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

Good morning, and welcome to UOB's Full Year 2022 Results Briefing. I'm Wendy Wan from Group Strategic Communications team, and I will be your emcee for today. 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. Please keep your questions to after the presentations are done. [Operator Instructions] Without further ado, I will now pass the time to our CEO, Mr. Wee, please.

Thank you. Now good morning. Thank you for joining us. 2022 was a turbulent year. We saw rapid interest rate increases, stubbornly high inflation and geopolitical tensions. This year, higher prices and interest rates are causing a drag on the global economy. But Asia, we hold up well with moderate growth. Consumption is coming back. People are traveling again and China is reopening. Trade and investment flows are ramping down. These are all positive for ASEAN as can be seen from our performance across the markets. Our wide and deep regional footprint position us well to seize opportunities across our strategic pillars: connectivity, personalization and sustainability. 2022 was a milestone year for UOB. We took a bold move in the middle of the pandemic to acquire Citigroup's consumer businesses, [ 4 ] markets in one go. I said before this deal is a strategic fit that came at the right time. The quality franchise that will accelerate our growth ambitions, a game changer that will scale our business and leave our market position. Indeed, it has proven to be timely, positioning us well as markets reopen. This acquisition was funded with capital buffers that we have set aside over the years, patiently waiting for the right opportunities. To this transformational deal, we generated higher risk adjusted returns and closed the year with a strong balance sheets, healthy capital and liquidity positions. Last November, we completed our acquisitions in Malaysia and Thailand. Adding more than 1 million customers to our retail base. We aim to close our acquisition in Indonesia and Vietnam this year. So far, the performance has surpassed our expectations. Business is resilient. We diversified earnings across products and countries while creating significant cross-selling opportunities. Financials and integration costs are on track. We expect $1 billion additional revenue in 2023. People-wise, the teams are integrating well. We now have about 7 million retail customers, and we should cross 8 million by year-end. We are excited to serve the enlarged customer base with our expanded network and strengthened capabilities. Now moving to our financials. Our last year core net profit rose 18% to a new high of $4.8 billion. If we include the one-off integration costs of the Citi acquisition, net profit was lower at $4.6 billion. The one-off is about $200 million. I think is same duty one-off we have to pay for the transfer of assets. So this is a onetime cost that we have to pay. Our core business remains strong and with robust net interest income. However, by loan growth and a strong margin expansion of 30 basis points. Fees were hampered by weak market sentiment, credit card fees grew double digits, driven by a strong rebound in regional spending and travel. Asset quality was resilient with total credit costs and NPL ratio unchanged. Our balance sheet remains strong with robust CET1 and liquidity ratios position us well into future expansion opportunities. We are grateful to shareholders for their support in the past year. And we are pleased to announce that the Board has recommended the final dividend of $0.75 per ordinary share, bringing dividend payout to $1.35 per share, representing a payout ratio of around 49%. Now let me share some business highlights. On group retail, our balanced business model with diversified revenue drivers continue to drive good performance. As mentioned earlier, credit card fee did well, up 25%, with the recovery in regional spending and travel. Citi portfolio contributed to the increase last quarter. Wealth management AUM grew 11%. We saw net new money inflows, reflecting customer confidence and trust in us. The One Bank approach by our private wealth group allow us to take care of the holistic needs of our customers as we focus on an advisory first approach. In January 2023, we saw a strong pickup in wealth management activity as markets rebounded. We will push for deeper penetration of our customer base and drive greater contributions from the private wealth space. With our enhanced deposit offerings, we attracted 8x more new-to-bank customers over last year. It also positions us well to engage these new customers on wealth management. On the mortgage business was stable, new mortgage sales averaged around SGD 1 billion a month. Our market share remained firm amid a slowdown in the market due to rising rates. Pipeline is strong and our credit quality is expected to stay healthy. In terms of customer acquisition through organic means, we acquired more than 800,000 new-to-bank retail customer last year, more than half of them digitally. With both our organic growth and Citi acquisition, 70% of retail customer base is now digitally enabled. And this will allow us to serve customers more conveniently to various digital channels across the region. We will continue to enhance our all-in-one UOB TMRW app and other digital offerings to provide best-in-class services. This is an important strategy for us. On wholesale banking, it has performed well in 2022. We achieved higher margins from rising rates with more than offset the softer loan growth. We expect a stronger pickup in loans from the second half. We have been investing to become the #1 cross-border trade bank in ASEAN, and it is showing results. Our cross-border income rose 12%, accounting for about 1/3 of our wholesale banking income. Transaction banking business expanded significantly, contributing 35% to wholesale banking income. Our regional cash management platform, UOB Infinity has helped our customers manage their businesses more efficiently. As a result, our wholesale banking average CASA balances grew 9% with digital transactions searching 13%. With our regional footprint, local expertise and sector-specific capabilities, we are well placed to connect our customers to opportunities across ASEAN. Beyond cash and trade, we have also been investing in our global markets business. Our treasury income, customer flow income grew 20% last year. Now on sustainability, we continue to work closely with our customers to assist them with their transition journeys in a just and orderly manner, balancing growth with responsibility. But this is more than just headline numbers, creating meaningful value is part of our corporate purpose. That is why we launched the first sustainability impact awards together with The Business Times to celebrate companies and individuals who have made a positive impact on environment and society. We hope to encourage more to join us on this journey. In the coming months, we expect rising rates to continue to support our net interest income for asset quality to stay resilient. For this year, we expect mid-single-digit loan growth with a focus on high-quality customer. Margin to stay high at around 2.2%. Fees to grow double digit as we come off from a low base, led by cards and wealth management businesses. Cost-to-income ratio at 43% to 44% and trending below 42% by 2024. Credit costs at 20 to 25 basis points. I thank my colleagues for their teamwork and dedication. Thank you, too, for your support. Now I move over to Wai Fai to elaborate on our financials. Thank you.

