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

Good morning, and welcome to UOB's Full Year 2023 Results Briefing. I'm Wendy Wan from the Group Strategic Communications team, and I will be your MC for today. This morning, we have Mr. Wee Ee Cheong, UOB's 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 till after the presentations are done. [Operator Instructions] Without further ado, I will now pass the time to our CEO, Mr. Wee, please.

Okay. Thank you. Good morning. Thank you for joining us today. As you may know, our Chairman Emeritus, Dr. Wee Cho Yaw passed away in December. Dr. Wee, who is also my father, has spent more than 6 decades at the bank and was instrumental in driving its growth to be a leading regional bank. His legacy will live on the principles that he has imparted to do right by our customers and to value relationships for the long term. And he will be -- we are humble and touched by the outpouring of tributes and support, including all of you from the media. And thank you very much for your kind words and gestures. They mean a lot to the UOB team and to my family. Thank you. Now let's get back to business as usual. Now let me start off on our financial results. 2023 was a challenging year. We saw slowing demand globally, more geopolitical tensions, sticky inflation and higher interest rates. We expect some of this to perceive this year. But the impact should be manageable. In Asia, China is undergoing structural changes in its economy. Still, it delivered respectable growth in 2023, and we think there are still opportunities in targeted sectors. Nearer to home, southeast Asia remains a bright spot, growing faster than the global economy. In this region, domestic demand remains robust. Tourism is recovering well. And the region is still for [indiscernible] manufacturing investments as MNC diversified their supply chains. At UOB, our balance sheet remains strong. Our multiyear investments and our capabilities will position us well in this environment. In 2023, our enlarged scale and strength in the region have enabled us to deliver a robust set of results. Our core net profit grew 26% to a new high of $6.1 billion. In 2022, it was $4.8 billion. This was fueled by strong income growth, which shows the power of our diversified business franchise. Net interest income grew 16%, lifted by strong margin expansion of 23 basis points, while loans grew 2% in constant currency terms. Net fee income was up 4%, led by credit cards and wealth management. Trading and investment income more than doubled, supported by strong customer demand for hedging activities and positive market sentiment. Expenses remain well controlled. Our cost-to-income ratio improved. Asset quality is healthy with NPL ratio lowered at 1.5%. Our overall loan portfolio remains sound with healthy provision buffers. Total credit costs at the low end of our guidance at 25 basis points. Our balance sheet remains strong with robust CET1 and liquidity ratios. As a prudent long-term player, we focus on sustainable overall returns. We know that liquidity come at a cost. But we prioritize the strategic flexibility that comes with it and the positive impact to our total income. With this set of resilient results, the Board has recommended a final dividend of $0.85 for ordinary share, bringing our full year dividend to $1.70 per share, and this represents a payout ratio of around 50%. Now let me share some business highlights. Group retail businesses. Our retail franchise performed well across the board, positioning us well to be the bank of choice for expiring individuals in the region. Card fee income continued to grow strongly in the fourth quarter, up 21% from the third quarter to a record $125 million. For the full year, card fee increased 66%, a reflection of our expanded regional franchise. It is also a good indication that consumers are spending, a trend that should continue this year. I made cautious investor sentiments, wealth management income rose 13%, supported by our growing bancassurance market shares and a pickup in demand for fixed income products. Net new money continue to grow, bringing total AUM to $176 billion. This year, our focus is to encourage customers to shift their funds towards wealth management products as their fixed deposits mature. Our Citi integration is on track. We have successfully integrated our portfolios in Malaysia and Indonesia. By the second quarter, we would have