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

Good morning, and welcome to UOB's Third Quarter 2021 Results Briefing. This morning, we have Mr. Wee Ee Cheong, UOB Deputy Chairman and CEO; and Mr. Lee Wai Fai, our CFO, to present the results. A few house rules before we start. [Operator Instructions] Mr. Wee, please?

Yes. Good morning, and thank you for joining us. We hope everyone is staying safe and healthy. In the third quarter, we continue to build on the strong momentum of 2021. Compared to the last quarter, loans grew 3%, mainly from term and trade loans in Singapore and Greater China. Fees from credit card were higher while wealth and fund management fees sustained momentum from second quarter. CIR was maintained even as we stepped up investment in people and technology. This was achieved despite muted growth in ASEAN, due to our diversified customer franchise and geographies. Our portfolio remains resilient with stable asset quality. Our restructuring task force proactively managed and restructured accounts from the more vulnerable sectors. And we have minimum exposure to China real estate companies. We remain positive on the investment and trade potential between China and ASEAN, and the opportunities within ASEAN. Our cross-border revenue grew by 6% year-on-year. Our wealth management AUM also recorded a year-on-year growth of 6%. We are steadfast and committed in supporting them through these challenging times to digitize and transform for the future, especially for SMEs, the backbone of our economy. The bank is honored to have received recognition for our efforts. And I thank my colleagues who have contributed much and made the difference. Recently, Euromoney and Global Finance World Best SME Bank awards. Our customer-centric approach has also guided our omnichannel and digital innovation strategy in retail. Last month, we launched UOB TMRW in Singapore, harnessing the best of our digital bank TMRW and UOB Mighty app into 1 platform. Besides improving the overall digital banking experience for our customers, UOB TMRW also has the largest rewards program in Singapore. This unified platform will allow the bank to tap economies of scale, to accelerate innovations, reduce -- reducing cost to acquire and to serve digitally. We will be rolling out progressively across the region, building up scale and reach in ASEAN. We will also continue to expand our suite of wealth solutions to meet changing customer preferences such as in ESG-focused investments. Lastly, UOB Asset Management launched the first Singapore-focused partner, aimed at helping investors to contribute to the nation's sustainability drive for future generations. At UOB, we believe in harnessing the opportunities to deliver greater value to our customers. For example, we have been building strategic alliances with like-minded partners such as Marketnode, ADDX. We are the first Southeast Asian bank to work with Marketnode on its DLT-enabled fixed income infrastructure, and we facilitated Sembcorp first digital green bond on ADDX. Another area is CBDCs. We believe CBDCs can help drive financial inclusion and boost economic growth. We are working with central banks so that customers can benefit from the use of CBDCs in the coming years. At UOB, we tap technology and work with ecosystem partners to power innovative and progressive solutions, supporting customers to transition to a lower-carbon economy. We recently launched 2 new end-to-end solutions under our Smart City Sustainable Finance Framework, U-Energy and U-Drive to reduce energy consumptions. Let me explain, the U-Energy is basically financing plans for homeowners to improve energy efficiency using smart controls. U-Drive, plans for electric-vehicle ecosystem players to promote transition to new -- to green vehicles. And we see our role as being a catalyst and enabler. We will continue to partner our customers and stakeholders to forge a smart and sustainable future for all. With high single-digit growth in loans backed by a strong pipeline in corporate and institutional loans and mortgages. Double-digit growth in noninterest income driven by loan-related wealth and credit card fees. Stable cost-to-income ratio and credit cost to be lower than 25 basis points. In summary, we remain optimistic of ASEAN long-term potential. Although outlook will be affected by China's slowing economy, we are positive that gradual reopening of borders will improve business flows. In the meantime, we stand ready to support our customers with our strong fundamentals, built over years of discipline and prudence. We will continue to invest across our franchise to deepen capabilities in connectivity, digital innovations and sustainability areas of growth in Asia for years to come. I thank my colleagues for their teamwork and dedication. Thank you all of you for your support. I will now hand over to Wai Fai to elaborate on our financials. Thank you.