Good morning. Good to see everybody here again. So let me go into the financial details. Our full year core profit increased 18% to a record of $4.8 billion. As our CEO mentioned, we have just completed the acquisition of Citi's Malaysia and Thailand Consumer business in November last year. Core profit exclude the one-off expense, as he explained, including it, our net profit would be $4.6 billion and $1.2 billion for the quarter. This [ $200 million ] of one-off expense like [ e-transit ], probably $180 million of it is to stamp duties. So it's a one-off cost that will not be recurring, okay? It's something that we need to pay. And we pay for it and then -- but the revenue is nearly 2 months. So for the rest of it, I think it's mainly the TSA costs, the transitional support costs that some of the things that we are doing during integration. But this is well within what we have put in during our business case when we did the acquisition. Back to our own core earnings. I think the strong core earnings was driven by NII, which registered another quarter of double-digit growth. Net interest margin expanded 27 basis points to 2.22%. While loans related and wealth fee stayed soft this quarter on the weak market sentiment, credit card fee searched this quarter boosted by the higher consumer spending and partly the inclusion of the Citi portfolio. Asset quality remained resilient with NPL ratios at 1.6%. Total credit loans -- total credit cost on loans, sorry, was stable at 20 basis points. We have actually increased the specific allowance on the few classified accounts this year, but we have cushioned the impact, we have the write back of some [indiscernible] general allowances that we have set aside earlier. With the rising interest rate, we focus our effort to grow selectively. Hence, our loans book was flat for the quarter and a 5% growth year-on-year on a constant currency basis. Post-acquisition of Citi, Thailand and Malaysia, we remained well capitalized with a healthy CET1 of 13.3%. Our Board has proposed a final dividend of $0.75 per share, a 25% increase over the interim of $0.60. I think following CEO's comment on Citi, let me share some more insights with you. Based on the 2 months and actually by now, 3 months of managing the Citi portfolio, we are seeing good traction in the performance that actually exceeded our expectation. I think NIM was boosted by the 10 basis point. Card fees went up 20% to record high. Operating cost was well under control at a reasonable level of the mid-40% range. Asset quality was well managed and within our expectation. Citi will give us an immediate $1 billion incremental income uplift this year and strengthen our retail value proposition in the region. With the larger customer base, better product offerings, more cross-sell opportunities and the opening up of the regional economies post-COVID. We actually expect to exceed our original target set for 2026. So if you look on the right-hand side, this is what we promised shareholders and we did the deal. I think at all indicators, they're likely going to exceed those targets that we set. We managed the capital concern arising from the acquisition to close the year with CET1 at 13.3%. I think this allows us to keep to our 50% payout ratio guidance without the need of a capital cost. The acquisition has proven to be a real-time investment that greatly complements our ASEAN strategy. We are confident that of the ROE uplift that will bring us above our promise target. A few more observations. The inclusion of Citi Malaysia and Thailand added 1.3 million customers to our retail base. This brings a total customer base to 7 million. This is just the 2 countries itself. By year-end this year, when we include Indonesia and Vietnam, to pass some of our own organic this number, 7 million was way past the 8 million that Ee Cheong mentioned earlier. The number of common customers in Citi and the UOB base is actually slightly higher than my original estimate when I did a business case. However, the contribution from this group of common customers remain strong. Basically, this implies that both our UOB and Citi value proposition complements and resonate with this group. So we actually do not expect any revenue attrition. More than 80% of these customers from Citi are actually digitally engaged, owning either a mobile or Internet banking. So this has largely boosted our overall digital penetration rates. Citi customers was also active cost spenders with average card billings per customer at 2x higher than the industry. We also acquired a strong wealth franchise that contributed 20% more to AUM in Malaysia and Thailand. We continue to see healthy customer, AUM card billing growth across both the UOB and the ex-Citi on the enlarged customer base, okay? Those statistics actually are, in fact, accelerating in January, February as we talk. This indicates that our cross-sell efforts are actually gaining good traction. If the enlarged regional consumer banking franchise, the ASEAN-4 income contribution has increased from 25% to close to 30%. On retail itself, with the scaled up retail franchise, we now have collectively, like I said, close to 7 million retail customers, of which both the combined Citi and UOB, they are now 70% digitally engaged. Organically, like Ee Cheong said, we ourselves have grown 800,000 customers through the year with 55% coming through our digital channels. We partner with like-minded ecosystem partners that supported our franchise growth. Today, we have 30 strategic and core brand partnerships across multiple markets. And that's the important part because this acquisition allows me to look at co-branding into