integrated the Thailand portfolio. Our strategy now is to focus on cross-sell synergies, and we aim to uplift customer spend and strengthen deposit balances and investments. We continue to leverage data, tech and our human expertise to create a personalized banking experience for our customers. Our digital bank UOB TMRW has allowed us to deepen engagement with customers across the region. We will continue to develop new capabilities to enhance their experiences and customers can expect more digital offerings this year. Our wholesale banking business delivered a strong set of results. We continue to build our customer franchise and diversified growth engines while playing to our strength in connectivity. Cross-border income grew 9% year-on-year, accounting for 25% of total wholesale income. Transaction banking income is now more than half of total wholesale banking income. Customer-related trading and investment income is up 9%. The credit growth outlook remains soft for the first half of this year, but we will continue to focus on quality clients. Our multiyear investments have boosted out capacity to grow and to seize opportunities from the supply chain shift. Our ambition is to be the #1 cross-border trade bank in Asia. We differentiate ourselves by our strong connectivity and deep sector expertise in key -- in 7 key areas that drive about 70% of Greater China and ASEAN FDI and trade flows. We see encouraging signs of activity in the region. For example, we welcome the recent announcement on the Johor special economic zone. This will benefit companies across all sectors in Singapore and Malaysia, creating opportunities for the entire supply chain. With our strong regional network and enhanced platform capabilities, I believe UOB is well positioned to support our clients to capture these opportunities. Now sustainability. As at the end of last year, we have extended $44.5 billion in sustainable financing. We see more sustainable finance adoption from green buildings to sector-wide economic activities. Sustainable trade finance has also started to gain traction. We continue to support clients in their decarbonization efforts. We are making steady progress on our net zero commitment. The emission pathways for all our priority sectors are trading well. On the CSR front, we continue to step up community efforts through our hybrid programs. We also recently extended our partnership with national gallery Singapore to promote Southeast Asian Art. UOB is well positioned to benefit from ASEAN's strategic growth in global supply chains and its rising middle income. Everyone can talk about connectivity, but without an effective operating infrastructure, it will be difficult. We have gone through that journey in the last 8 years. We have spent $800 million to build capabilities, regional payments, trade and cash platform, which are now powering our connectivity business. Since 2011, long before the China Plus One strategy, we have put in place one-stop foreign direct investment advisory services to support businesses navigating the diverse ASEAN landscape. We are seeing early indication of this connectivity and other opportunities in our recent results. With our enlarged customer franchise, retail customer franchise and ASEAN benefiting from increased activities in transition, finance, trade and FDI flow, we see an improving outlook for 2024. Now for this year, our guidance is low single-digit loan growth with a focus on high-quality customers. Double-digit fee growth led by retail franchise in cards and wealth, total income to be positive from 2023 levels, core cost-to-income ratio at around 41% to 42% on cost discipline with onetime Citi integration costs to roll off substantially by second half. Total credit costs at lower end of 25 to 30 basis points. Investing across our franchise remains a key priority so that we deliver stable and balanced growth through market cycles. And this includes investing in our people. This year, we will provide our junior employees some 6,000 of them group-wide an extra 1 month bonus on a one-off basis. These colleagues are the most vulnerable group impacted by higher cost of living. We always ensure that our pay and benefits to all employees are fair and market competitive. As part of our philosophy of doing right by our people, I thank my colleagues for their teamwork and dedication. And now I move over to Wai Fai to elaborate on our financials. Thank you.