Thank you, Ee Cheong. And once again, good morning to everyone. Thanks for joining us again today. Third quarter profit was 4% higher than last quarter at $1.05 billion from sustained income momentum and lower credit costs. This is also 57% higher than a year ago. For the 9-month period, profit increased 37% to $3 billion. This good performance is the result of our strengthened connectivity capability and improving customers' experience with digital innovations. Quarter-on-quarter, NII was up 2% on steady loans growth as economies slowly recover. Fees income remained strong, while trading and investment income grew 5% on higher investment gains. Asset quality remained resilient with NPL ratio stable at 1.5%. Total credit cost on loans stayed at 20 basis points. Our capital position is strong at 13.5%. The group's commercial banking activities remain strong. Our continued engagement and support to customers in their personal or business needs through the pandemic started to show results as we captured volume growth alongside gradual economic recovery. While retail operating environment remains challenging amid margin compression, fees and customers' AUM soared to record levels. In Singapore, new housing loans grew 10%, resulting in our market share increasing by 2 basis -- 2% points. In particular, demand from secondary markets were very strong, and we will benefit from drawdown next quarter. Wholesale continued to see strong demand for financing advice, restructuring and funding opportunities from corporate clients. Global market operating profit was lower as there was less opportunities for bond sales with interest rate being less volatile this year. Our wholesale business continued to deliver on the back of diverse growth engines. Our comprehensive ASEAN footprint, sector specialization and deepened productive capabilities has enabled us to capture the growing cross-border opportunities. Cross-border income grew 6%, and now accounts for 30% of our wholesale banking income. Loans and trade-related fees rose 25% as customers increasingly leverage our sector-specific insights and solutions. Our global financial institution groups registered an 18% income growth in banking property funds and financial sponsors, serving them with our strong structuring capabilities. The acceleration of digital adoption by our corporate customers had also resulted in increased transaction volumes and higher customer satisfaction. For retail, we have accelerated our digital transformation. As shared by my CEO, the conversions of UOB Mighty and TMRW into UOB TMRW enables us to have a single unified platform to serve our customers across the wealth continuum. UOB TMRW will enable us to effectively scale across ASEAN to digitally acquire new customers in a cost-efficient manner. By leveraging the network of our ecosystem partners, we aim to double the digitally enabled customers to around 7 million. At the same time, we seek to have 70% of these digitally enabled customers to be digitally engaged. Income from these digitally engaged customers are expected to more than double by 2026 while CIR for these customers will see around a 5% point reduction driven by increased scale and reduction in the cost to acquire and the cost to serve. Customers can look forward to exciting loyalty rewards for more than the 3,000 merchant customers -- merchants, sorry, we had forged. As part of our digital transformation, we are also strengthening our omnichannel offerings by digitizing customer experience and repurposing branches for more advisory needs. Our AUM grew to $137 billion, a 6% increase year-on-year. I think this growth is actually quite broad-based across all our customer segments. Our new digital wealth offering, such as SimpleInvest, continued to augment the growth of our wealth business. We are optimistic that the economic environment will continue to improve as the world finds better way to deal with the pandemic situation. Vaccination rates have improved tremendously and death rates are now under control. However, the path to recovery will differ in the short term with ASEAN expected to live with the COVID situation a bit longer. Singapore and developed markets saw greater opportunities for fees and funding with large corps and financial institutions. Like mentioned earlier, retail wealth and customers' AUM soared record levels. And in Singapore, the new housing loan sales also grew 10%. While the ASEAN, excluding Singapore recovery has been slower, we managed a 3% year-on-year growth as there were pockets of funding opportunity to spur economic activity. As highlighted in my opening slide, net interest income remains strong with healthy loans growth supported by stable margin. Fees income is very strong, both in retail and wholesale. Expenses are well under control with CIR down 1.5% points to 43.8%. Credit quality remains resilient with impairment charges reducing by 53% year-on-year. Let me give you some details on how our commercial banking activities had performed. Our loans growth momentum sustained well, increasing 9% year-on-year. This was mainly from our corporate and institutional customers in Singapore and North Asia as economic activities picked up. With continued support from customers, most of our key markets in the region grew their loan book in local currency terms. This put us well on track to deliver a high single-digit loans growth for the year. With gradual business momentum recovery and strong customer franchise, year-on-year income rose to a new high of $1.8 million. Loan fees were at record levels following strong advisory trade and investment growth. Wealth management fees similarly reached a record level as investor confidence returned with AUM growing 6% year-on-year. The overall asset quality of our loans portfolio remained resilient with NPL ratio stable at 1.5%. The new NPAs were well within management expectation. We know there are some concerns when some countries extended their relief programs. We have assessed the residual risk of this portfolio and believe that the impact on credit costs or NPAs will not be significant. Total credit cost remained unchanged at 20 basis points as credit outlook stabilizes. Based on internal portfolio assessment and improved economic outlook, we are confident that the general allowance is sufficient. We have hence reduced our general allowance for the quarter. As of September this year, the group total allowance stood at $5.1 billion, of which $3.4 billion was general allowance. NPA coverage at 106% or 265% after taking collateral into account. And performance loans coverage above 1% were all strong ratios. This strong reserve coverage gives us confidence that our general allowance is sufficient to see us through this downturn, and we can continue to support our customers' growth. Our liquidity position remains strong with LCR at 138% and NSFR at 125%, both well above the minimum regulatory requirements. CET1 is to 13.5% this quarter, largely due to strong asset growth and the interim dividend paid. With the worst behind us, a strong balance sheet and adequate general allowance, we are comfortable with our current level of CET1. With that, I conclude my presentation, and I'll pass it back to the moderator.