a multi-market approach rather than a single market approach, in addition to more than the 1,000 in-country partnerships. So with the acquisition of Citi, we will target further growth in this multi-market penetration because that's the beauty of our franchise, leveraging our enlarged regional customer franchise to drive customer engagement and lifetime value. Net credit card fees, as Ee Cheong said, saw a robust 25% year-on-year growth. We expect credit card fees to remain elevated this year as regional spending continue to surplus pre-COVID level. And now we expect it to be even higher boosted by the China reopening. Despite weak market sentiments, our asset under management increased 11% from a year ago to $154 million. Net money inflows continue to outpace the valuation decline last year, as customers gravitated to relatively safer asset class given the turbulent market. We expect wealth management fees to recover strongly in 2023 because of a lower base. Our omnichannel strategy continued to show good customer traction. I think specifically these customers are highly engaged with 3x higher average revenue generation compared to the traditional customers due to the multiple product holdings and more frequent transactions. On the wholesale side, they actually showed a good performance last year despite a challenging fourth quarter. Looking ahead, we see cross-border opportunities as economies reopen and companies diversify their supply chain. We stand ready to capture these flows with our broad ASEAN franchise and strong product capabilities. Our aim, like Ee Cheong said, is to be the #1 cross-border trade bank in ASEAN. Cross-border income grew 12%, and the number of suppliers and distributors, that's important within our financial supply chain actually rose 29% last year. Leveraging on our sector-specific insights and solutions, our global financial institution group rose 25%. While income from retail and hospitality sectors, these are the more of the traditional areas, actually rose 21%. Across the region, our cash management platform is driving higher digital adoption by our corporate customers with significant growth in transactions, volumes and cashless payments. This is one of the key factors that helped me stabilize by CASA for wholesale, okay, and generating the stability of funding. On the business by segment, I think -- we have summarized this earlier. Retail operating profit benefited from the strong deposit growth and the higher margin. Of course, with the add-on of Citi Malaysia and Thailand, coupled with the stronger credit card activities, card fees rose to record level. Wholesale, like we said, did well and saw double-digit growth last year, led by margin expansion as well as customer-related treasury income. Global Market was impacted a lot by the steeper funding costs, which more than offset the higher yields from the securities. On the geography side, we continue to see very strong momentum in Singapore and ASEAN. I think Singapore showed strong growth from margin expansion. For Thailand itself, we saw the same momentum actually margin in there such 99 basis points for the quarter, mainly because of Citi, okay? As you know, that we took in a very big part of [ unsecured ] and that actually has very high margins that actually help our business. Malaysia showed a lower operating profit for the quarter, mainly because we were increasing our IT costs to support the new enlarged franchise. Okay. Malaysia is the first that will be going into what we call the operational day 1 next year, and it actually sets the base for me to look at the regional platform for the other 4 -- 3 countries that come in later. So I think at the group level, I have summarized the financial performance. I will leave this for your own reading. I'll go straight to some of the key drivers in the next few slides. First, margins. On the back of rising interest rates, net interest income registered another quarter of double-digit growth. NIM expanded by a strong 27 basis points to reach 2.22% for the fourth quarter. I think this was partly contributed by Citi, just to be transparent, Citi added 8 basis points to this increase. We expect the such surge in NIM to ease in the coming quarters. I think we could debate where Fed funds will be, and we can take that offline. But we think that the cost of funding will slowly catch up, but we are confident, like Ee Cheong said, to close next year at current level, okay? Basically, what it means is that NIM might go up a bit in the first half before they moderate down because we do not expect Fed to be cutting rates, okay? The question is where will it be top-ish, but we don't expect them to cut rate this year. On a full year basis, NIM grew 31% year-on-year, boosted by the NIM uplift as well as the 3% loan growth. On the fee side, though, it's weaker, there are few bright spots. I think cards fees hit record high, recording the 35% growth quarter-on-quarter and 25% year-on-year. We saw very strong card activities from consumer spending as travel search across the region. So you can imagine that this only happened in the last quarter last year, the potential of that number for this year will be tremendous. The inclusion of Citi's retail business further boosted our card fees to a record level. On the other hand, wealth and fund management fees look as investors' sentiment remain cautious alongside the market volatility. Loans-related fees in the last 2 quarters moderated from some exceptionally high first half performance, while wealth momentum remains soft. As explained previously, this decline in fees was more than compensated by our NII expansion. On the other part of