Thank you, Ee Cheong. Once again, good morning to everyone. Okay. Let me give you some colors of our financials. Our full year core profit increased 28% to a record $6.1 billion with core ROE at 14.2%. Quarter-on-quarter, core net profit sustained at $1.5 billion including the one-off expenses from the Citi integration, net profit would be $5.7 billion for the year and $1.4 billion for the quarter. Net interest margin moderated to 2.02% this quarter as the increase in cost of deposits outpaced the yield on loans as we remain cautious to support only quality customers. Fees income eased as loss related fees normalized from the previous quarter hike. However, credit card fees as well as the strong performance from the treasury customer flows trading and liquidity management activities. For the full year, cost-to-income ratio, excluding the one-off expenses, improved to 41.5% as the broad based spending was outpaced by the strong income growth. Asset quality remained resilient with NPL ratios improving to 1.5%. Our credit cost at 25 basis points was within our expectation. Our capital and liquidity position remains strong with CET1 at 13.4% and NSFR at 120%, respectively. Like my CEO said, board has proposed a final dividend of $0.85 per share in view of the strong earnings. Let me give you some more colors. Our core franchise performed well. Year-on-year, retail operating profit increased on an enlarged franchise with record credit card fees and higher interest rates. Wholesale also saw growth from last year, driven by margin expansion and record investment banking fees, which cushioned the softer credit demand. Global market was impacted by the steeper funding costs, which more than offset the higher returns that we got from commodity trading and liquidity management. For the consumer side, the entire Citi acquisition has been successfully completed in all 4 ASEAN countries. I'm talking about the legal integration. For Malaysia and Indonesia, we have operationally integrated them. And like Ee Cheong said, we will do that by the second quarter for Thailand this year. So by this year, the whole consumer platform will operate on an integrated basis. At the end of last year, our retail customer count has surpassed 8 million including the integration of the Citi portfolio, which brought in additional 400,000 customers. Organically, we acquired close to 1 million new-to-bank customers during the year, which was 14% higher than the previous year. Our credit card fees surged 2.1% to another record high, driven by contribution from the enlarged portfolio and robust consumer spending throughout the region. Our increased presence has also enabled us to forge strategic partnerships with established brands across the region. This firmly position us to achieve our ambition of becoming the preferred bank for expiring ASEAN customers. Overall, our brand performance has also significantly gone up across our key markets. especially in Thailand, Indonesia and Vietnam. UOB was also ranked among the Singapore's strongest brand within the top 500 -- world 500 most valuable brands in the world. The growth in our assets under management continued to be robust. We saw another $5 billion net new money inflows in the fourth quarter, bringing our assets under management up 14% to $176 billion. Our wholesale business did well with operating profit up 15% year-on-year. Cross-border income was up 9%. Our strong product suite, resulting from our infrastructure investments over the year, accelerated our reach into the region, putting us in a strong position to capture a larger share of cross-border trade transactions within the ASEAN region. A number of suppliers and distributors within our financial supply chain management grew 43% in 2023. This base is expected to expand following the rollout of our FSCM platform across ASEAN market only last year in 2023. Our cash management platform is also seeing higher digital adoption with robust growth transaction volumes and cashless payment. As mentioned in my earlier slides, our core engine is strong as full year core profit rose 26%, driven by strong net interest income, robust customer fees income and trading and investment income. Fourth quarter core profit at $1.5 billion is stable from last quarter and 7% higher than