Thank you, Mr. Lee. We will now move on to the Q&A. [Operator Instructions] Can we have the first question? [ Chanya? ]?

I have 3 questions. I mean Mr. Lee you say it loud and clear that you are comfortable with the provisions and the worse is over, but it's not a number from Vietnam and also from my own country. I mean, specifically, would that be your area of concerns going forward because vaccination rate isn't quite consistent in our patch. Second question, I would like to ask about outlook for 2022. Do you see much improvement in terms of loan growth and I mean outlook on rates? Third question, E.SUN Commercial Bank last night announced $0.5 billion purchase in crypto assets, E.SUN Commercial Bank in Thailand. I think it's after DBS that also now running the crypto exchange. What's the playbook for you will be on the crypto front?

So I will take, [ Chanya ], the first 2. Like I said, we expect uneven recoveries across the region. So yes, Vietnam, we think will get out of it. But Vietnam books are not big. So it's actually not a big concern. Although NPLs have spiked up a little bit, but it's actually a very, very small book and we are not really in the retail space there. So it's the small SMEs that 1 or 2 crept up. But overall, we are comfortable. In fact, we are actually looking at how to accelerate our growth in Vietnam looking at opportunities that are available. Two other countries stand up, which is #1, Malaysia, okay? There were concerns that they have actually extended the relief program. And as a result, do we expect increased NPLs coming out next year? Like I said, we have actually done a bottom-up assessment of those. Yes, we think that there will be some increase in NPLs in the consumer space and the small SMEs, but the impact is not as big because we are actually very focused into the consumer segment at the high end. So directly, even if they're under the relief program because the government specified so, the underlying quality is actually still very strong. So we have assessed it, and we don't think that the impact to our P&L will be great. In addition, like I always say, we have enough GP in those countries okay, that we added last year that will buffer it. I think the other countries that often come to our mind is Thailand itself, okay? Thailand, we are more hopeful because as the economy starts opening up, with the travel industry picking up, hopefully, they will be better. And Thailand are actually accelerating in their destination rates and slowly opening up. So yes, there was some weakness in the consumer sector, especially in Thailand, and we acknowledge that. So if you really look at some of the NPLs that we are adding to consumer this quarter, we have actually recognize they were hit but we think that with the remaining in our books, we are actually quite confident that we are able to do that, to handle that. Our take is that next year will be a better year. okay? Although it might be slightly behind in the region. But overall, if you look at the whole economic environment, it can only be better. And that is actually good for us of our ASEAN footprint both in the wholesale and in the region. So I mentioned a little bit on -- and actually, we discussed internally, we are hoping for a better 2020, okay? That's just the long and short of it. We think that credit costs will stabilize. And as a result, we will then be looking at growth opportunities. So you have seen the trend that today, ASEAN is a little bit lagging behind. We expect that to improve more next year. And then for the rest, I think we are just looking at opportunities with cross-border opening up. So definitely, we are actually looking at better loans growth and better wealth fees, although I think to be fair, wealth fees has grown 20-odd percent. We don't think we can sustain that from a high base, but we can easily grow more than double-digit growth in there. So we are keeping those forecasts. And similarly, expense we think will be under control because we will continue to have investments in there and a little bit of pressure in the staff cost but we factor those into our financials. But the long and short is that 2020 should be a better year. I don't know if you have anything.