the income, Customer-related treasury income, like Ee Cheong, said rose to a new high with year-on-year growth of 20% as customers seek hedging opportunities, mid-market volatility. So this basically shows the investment that we did. When we look at what customer needs. In that market volatility, this is one area that we have the solution to help them hedge their risk. On the other hand, the noncustomer trading investment income suffered a little bit from the volatile market valuations, okay? This basically really would be my long-term portfolio and part of the equity holdings that I have. On the expense side, the core expense, excluding the one-off relating to the Citi acquisition, grew 16% year-on-year as we continue to invest in our people and technology to build for the people for the future. However, this was outpaced by the strong income growth and cost to income actually improved to 43.3% this year. And like Ee Cheong guided, we will bring this down to maybe closer to 42% by next year. Overall asset quality of our loan portfolio remained resilient. NPA formation was higher this quarter from a few well secured corporate accounts. This was well within management expectation, and we have adequately set aside provisions for them. NPL ratios rose marginally to 1.6% with the inclusion of the Citi's impact loans. Total credit costs increased from 16 to 21 basis points this quarter, mainly from specific allowances as we revise the valuation of our security of the existing NPLs to reflect the near-term world uncertainty. So we took our price down to reflect some of the yield liquidity that we think that we will go through. So this actually strengthens my coverage. But this was cushioned by unwinding general allowances earlier provided for and total credit costs remained stable at 20 basis points for the year. The group total allowances was $5 billion, of which $3.2 billion was general allowances. NPA coverage was at 98% or 207% after taking collateral into account. And other ratio, which we got performing loans coverage at 0.9%. I think these are all very healthy and adequate. So we are very confident that our general allowances will be sufficient to cushion any anticipated slowdown or credit loss from our portfolio. I think loans growth momentum sustained well, increasing by 5% year-on-year on a constant currency basis. The inclusion of Citi franchise lifted the ASEAN book by 11% for the quarter, around $8 billion. I think customers actually have been more cautious in the last quarter in view of the rising interest rate. So some of them look at their projects, and they think that with the rising interest rate, they might not be viable. Hence, many of them are actually not committing yet. But we remain committed to support our customers in their pursuit of business needs and trading opportunities where needed. So no business mean -- at some point, they will realize that the high interest rate is for real. So based on that, there will be viable product projects that we think, okay, will come back next year. With rising interest cost in the wholesale market, we maintain our focus on customer deposits as a major source of stable funding. Customer deposits grew steadily at 5% from a year ago. The increase was mainly in FD, okay, in Singapore in the retail space, of course. As you know, we started the FD campaign ahead of the industry. As this allowed us to capture the volume at lower rate despite some of the refinancing that happened. The average cost of outstanding FD in Singapore actually is significantly lower than the current rate should we go to the market. CASA was definitely affected. Okay. So actually, we focus our strategy on strong CASA acquisition and also to look at how we can increase digitization to understand their needs. The 16% new-to-bank customers arising from our FD campaign, okay? So this is not just losing money outflow, which is positive for us. Open a CASA account, I think, we have since focused on strategic initiatives to grow the rate of CASA through our One Account value proposition and some of you have written on it before, especially in November when we launched the revamp of our One Account. Salary credit, gyro, PayNow transactions. I think we are quite hopeful that with this, we will stabilize some of the sharp drop in the CASA, but -- and when they are -- the FDs are due for refinancing, we are able to cross-sell into them like Ee Cheong said. Our liquidity position remains strong with the quarter's LCR at 147% and NSFR at 116%, both well above the minimum regulatory requirements. I think we ended the year with a healthy CET1 at 13.3%. We have mentioned previously that the Citi acquisition will bring our CET1 by 70 basis points. I think there are much worries that will this affect my dividend paying capacity, et cetera. So I think if you think about it, we have already completed Malaysia and Thailand. These 2 are probably the biggest portfolio. Probably of that 70%, I have already taken 50% to 60% to my book. So -- and with the strong earnings and the efficient RWA management, so we managed to keep it above 13%, something which I thought that I can do end of this year. We did it last year. So -- and this was like I said, post the Citi acquisition, the 2 big markets. So I think we are really quite confident that we are able now to compete head on and look at our growth long-term strategy. I think in appreciation of the support from our shareholders, the Board is recommending a final dividend of $0.75 per share in view of our strong earnings. I think this translates to a payout ratio of around 49%. I think with that, I conclude my presentation. I'll pass it back to Wendy.

