden ].

I'm just wondering regarding capital. What is the view of your set 1 over the next 2 years? Will you be able to maintain the 14% given that there could be some ratings migration, which could raise RWA and there's profitability decline? Second question, what is the Board thinking behind the scrip dividend with no discount? I mean, investors would want some discount to get a scrip may? And the third one, of course, is -- well, congratulations on tomorrow's progress. When do you think tomorrow will reach the critical mass for it to turn in an operating profit? So those are the 3 questions.

[indiscernible] take the capital question. I don't think it's realistic to expect us to keep to 14%. I think between now to end of 2021, there will be some deterioration. And I suspect that's one of the reasons why MAS came in with that restriction of dividend to preserve some of that because to allow banks to use that to grow. I think that's what my CEO actually said. So you will drop, okay, you will drop. But we are quite confident that we will be above 12.5%. Okay. So that's probably the level that we see that we are holding. And that's maybe because of the 2 things, right. On top of that, we actually added a heavy level of GP on [indiscernible]. So it's not only capital that you're looking at. It's a GP that's first protection that people are worried about because of all this risk migration, et cetera. Risk migration is a balance sheet number. Yes, you are [indiscernible] RWA, but profit is a bigger number that you are worried about because that's 100% reduction to your CET1. So that's my first comment. Second comment, why did we offer scrip without discount. I think like my CEO said, we were actually comfortable with our capital position. But MAS came out and said that we have to offer scrip. So it's prescribed by MAS. And we think that at this point, we don't really need the capital. And hence, we are actually saying that, okay, we comply with MAS, but we don't need to turn -- we don't need to give a discount. While we know that there are different group of people that like discount, they don't like discount. Retail investors, not discount [ up ] in future, they might not like it because it force them to actually pick up and then to [ recover ]. So there are mixed schools. But they say, our own capital strength we felt that it was not necessary. The third question is on TMRW. When was it the effective? So TMRW, like we all understand was a new digital model that we experiment in. But what it did was to improve engagement and some of the processes. I don't know whether you caught my CEO speech. We are already using those and processors, moving into the current operating model, which is with so-called Mighty. So if you see what we are doing now to anticipate the competition against digital bank coming to Singapore, okay? We are actually using those processes into Mighty to start doing a lot of those things that Eddie talked about. Okay. All those new engagement models that we talk about, we can't execute at such speed if we didn't build the TMRW platform. So we wanted to take things into perspective. TMRW itself, it shows a very good model. It shows how processors can be [indiscernible] without constraint. It shows how engagement can be done differently. And if you remember TMRW's model, we always say that TMRW was really engaged to transact versus the current model that we use the transact to engage. So we are actually using the TMRW model now. It's super imposed into my current model, you actually get that. If not, we will not be able to get a number of fees that is actually coming through. So it's not really fair to just look at the investment and see where that will return. The 2 things happening in the TMRW, like my CEO said. Number one is the cost has transaction has come down significantly, okay? Number two is the engagement score has gone up significantly. So we knew that things that is working in the TMRW model in engagement. And now Eddie is looking at how much of it we can implement into my conventional model, Mighty. So it's the best of both worlds that we are experimenting with, that gives us a lot of confidence rather to expand it in a big way in the conventional and trying that it doesn't work. So that's my comment. I don't know, Eddie, you want to add anything, please.

Yes. To add to Wai Fai, TMRW actually help us build a backbone of digital banking, okay, the mobile banking. So it will be what we've done a lot in Mighty, a lot of the benefits came as a result of what we experimented in TMRW. And now we have so-called a common factory, that we're able to build functionalities for both TMRW and Mighty. And I -- maybe I share that because of this, we have been able to achieve very good results, I would say, we're talking about financial transactions year-on-year, about 69% growth. In the first half, we saw 13.2 million transactions like PayNow was 2.5x. PayNow [ P2B ] is 9x. So these are all some of the things that we benefited. The speed to market was there because we were able to benefit from TMRW's infrastructure investments.

This one is coming from Natalie Choy.

I have 2 questions. So the first 1 is has stress test levels changed because of evolving situation? And what are the refreshed metrics? And my second question is what percentage of those taking loan moratoriums are also taking additional relief in the form of subsidized financing?

Okay. Your first question is on stress level. Sorry, your first question was on stress level, stress test that we've done and how have we actually changed? So there are 2 things, right? Number one is, we gave you our BAU model and we actually look at the stress model that things like the pandemic will last more than 2 years, okay? And unemployment rate was significantly higher, stock market indexes was significantly lower and unemployment was significantly higher. So we have done all those. And this was also in line with what MAS was doing as the industry. So our parameters are not very far off, so that we knew where our bottom line is and that's why if you look at the MAS comment that we have done the stress level with the 3 local banks and they are comfortable. So from the stress case, like I said, we don't run the bank on the stress case. We look at which part of our portfolio is the most stressed to run it over and monitor that with our [ BAU case ]. And that's what we normally do to make sure that it nowhere come close to it. So that's what we did. And we are comfortable with what we see. Of course, when you stress something like that, when you look at unemployment near double digit, which never happened in Singapore before, where you look at stock market crashing 40%, 50%. So such levels probably go without quite stressful situation, but it's something that we can manage. And that's why MAS came out with that statement. Your second question was on percentage of zones...

On the government relief.

And the government relief versus moratorium.