In fact, let me just sort of add some of the statistics. If you look at the connectivity flow. Last year -- well, this year, actually during the COVID time, you look at FDI inflow to ASEAN, okay? I'm surprised. Actually, the number is a lot stronger than the previous year, okay? And I can quote you the number. And in 2019, we have generated business flow of $54 billion, right? This flow from outside from China, from Greater China or from other parts of the world coming to ASEAN. And during the COVID, it's $58 billion. So actually improved by 7%. So you can see that the investors are increasingly pay a lot of attention to ASEAN. The traction may not -- you may not see now, but I think this is the -- the flow is coming in. Now the last question is something that we are monitoring. You mentioned about E.SUN Commercial Bank, and this is something is the crypto currency. This is something we are observing. We are not 100% convinced yet, okay? This is a new area. But what we recognize the potential benefit of digital currency is the CD -- CBDC, which I think that will benefit the overall consumer, and we are working closely with the central banks as well as the asset tokenizations. We have already built strategic alliances with 2 companies. This is a digital exchange platform and use of DLT to further develop digital capital market infrastructure. The company that we invest in is the Marketnode and ADDX, okay? And they're basically using blockchain technology in trade finance and supply chain, right? So certain areas that we are -- we think the visibility is more obvious. So we are focusing more on that. I hope I answered your questions.

Thank you, [ Chanya ]. [indiscernible].

Okay. So a few questions. The first one is, it struck me earlier. Yes. How are your green and sustainability linked loans coming along? What sort of growth are you looking at for this year for the remainder of this year, and for next year? That's one. And the second question is in terms of the particular sectors in your regional areas, how has COVID affected UOB's FDI Advisory business? Because I think that was a big -- you focused a lot on that because of the ASEAN footprint. And also, in terms of your capital, because I think CET1 fell a bit, you used up some of your capital on growth. I think it was a loan growth. So how do you plan to replenish this apart from retained earnings? Are there any plans to restart, for instance, your scrip dividend? And then I have a question, I think I'll pass it also through the [ pop corns ]. What are the -- what is your management and Mr. Wee what are your views on not just the blockchain where you've done all the digital bonds and so on, but also on decentralized finance, defi, they call it, and Web 3.0. Are these threats disruptors or opportunities? And finally, the question on your digital assets. Where does this lead to? And what do you plan to do with it? What are the opportunities? And one final question on the CBDC. I think I have asked this in a different venue. Are there any plans for you to join Partior, which is a partnership between DBS and JPMorgan, doing cross-border ForEx transfers using this blockchain? Those are my questions.

You want to answer some of them they are so many of questions so we have to digest it.

So [indiscernible] the main gist of your later part of the question is on the digital asset strategy where we are.

Yes. Yes, your digital asset, right.

So basically, like I say is there are 2 things that we look at we knew that digital assets is an asset class that we must look into, okay, because the customers actually wants that. But the way that we do it is then we break it down into a tokenized asset because we still believe that for banking to be an intermediary, there must be some underlying value in there. So you see us doing and there is big opportunities because customers are also looking at that. Then the question is, do we want to set our own exchange to do this, okay? Or do we work with third party because it's actually -- today, there's no central exchange available regulatories are -- regulators are trying to get the grips of it. So you have various exchanges bottoming out of which DBS wants to form their own and there are some others in there. Our view is that while we learn to develop this space, we prefer to work with established third parties. Because if my customer need it, I know how to structure it, all I need is the exchange, okay, to clear it. And for the time being, we prefer to do that, but we serve what the customer wants, and we serve what we can deliver. So that's the gist of all those, whether we do third-party and invest in some of those, are basically just to participate with a third-party exchange for the time being. But we are looking at what are the asset class that's coming out definitely digital assets is one. And maybe you wouldn't call it a digital asset class, a central bank currency, a digital currency. We think that at some point, it will be an efficient way to actually clear the global system. Again, unfortunately, there are too many developments at this point in time. We have people trying to do it in Europe, in Thailand, now starting their own. Personally, we believe that best opportunity is out of China because China is probably a little bit more advanced in that stage, and we will have better traction because of the cross-border flows that we are talking about. So that's where we are looking at together with the crypto -- sorry, the blockchain technology that's behind it. So one is the currency, then is the technology. So blockchain, we're actually working in a third-party to capture that flow. So roughly, that's the gist of it. We will be in various asset class, experimenting it. You see us sometimes doing it more and sometimes doing with customers that wants it, whether it's Sembcorp or whatever. So those are our approach to that, and we will see that being slowly evolving. Back to your first question really on cross-border itself. You are right in the sense that there's a lot of enthusiasm, but somehow in 2020, it has actually slowed down, okay? And in our own terminology, we call it a cash intro. That means where they originate and where they land with. In 2020, a lot of it landed in places like Vietnam. For also everybody who has a lot of enthusiasm, landing in Vietnam and all. But we note anything why? Both because of the COVID and all that cash in Vietnam slowed down. A lot of them were because of a big funds lender in Singapore and North Asia. Those are the FI funds desk. But we see as the economy recovery, the things starts to move back to the country. And we see Vietnam and Malaysia, actually, okay, seeing some of those improvement in the cash of people wanting to invest in that. So that's how we track our customers' demand where it originates from and where do they want to land into. And we believe that by next year, as the economy recoveries, the Southeast Asia cash will increase, okay, to a level, maybe not to the potential, but definitely better than where it is this year. So that's really the FDI cash control thing that we're talking about.