[Operator Instructions] We have the first question from [ Bloomberg ].

I wanted to check about a couple of -- a few questions, 3 actually. First is I can see that the market has reacted a little bit negatively after the results. So I wanted to understand first if you have any comment on that? And what will be your focus really for driving profit in 2023? The key focus area may be the first 3, or top 3. My second question is that what is the reason that you are seeing a higher credit cost in 2023? And the third is how do you think the overall China reopening will be helping -- will be a tailwind for your business this year?

Okay. Let me just answer you. I mean, maybe my CFO can supplement. You mentioned about market. We view it as a mixed really, but the market don't understand, you understand better our results. We -- you talk to us directly, right? And this is why we need to close the perception. I think if you look at -- exclude the onetime costs, the organic growth at $4.8 billion actually is very healthy. So by this year, all the onetime costs should be able to finish. And then by next year, I think the earnings -- see the earning potential is there, so I would think the outlook is quite positive. Now you talk about the growth engine, basically, 2 fronts. One is retail. With the Citi acquisitions that will give us tremendous opportunities, right, to grow. We added 1 million customer. And so there is one thing. You can see the credit cards trending is good. The economy is recovering and immediately, we get the customer base we won. Initially, when we acquired the Citibank customer, we were concerned that Citibank customer will be moved to other banks, but to our surprise, actually, they continue to stay with us, right? And Thailand and Malaysia is our 2 biggest markets. And you can see the momentum is picking up. And secondly, with that, we have a significant untapped potential for the wealth management business, right, given the customer base we have. And we are continuing to deepen that -- and if you heard our story last year, we have reorganized and renew our team and build capabilities for our private wealth. So all these things will be able to progress in quite well. And bear in mind all these customers in the region. And Singapore also has the benefit of getting family offices to come in, but the region is there for us. We have all the footprints. So we have a double engine for us to grow. So there is 2-part Citi acquisition wealth management. And second part is the wholesale partner. The connectivity, I believe, is getting a lot of traction. We are the first bank to do the FDI, Foreign Direct Investment. You can see the growth is actually much better than pre-COVID now, right? So that is one area, and we continue to invest our cash management, our transaction banking, our trade transaction is actually double-digit growth. So if the market continues to open up, these are the few areas that we will continue to penetrate. And in fact, we are adding more capacity, the regional cash management system in 10 cities. Right now is Hong Kong and Singapore will continue to roll up 10 more cities within ASEAN for the next few months. So these are all capability for us to attract our customer because it's important, we are competing with a domestic bank in the respective country. We have to be smarter. We have to use technology and so that we are able to reduce our cost of funds in order for us to compete. Deposit is important. Without deposit, I cannot grow, okay? Now that I have a base and Citibank portfolio is cut as unsecured. And if UOB, we have this deposit as well as secured. So the combination of both, I think, will give us a tremendous opportunity. Now what is your third question on NPL?

What is the reason you're expecting credit costs to rise in 2023?

Credit cost is -- we are always targeting about 15% to 20%, right, basis point credit cost. The actual running is maybe less, but this is just -- that's the budgeting purposes. So our running cost is actually quite decent. Citi portfolio is actually quite good.

Is it also related to the higher interest rates that you are apprehending?

Not so much. If you look at the main bulk of our exposure is still in Singapore, right? Consumer business in Singapore, you look at mortgage, that is the main concern about the mortgage with the rising interest rate. But if I can recall, 70 over -- close to 80% of our mortgage portfolio is owner occupying, okay? And if you look at the employment situation, if you look at the repayment, it's actually we have factored in when we do the loan, we factor the interest rate is at 4% to 5%. So there is no highly any stress factor. So I think it's manageable. Wai Fai If you want to...