a year ago. Let me go through the next slides in details. Okay. Net interest income was relatively unchanged from last quarter. There was pressure on loans margin due to competition for good quality credits. A sale has picked up in deposit cost of funding. As you are aware, we have been investing our excess U.S. dollar liquidity into SGX [indiscernible], which impacted our NIM. In addition, we have been funding our overseas branches with our strong Sing dollars and U.S. dollars deposit base. The resultant funding cost for us is often cheaper than the domestic interbank wholesale funding. However, the FX drop is reflected in the trading investment line. If this were included, it would have added another 10 basis points to NIM for the year. We will collectively -- we will continue to actively manage our balance sheet so as to ease the cost of funding and selectively lock in opportunities in the long-term assets before the rates come down. Fees income is -- as loans and trade-related fees normalized from the last quarter high. However, credit card fees continued its strong momentum to register another new record, boosted by the year-end holiday spending on an enlarged regional base. Wealth fees also recovered as the market outlook becomes clearer. Customer-related treasury income sustained its momentum with a slight decrease in the seasonal demand in the customer hedging activities. Trading and investment management activities continued to do well. Full year core expenses rose 15% to $5.8 billion. The broad based growth was outpaced by the income growth, and cost-to-income ratio improved to 41.5%. Staff costs rose 17%, mainly due to the integration of the Citi. I think even if you look at the UOB stand-alone, we will also have increased 12%. For this year, we expect the growth to be moderated to keep pace with income growth. We continue to exercise strong discipline in spending,, along with the cost synergies from the Citi integration, we expect the cost/income ratio to stabilize at the 41% to 42% range. The overall asset quality of our loan portfolio remained resilient and NPL ratios declined to 1.5% for the quarter. New NPA formation is within expectation, but with the higher recoveries and write-offs, total NPA reduced to $4.9 billion this quarter. Credit costs remained manageable. Our prudent approach in recognizing more of the specific allowance in the earlier quarters cushion us from the continued worry about certain sectors in the economy. The full year credit cost of the 5 basis points was within our expectation as per our earlier guidance. As at December '23, group total allowance stood at $5 billion, of which $3 billion was in general provision. Total NPA coverage is down 102% and 209% after taking collateral into account. We are confident we have sufficient reserve buffers to absorb potential losses from our credit portfolio. Core operating profit for the full year increased 24%, we've grown in across most markets. The ASEAN-4 franchise was boosted by the inclusion of Citi, recording an overall 25% growth for the year. North Asia and the rest of the world registered higher trading and investment income. Loans momentum continued to be muted due to the uncertain macro environment. However, on a constant currency basis, loans grew 1% for the quarter and 2% for the year. In view of the uncertainties ahead, we maintain our focus on short term and good quality credits. Customer deposits rose steadily by 1% quarter-on-quarter and 5% year-on-year. CASA to total deposits improved to 48.9%. The increase in customer deposits will allow the bank to do more cross-selling opportunities to further boost our fee income as we now understand their needs a lot better. Our liquidity position remains strong with the quarter LCR at 157% and NSFR at 120%, both above the minimum regulatory requirement. Post the legal completion of the Citi acquisition for 4 countries will remain well capitalized, with a healthy CET1 at 13.4%. So in appreciation of the support from our shareholders, the Board is recommending a final dividend of $0.85 per ordinary share. Including the interim dividend of $0.85, total dividend per share for the full year now amounts to $1.70, representing a dividend payout ratio of 50%. With that, I pass my presentation back to Wendy.