Another question if I put you clearly is about sustainability, right? What is our target, right? Now I think so far, we have -- for this year, we are talking about sustainable financing about $14 billion, okay? So we are targeting $15 billion by 2023. That is our target. But I think -- to me, I think more important is just beyond the number, okay? What is important is we are working closely with customers and ecosystem partners to co-create end-to-end solutions. On governance frameworks, as I articulated just now, you have the U -- what you call the U-Solar, you have the U-Energy, U-Drive. This is where the multiplying effect that is more important to me rather than just a whole financing number.

Rather than look at the absolute number, when we talk about green loans, which we used a little bit, you know that the impact to the real economy is different from, for example, we do solar. Because the loans on solar is small, but it actually affects more households and the impact is bigger, okay? The impact to a car that is on solar, electric-driven, the loans are getting small. For example I do $1 billion of green loans to a corporation for them to either do their buildings or whatever. So that to us is what we're looking for where the impact we think to the economy, to carbon consumption is biggest rather than absolute headline numbers. But I think suffice to say is that whether that $15 billion by 2023 numbers, I believe that we will reach that next year, and we will set a new target soon.

I'm sorry, and then you agreed -- sorry, on this decentralized kind of finance. So just I asked about -- because I think one of your -- I think [ Jacqueline Tai ] is going to give a presentation on Web 3.0 for your retail bank. And I'm just wondering where you think all this is going? I mean we don't even know what it is. But...

So this is still fairly new. This is a new concept. I think next week, you're going to have a fintech festival, I think we all talk about this Web 3.0. This is the very decentralized way of looking at things, right? The benefit is obviously is a greater financial inclusion, innovation, productivity, transparency. But I think what is more important is you have to make sure you protect the user interest and uphold their trust. Concept, everyone understand is a simpler way of looking at things. But as far as UOB is concerned, what we are doing is to make banking simpler, safer and smarter with the use of AI, especially you talk about [ Jacqueline Tai ], she will talk about tomorrow how -- and DLT, how we can use asset tokenization and working with the central bank and things like it, to benefit the consumer when you travel cross-border. So this is a new idea, new concept. But I think end of the day, we just have to make sure it's very transparent, and you have the proper corporate governance framework in place.

[indiscernible] have one more question on plans to replenish capital.

That's the most important question.

Like I said we are comfortable 13.5%, okay? I think when we were at a high level, in fact, we were lower than that previously as well because of the worry about the COVID. So if you really look at it with the amount of general provisions that already set aside, they can take the shock of credit. That I can plan that. I can also plan it in a decision of the Basel IV coming out, which the impact is not big. So we can plan business growth. And we think that we can sustain it with an organic growth strategy keeping it around that level by improving the return on RWA, and that's probably the way that we're going to drive it. As fees income start coming in as we utilize more of the excess capital in the subsidiaries because I have a lot of locked in capital in the subsidiaries that have not been utilized. That will improve by return on RW -- sorry, return in RWA resulting in return in ROE. So that's where we see it. We believe that our model will be enough. It will always be a disciplined model, right? Because I can always grow loans indefinitely. But I think we have reached a stage where we want to grow quality loans. And you really look at where the retail strategy is and where the wholesale strategy is not about loans growth anymore. It's about getting that fees to come in together to increase the RWA. So similarly, like we mentioned, our retail is no longer -- talked about growing mortgage and unsecured loans, but growing that fee-based business, how do we increase that digital income and enable income that we say that we would double by 2026. That will give me the sustainability of the return to continue to generate to grow my loans. So loans growth will be between 5% to 10%. Like I said, we are comfortable and -- but that will be from internally generated capital, we believe we can sustain that.