And the 3 questions, why market reacted? I don't know. Actually I don't know. So a lot of people buy on expectation and sell in confirmation. I hope that's the case, and they're not selling on disappointment. So I suspect that's what maybe they're a little bit disappointed with the loans growth. And like Ee Cheong said, yes, we understand the fourth quarter was a bit weaker, but we expect that to pick up, especially in the region. I think there are concerns whether the recession in Europe and maybe a mild one in the U.S. will bring us down. But if you really look at the Southeast Asia economy itself, Actually, we are still seeing growth, okay? And that's worry about interest rate hiking and whether it translated into credit problem, which was your last question, we don't see that happening, okay? And we always say that one of the things about credit is not where absolute interest rate is, is whether there is a credit environment that business people find that banks will fund them and whether they can get that return. And with the improved economic activities in the region. So I was already hinting that today, yes, they think the interest rate go up, they hold back on and sell their projects. But once they come to term, the interest rate will stay higher and maybe longer, there will be viable projects because you see the economy coming back to Southeast Asia, okay? You see the supply chain shift. Okay, I won't comment on the geopolitical thing, but some of them are shifting, some of the supply chains to Southeast Asia. And in the domestic market, retail are doing well. Okay? Retail are doing well. So if you look at confidence in Singapore. We know that or may be just look at where COE is, you look at property prices, I think we are always have to -- and you look at opening up on and look at the employment situation, I think we are pretty healthy. So we don't think that there will be a deep recessions that will happen in Southeast Asia because of the economic activities. So I think the market will have to start trying to understand some of this and probably better digest it.

Look at last year, actually is quite uncertain, given the geopolitical risk. And the fact is the loan growth is not robust, partly because we are selective. And partly also because if you are a quality good customer, you want to pay down your loans, right? The last thing you want is you cannot pay down, okay? So the fact is they are paying down means, they have the capacity, right? And look at the situation, and we think the second half of this year, the loan may pick up again. If we think that the cost of fund is something that they have no choice. This is the way of life, then they will start to borrow, and if the demand is peaking. So I'm not overly concerned about the loan growth.

Also, will this loan growth that you're expecting will -- a part of it also with the China reopening? How do you think that will help you in your business expectations for this year?

Well, it's a bonus. China is reopening up. I think the tourists will start to come in. But -- for me, I think that is the potential that we all can talk about it. But I think immediately, what is real for us is the acquisition of Citibank. The customer is already with us. This is where I think I have to work on it. The potential of opening up, yes, is a good factor to have. But how good it is, we don't know yet.

So there's always a pent-up demand, right? After 3 years of closing, I would say it like a damn right, certainly opened up there will be cash -- flat or after a while, you will reach a certain level. So I think that's immediately that's definitely positive for us because tourism will definitely increase. Look at the regional countries like Thailand, Malaysia, and Indonesia, to some extent, less. They all depend on tourism or in Singapore tourism. So the retail side will be well supported -- so -- and whether -- that will also allow investments to come out because they open up, allowing business then to start traveling because if you can't travel, you won't do investments, right? You don't do big money, whether that debt will help the FDI's part that we talked about. So those -- so the other question, I would just I think, Ee Cheong, I just want to handle the credit cost question. We are not looking at increased credit cost. We are guiding 2025 as usual. We closed that -- and I think we will maintain around that end. Should something happen, we might go to 25% but I think the operating base case is 20%, and I do have enough general provisions like [indiscernible] was asking me to -- if I need to pick some of those write-backs because -- and more than adequately provided.

Next question from [ Guller ].

Thanks, Mr. Wee and Wai Fai. I've just got a question. I just wondered whether we could look back a little bit on your FDI Advisory and what sort of -- what businesses it's doing, encouraging and so on because you haven't spoken about that this year because maybe of Citi, et cetera. So that's one question. And then can I -- do you want me to go one by one or...

Why don't you finish your questions.

Okay. That's the first question. Then I think cost of funds, I mean, there's some concern among some of the analysts about cost of funds. I mean you say 2.2% NIM for this coming year. But are you expecting -- so what's the outlook for that? Is it a higher yield on your assets in the first half and then sort of the plateau, I mean, the interest rates plateau and then you have higher cost of funds in the second half? And then the other question on cost of funds. You had ATI, additional Tier 1, quite a high price. Perhaps you could explain the rationale for that one. And then in terms of outlook for your ROE and risk return on -- RWA for 2023 and 2024. Could you sort of -- you said it's going to be above expectations because of Citi, you could give better numbers. You said more than 13%. Are you close -- got to be closer to [ 15 ] something that our ROE in [ 2.5 or 3 ] question and then...