Yes, versus the moratorium. So I would say that's probably around 30% or 40% are government moratorium.

Yes. So we actually look at the same number. [indiscernible] we look and then peak, then my CEO is [indiscernible] at 16% is a combination of growth. It's a combination of growth. So those are [indiscernible]

Those majority will be the government -- majority will be the government sanction or moratorium...

Well, I said majority of it will be the moratorium and not the relief, okay? The relief is a small number. It's the moratorium that's actually a bigger number that we're talking about.

Okay. We have time for maybe 2 more questions.

The next one coming from Krishna Guha.

Yes. I just have a couple of questions. First, if you can touch base a bit on your ASEAN footprint. I think you mentioned about Vietnam. So I think what kind of growth you are seeing? Quarter-on-quarter, I think it has been driven mostly by currency on your loan book. But if you can touch in terms of a bit more of capital investment in various corporates in ASEAN, and you have stopped disclosing the country P&L, if I'm not mistaken, in your presentation. So will you reinstate that in your full year? Or what's the plan there? That's the first question. And second question is on your asset quality, stress test, et cetera. Other than this impact of virus, is there anything else that we should be worrying about? Or rather MAS is worried about? Those are the 2 questions.

Okay. I think you -- we actually have the number. Vietnam is still a very small contribution, [ 24 million ], but it is profitable, okay? And now we are looking at how do we expand and [ carat it ], okay, which means that we might be putting in more capital investment because if you really look at a lot of the statistics that are coming around, a lot of the flows, a lot of the activities, Vietnam seems to stand out as one of those with a promising future. So I think the good thing is that within our limited scope, we have tested the market. We think that we are -- we know the market. And now we are trying to look at it to grow in a more significant way. So today, it's profitable, but not significant to us. Your second question is on asset quality.

Why the concern.

What other concerns of MAS.

What other concern MAS has. MAS has a lot of concern, sir.

Actually, at the end of the day, the authority concern is about the real economy, real economy. They are very concerned to make sure that the banking system remains supportive and able to provide credit for productive activities in order to keep employment. That is the key concern, right? So looking at the situation, the pandemic actually also accelerated digital transformation in the life of many people. And as a result, behavior also changed in business and consumer. So you expect also, certain industry need certain readjustments and transformation. And the authority may be that there are very targeted trying to help in this regard so that there will be program that actually help some industry to transform to upscale to digital life. So these are the wider issues. Some of them may not be able to make it. That is the reality. Not everybody will be able to do, and there will be some failure. But by and large, I think given the environment that we are in, in Singapore, where the government have strong results and the banking system is robust, credit is widely available. So productive business that is viable and able to transform and restructure [ worthwhile ]. In fact, there may even be a better place to take market share, not only in Singapore, but across the region. So there are good prospects and there will be some failure.

The last question is coming from [ Dick Stradella ].

Some of the questions got answered, but just one follow-up on the liquidity situation for the second half. We're obviously approaching U.S. elections, and there are still a lot of uncertainties to deal with in the second half. How comfortable are you in terms of being able to manage a relatively tighter liquidity position in this situation?

Okay. In terms of liquidity, generally speaking, the liquidity crunch in the offshore U.S. dollar market that we witnessed in March this year, and to a certain extent, go to April, has actually been so-called result [indiscernible] various so-called significant in prevention by the fact, okay? Why are the various -- the program locally in U.S., where they actually have very aggressive intervention towards even to the main strip where they actually do many targeted acquisition even for rated bonds. For the offshore market, they actually have very significant sufficient arrangement with the global Central Bank across the world, including Singapore, where we have the [ sharp line ] and some lesser rated country will probably have a repo line where they require U.S. dollars to actually pledge for U.S. dollar funding. But Singapore being AAA-rated country, we have the privilege to be able to have a swap line, meaning that we can swap our currency for U.S. dollars, right? And the fed have recently announced that debt facility will be extended until March of next year. So we do not anticipate the kind of liquidity hiccup or crunch will happen again for the second half of this year, given the fact that fed is prepared to do whatever it takes to help the real economy. And therefore, given the mandate they have across -- in fact as well as the other global central banks, the liquidity condition will be in the short term, will be well mitigated.

That's very helpful. Just a quick follow-up on that. So -- and maybe if I missed that, did you give a guidance around the full year margin expectation, like including this as well as the pivot towards corporate on your loan book side?

Well, we already pivoted, as I said earlier on, that's why we are comfortable with our credit portfolio quality because we have done so in the last 3 years. It's not today that we have pivoted to a higher quality corporate portfolio overall. So that today, we are healthier in terms of the position when we entered the crisis. What we are out talking about in the second half of this year, where we're looking at a positive outlook for some improvement in margin is from 2 front, right? One is the fact that we think we can manage our cost of funds down. There will be some opportunity. And secondly, we would think that there may be some repricing of credit spread, okay? So these are the 2 opportunities that differs the positive outlook.

Sure. But was there a number that you are targeting for margins for the full year?

I don't have the specific number.

No, I think we gave it.

We don't have one that we claim that we can easily look at a 2, 3 basis point improvement every quarter for the next 2 quarters.

All right. Thank you, everyone. We have come to the end of the call. And I think you have another call lineup shortly, so I wouldn't hold you back any longer. But should you have further queries, please do not hesitate to contact the Investor Relations or the media team here. Thank you, everyone, and you may now disconnect.