Next, can we have [ Christa ] from Straits Times.

I have a question about Citi. There have been some reports in recent days that you might be moving towards a bit for some of its consumer banking assets. So does the bank have an update on this and also the markets that its looking at?

Can you repeat your...

Citi Bank, Citi Bank our interest in Citi Bank.

Oh yes, yes. We are still interested in the opportunities.

Are there any specific markets that you will be looking at?

We are not allowed to say anything at this point in time. But definitely, we are interested.

Next one, we have [ Tao Pao ], [indiscernible].

I have a question regarding the China market. UOB's exposure in the market is still relatively low. So in view of the strong activities along Greater China and ASEAN, are there plans to grow more aggressively in this market, and why?

Well, I think this is the market is too big to ignore, right? You talk about China, you talk about Greater China. This is something that we always have that in mind. So we are using our competitive advantage. Our competitive advantage is actually in our ASEAN presence, okay? So we are trying to seize the opportunity in China, Greater China, right, to entice some of the big companies, if they are interested in ASEAN as just now articulated that last year, even during COVID, right, the foreign direct investment, which I think the main bulk of it is from China, there actually the number is actually much better than pre COVID. They are all moving to ASEAN. This is where we do have the competitive advantage. And we do have a single unit within UOB to dedicatedly focus on foreign direct investment, right? And I see a lot of encouragement. Even though ASEAN today is still going through this COVID. But I'd say in the long term, that will definitely benefit our footprints.

Next, we will have Chris from Euromoney.

Two actually. So you've mentioned CBDCs a few times this morning. And clearly, you're very interested in them as an engine of financial inclusion and economic growth. But I'm wondering if we can be a touch more specific at this stage about practical monetizable use cases that CBDCs bring. For example, as a report due out later today, arguing that Central Bank digital money is the answer to improving efficiency in wholesale cross-border payments that normally, people have assumed private sector initiatives to deal with this, but there's an argument you could use CBDCs. So anything specific you can give me on how these things might actually be used usefully. Secondly, one of the themes of the moments is, of course, supply chain disruption. My home country, the U.K. is a mess in supply chain terms. I just wondered on your footprint, how is supply chain disruption affecting you? And has there been any sense on opportunity for a bank of your footprint to step in where these bottlenecks occur?

Okay. Maybe let me take the supply chain before I do the Central Bank digital currency. But I mentioned that we saw the supply chain activities accelerated in 2020. But because of COVID, it actually slowed down in 2021. So as the economy starts to recover, we will see activities coming out back into this part of the world for 2 reasons, right? Besides the supply chain is the other trend was to concentration of manufacturers or suppliers in certain countries. So ASEAN becomes a good alternative rather than a lot of those in Mainland China itself. So we do have customers that used to be manufacturing in China itself, moving some of those, and ASEAN seems to be a common spot that they are comfortable with, either it's because of language or because of skill sets, et cetera. So remember, I talked about this cash and the trades cash concept, okay? So we found that the activities landing in Southeast Asia, which is the supply chain automated lending, actually slowed down in ASEAN because of the COVID situation. But once that improves, we expect that to increase. So we expect activities back to Vietnam, for example, okay, being increased again, and that will benefit us in the sense of our footprint. Because we -- like I say, the footprint doesn't mean that I just bring them in to give them the loans. I actually set up the whole ecosystem and people who understand how FDI works, to give customers that comfort. So we are hopeful that for next year, that's why the ASEAN footprint, we think will show better results than what we see this year. We also see a lot of the cash that's coming is all lending by the bigger funds in Singapore and developed market to sell. So that's probably the -- your second -- your first question is on CBDCs, Central Bank digital currency. Where do we think it's the use case that we can talk about? Today, there are 2 things that regulators are worried about, right, especially you talked about China itself. Are these real trades or these arbitrage trades? And how do we look at managing my outflows of currencies, et cetera? Because in some of these countries, the currencies are controlled. So you think about if there is a means for China, for example, to know that both from a blockchain standpoint, and from a currency standpoint, these are genuine trades, okay? So they know that whether you land up with a trade whether it's booked in Thailand or Indonesia for argument's sake, it's a genuine trade itself. They'll be comfortable, okay? Because today, the second thing that we think will happen is as we become comfortable, the acceptance of offshore running peak in some of these ASEAN countries will increase because today, most of them are denominated U.S. dollar because I don't have an alternative. So the other thing that we are developing is also our treasury part to make sure that we develop that specialty to do the cross-currency pass, okay, whether it's rupiah against renminbi or Ringgit against Renminbi. So in Indonesia, we are one of the 8 banks that have really got that license to do that, and we are doing it throughout the ASEAN. So once I have that connected and then I have a customer flow that's coming out. And with a central bank that's comfortable to say that these are genuine trades and not arbitrage trades that people are playing with or a means to just bring money out of the country. Then we think that, that is where the economy start to open up, especially in China, where they develop a lot of the needs really is from offshore funding, okay, because we knew that they started with domestic funding in the first phase and the domestic growth to some extent for various prioritization was slowed down, and they need the offshore engine, but they want to control that. So we believe that of all the countries -- that's why we always argue that Central Bank China is probably the closest we have. That's why we are working on that. We are working with regulators to get ourself accepted. We are working in each countries to make sure that we develop that skill sets to cope that currency pass so that we can bring that back into China itself if we need to. Because today, if I get renminbi funding, I can't bring it back to China. It's like they not give a quote. So all this, we think, will help develop it and you make the ecosystem a bit more efficient. And that flow out of China, I think will be faster, okay, and bigger. So that's 1 specific examples that we think will benefit us in the short term.