Okay. I'll leave the FDI question to Ee Cheong. There are a couple of questions that you asked in there. One is margins and cost of funding, and what was the assumption going in. I think it depends on when you ask me, my answer will be different. But today, everybody after the January -- Fed, they think that inflation will come in higher, employment is strong. Fed will keep rates a bit more elevated than previously. So you already saw the 10 years reacting, okay? You look at the 10 years in the U.S. have gone back to [ 3.9% ] at one time [ 3.95% ] moderating slightly down. from the expectation of [ 3.5% ]. So that's already an expectation that interest rates will continue to go up. So the challenge is how much and by when I think this is really the challenge. And most of the cost that we have, we think that by first half, it should be over because by then, the question then is how much would it be? Will it be elevated from the market consensus of 5% to 5.5%, which is some of that cost. If that continues to go up, then our margin will have some upside, although the increased pace will be slower, but it will be positive, okay? And after that, once they stop and our call is that we don't think that this year the fact is -- the U.S. is strong enough for them to start cutting rates. Then in the second half, we expect the cost of funds to catch up more than the pricing. So the 2.2% current level was the average level that we think that we could have some upside in the first half, moderating in the second, that's probably... The second part is our cost of funding itself. Yes, we have actually been quite confident. If you look at what we did in recent months, we didn't compete aggressively in the FD campaign compared to some of our competitors. We are very aggressive at the beginning okay? But we kept our rates around the [ 3.9% ]. We turn cross the [ 4% ]. Some of our competitors actually went up. The other part is the wholesale side has actually been surprisingly very resilient. We are very worried about funding in the subsidiaries, okay? It's actually places like Indonesia because when I don't have a franchise, how do I grow that -- and I was pleasantly surprised with all these cash management activities that they are doing and also because of the very strong commodity prices, the companies are actually doing well. They have a lot of excess funds. So my wholesale funding is a lot stronger than we were probably 10 years ago because 10 years ago on something like this, I will lose in retail, I will lose in wholesale. Yes, the wholesale people are businessmen, they will pay down and all, but the CASA ratio did not drop. It was my retail CASA ratio that dropped. So we are a little bit more hopeful that we have been able to balance outside of Singapore and then looking at that funding and the rate in Singapore itself. The good news is that we think that it has pulled down because the pace of growth, okay, it's no longer -- I mean you look at the payer strategy there, yes, it might go a bit more, but it has actually come down. That gives you the indication that the cost of funding probably will go up not as sharp a pace as we saw in the first half. So that's what we are actually quite hopeful on. The second part of your question is ROE and where the drive is. I think if you really look at it for the 2 quarters, we have been running ROE, core ROE, excluding the Citi at around 14%, okay, the last 2 quarters. The average we did was around 13%. And technically, we hope to maintain that in the short term, okay? So before the one-off expense, I think we'll get ROE, this one-off expense in 2023 may be another 50 basis points down, but we are already ahead of our original target of ROE of 14% by 2026, et cetera. So we are very hopeful that with this refocus on Citi, which is a retail portfolio, the retail portfolio ROE will be significantly higher than the wholesale. And with the cash management facilities and the growth of ASEAN, the wholesale will start contributing to actually reach it. So in the short term, core ROE this year, I hope to maintain it at current level of 14%.

Okay. One more question on the capital side. I think one of your peers said they benefit actually when they transition to Basel IV -- what's the UOB positioned on that?

Basel IV has a 5-year transition period. In between, we could benefit, but we think we are a bit neutral when we are fully implemented. So it comes to 2024, we will have to -- what I call [indiscernible] numbers. One is the transition number. One is what we call the fully loaded number. So remember, the days of CET1 transition. So during the transition, I think we'll benefit -- but at final, we have been neutral. More important is at final. Where we know that it's final would be that retail probably will go up, okay? Because the retail base today, most of us are very RWA efficient. So I think the Basel, the industry felt that, that base is too low. So they actually will raise the cap, okay? And some of it for us, we think that it could be maybe another 30%, 40% more. Some of the other banks when they are so low ROA, [ RWA ] for retail, some of it could be double the capital in retail, okay? So that's one sector. The other one is SME will benefit, okay? One of the things is that SME, we were very worried during the transition model. They put a lot of weighted stuff to pin this. But I think the way you look at the SME portfolio itself, looking at the performance, et cetera, yes, a lot better. So I think SME will be better. Then the rest of it is mix between the FIG and all. So we are probably neutral to slightly positive in the final. In the transition, we are definitely better. But the question is that we are now have to be careful that I don't lock in the interim and then I give it back at the [indiscernible]. Okay, that's what -- so I don't know what competitors say, but this is where we are. At the final, we are probably neutral. In between, yes, we are better, but we are repositioning our portfolio to make sure that at final, I don't suffer.