And also this is something that's still very much in discussion with the Central Bank, right? And we hope this is something will come sooner. But the idea, the concept is there. And given our ASEAN footprint, I thought that would benefit us, right, from the retail standpoint, as from the wholesale standpoint.

We'll have the last question from [ Kelly ] from BT, from Business Times.

Firstly, I'm curious as to where you see the buy now pay later market growing how formidable is there a competition to the bank? And still, we've seen like some banks will tie up with like the NPL index is that a strategy that you will be able take? And secondly, will we see loan rates to rise how much given that the markets are being on the Fed tapering and raising rates in 2022?

So I think the buy now pay later really is something that we need to experiment. I mean you have seen a lot of acquisitions out there, right? Some of the acquisition is to buy a platform that actually knows how to do this better, recently. Our TMRW is going to introduce something like that, okay, very soon to try and understand the asset class and to expand mandate so that we can have different ways of assets that you're offering, okay? Because you can actually do something that you will know they need it, but they don't have the economies either to take a student loans or buy a PC versus an unsecured, they just give unsecured loans, but do not know. So that concept, I think, will be a safer appeal because we actually have the underlying asset that we know what they are buying rather than give them. So it's something that we are experimenting. I think TMRW will be -- have they announced it? Or they will be announcing soon to actually go into this.

So further what my colleagues have said, right, I think basically it's a 2-pronged strategy we are looking at. In Singapore, because given our -- we can actually do our home product because we are the largest merchant acquirer in Singapore. So we can actually take advantage of the BNPL, okay? Whereas in the region, we actually tied up with Atome and FI okay? This is where we need an ecosystem partner to work on it. Basically, the concept is just the value add and provide convenient means of consumer needs with ease at point of purchase, right. So it's nothing very new. By end of the day, I think we must continue to stay prudent. That is important. You don't want to have the situation where the younger generation is so convenient to incur a high debt. So as a bank, I think we have to be responsible. But as a concept, yes, you make it simpler, right, at a point of purchase, you are able to assess credit.

Yes. So your second question is on margins. I think we've been talking about this for as far as I can remember, where the U.S. will increase, probably now it looks more real than any other time. But probably a lot of people also agree that it will be sometime next year, and maybe the later part of next year, although there are some analysts who call it to be middle of next year. So in a rising interest rate environment, definitely, hopefully, we can reprice some terms. So we will expect margins to benefit from it. The question is how much and the speed that we will benefit, okay? We think that for next year, we will, but we don't think the impact will be that big for 2 reasons. One is, we think that the rate hikes in the U.S. probably -- especially at the short end, okay, that we are more worried about, will be sometime later. And the transmission of debt to Singapore dollars will be maybe 4 to 5 months later. The second part is our core that the region itself because they do have other priorities. We don't see them increasing benchmark rates next year. Okay. As a result, we don't see margins increasing significantly. So it will be a positive upwards for us, but I think the bigger impact should be in 2023.

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