Maybe we'll take next question from...

[indiscernible]

Well, we started that about 10 years ago. And we have a team of people actually in 10 different cities in ASEAN. All those in the subsidiary, we have a team of people helping customers who are interested, potential investors who are interested in China, from China, from Taiwan, from Japan, interested in ASEAN. So this advisory unit will actually help, and we tied up with a law firm, tied up with the accounting firm because when investors come to this part of the world, banking is just only one product. They also have to take care of the access they also have to take care of the rules and regulations. So it's an arrangement that we have started it about 12, 15 years ago. So the traction is actually very good. We feel very proud of it. In fact, every time when we go to a country like Vietnam, Malaysia, Indonesia, we talk about. We are not there just to compete with the domestic bank. We also help to provide solution, help to create job employment. So this is something is the formula is actually fairly standard, okay? But the fact is we are known to this, the outer world people are coming to us. And we are unique in a sense, not many banks have that focused referral model. And as a result, that even I talk about the private banking, right? Some of them, they are coming in as a private banking. So we -- we -- if you look at our private banking, our cost/income ratio is about 30% compared to the industry of 60%, 70%, right? We do a lot of referral business, okay? And this is the strength of our network. And most of the organization, they still run in a very slow manner, right? You take care of yourself, someone has to take care of something. But for us, as a culture, we want to make it more holistic. We support our customer and commercial banking customer, not only loans, right? And also their own will, we set our family offices for them. We help them to plan estate, we help them to plan succession, things like that. So that is a model. It has been going on. So far it has been quite encouraging.

Let's switch it back to our colleague from [indiscernible] from [ BT ].

I just want to ask because I saw that UOB recently put a loan to Adaro. So do you have any comments on that? And how is that going to play out in your sustainability?

We generally don't finance call -- Adaro is existing client. And the terms are very ring-fenced. It's not for the core. As a rule, we don't finance...

So that loan is ring-fenced.

We are helping some good customers to transition, very important and we're also playing a stewardship law, especially for the SME customer. We want to help them together. We are not a big, big player that the whole sustainability is cut across globally, right? So we are just playing our part to help our customer to work together with our customers, have different segment of our customer that we try to penetrate there. Okay.

So in the interest of time, we will take just one more question from [ Chanya ], which I'm helping her to ask. On one-off costs, is there going to be more in 2023, given Indonesia and Vietnam integration is not done yet? And her second question is, are you still looking to attract fixed deposits this year, but do you raise so much of debt last year and CASA ratio actually dropped?

I think we'll continue to have one-off costs because like we said, it's not -- because until OD1, we call it, we still use Citi to help us. Malaysia will go OD1 probably in June, July this year. Thailand will be in 2024. Indonesia will come in by probably the last quarter of this year. And although legally for Vietnam would be in September, but this is still going to reserve. So yes, there will be some. In fact, the technology cost to support it, okay, will be higher because we'll need 2 months in 2022. So what we estimated in that $300 million, $400 million in that it might happen in 2024 -- sorry, 2023. So we'll continue -- we're trying to reduce it and accelerate the system integration, the faster we bring our system in, the less we have to pay, but that's the plan. So yes, there will be another $300 million, $400 million that you expect this year, but that's according to our plan, et cetera.

What's the other question?

FDs. I think we have to live with environment where interest rate will be high. So I always ask for to go back in time where interest rate is high, people will be a little bit more selective to make sure they don't have either money putting into CASA. So we believe that the most of it already has happened, but there will be still continue to be -- especially where we think that the interest rate environment will stay elevated for a bit longer. So I think it's only realistic, but what we are hoping for is the current trend is that the CASA outflow, okay, based on the statistics, it's still negative, but it has slowed down, okay? Because the pace of the increase in interest rate is a bit lower. So yes, I think it will happen. Still happen, but we expect that reduction in CASA to be slowing down because we have the biggest outflow in third quarter, maybe because we were very aggressive, slowed down, but still negative in the fourth. We expect it to be negative still in the first 2 quarters with debt slowing down. So yes, we think that there will still be some competition out there because some of the market players probably were needed more because they are coming in later in the game.

Thank you, CEO. That's all the time we have today. Thank you and for joining us this morning, and we wish you a good day ahead.

Okay, thanks. Thanks, everyone.

Thank you.