Thank you, Mr. Lee. [Operator Instructions] We will now start off with those in the room with us. First question. First question from Bloomberg, please.

I have questions for Mr. Wee, please. It's Sheryl from Bloomberg. So with the passing of your further questions around succession and shareholding are becoming more pertinent. So the first question is on succession. Is anyone from the next generation that is the late Dr. Wee's grandchildren involved in the bank or has aspirations of doing so? How long will UOB remain a family-run bank? And what's your view on an outsider succeeding you? The second question is on shareholding. What will happen to Dr. Wee's stake in UOB? And the last question is -- are related to these issues. What's your view on China and Hong Kong's economic trends and UOB's plans for its exposure?

Well, I think all the questions you have is all in my mind, okay? My father has not involved in the operation for, I think, a good 8 to 10 years, okay? So the management continue to do what we are doing. What you see the results here is a reflection. Yes, he planted the seed, he created the right value, right principle for the organization. This is what we have always guided to. But as far as earnings is concerned, the young management is already taking over, okay? Well, his stake is -- well, most of the stake is already in a family companies, okay, his personal stake ultimately will have to, I hope, it would distribute out to the children, the grandchildren. So hopefully, they can remember there is a legacy asset given by their grandfather or great grandfather. We talk about succession planning. We are growing our own timber. Yes, if the family members are interested, they are more than welcome, but I think they need patience, they need love, they need the desire to be part of the team. But in the meantime, I'm growing my teamwork professionally. There is a team of younger colleagues who are more than happy to look forward, but important is the culture of the organization, which is something that we are working very hard on. It's always a people business. Now I hope I answered all the questions. But when it comes to Hong Kong and China, I think -- don't underestimate China. I think if you listen to the Western media, they all think China is very bad. You are from Bloomberg. And I think yes, there is some short term pain in China, right? The property market could be an overbuilt situation, the confident level may run a bit lower, but generally, I will say, if you look at the Chinese people I talk to, they're enterprising, they're hungry, it's no different than when you talk to a company, but it's a people behind it. And I'm still very hopeful the policy can change. These are all man-made policies, but it's the people behind. In China, they are very enterprising. You can see they're all over the place. There not only in China, in Southeast Asia, in ASEAN. You look at our FDI, we started FDI 11 years ago. I would say 50% are Chinese companies coming to our part of the world. And even in ASEAN, you have 60 million Chinese descendant, people like myself, we're all from China, okay? And I think we will make things happen, a bit more patient. China is a big country. I'm still very hopeful, and China is important to ASEAN market. Without China, I think ASEAN will not be today. So the growth is still there, 5%, right? Even if they go down a little bit, but I think it still grow. It's a big country. So I'm still very optimistic. Thank you.

Thank you, Sheryl. Can we take the next question from the Straits Times.

Just a follow-up on China, Mr. Wee. You mentioned just now that you see opportunities in targeted sectors. So what are that some of these sectors that the bank is eyeing? And also maybe could you give the color about the bank's current exposure to China real estate and whether it's worried about this. Also, a question on the one-off bonus payments to staff. How much is this expected to cost the bank? And the third question on global partnerships. I think you've announced that you do 2 global partnerships every year for concert. So any idea of the scale of the others coming this year and the groups of customers? You hope to cater to and our further boost credit card fees as well?

Okay. I'll answer a simple one first. When it comes to the exposure, I just want to be effectually right, I leave it to my CFO. Yes, I think I -- given the size of our retail business of the acquisition of Citibank, we have in aggregate, we're talking about $8 million. And we will continue to grow, hopefully, the next 1, 2 years, we will hit $10 million because I think the momentum is quite strong. We will continue to add activities to continue to protect the franchise that we have. Yes, there are two reasons, one last week I was at assurance, 60,000. And so more than 50% are UOB cardholders, right? So I think why 50%, it could be 70%, 80%, right? So this is something we work on. And in early March will be [indiscernible]. Again, the response was very good. And I'm quite excited about the response. So I will continue to -- our people are also excited, not me, okay? So we will continue to engage some of the big marketing firm to see how we can help. Because at the end of the day, it's the customer base they are looking for, right? And we cut across the region. Whoever want to come, not to Singapore, come to Malaysia, Thailand, Indonesia, you look at assurance in Malaysia, in Thailand. So given our Southeast Asia footprint, I think we are in a good position to negotiate. Now in China property, I believe, it's a very small percentage. Wai Fai, you want to...

So when we look at Mainland China real estate exposure, I think it's around [ $200 billion ] less than 4%, but you deep drive that into more details. A small part is what we really worry about, the China, China exposure, okay? That is less than $3 billion, okay? And that number has not increased, in fact, it came down slightly. The rest of it are really what we call network customers like have Singapore, Singapore companies operating in China, The Kaplan or whatever, then we have Hong Kong. Even the U.S., other data centers in U.K. So when you get really, really worried is the Hong -- China, China exposure. That's less than $3 billion. And we actually have deep dived into this, two things: number one, this -- the LTV is actually very low, okay? It's way below 50%. So the collateral support is actually very strong. Yes, you can talk about collateral value coming down and all. But I actually have a 50% buffer. The other part is they are actually outperforming, okay? Because if not, we have downgraded them. But when we went into the details, all this are actually performing 1 or 2 slight ones based on the margin, which will but majority of it, okay. So we don't think that the China exposure will have a big impact because for those that, in fact, we have already heavily provided for it, for the rest, like I said, really network customer. And so long as the -- of course, now there is China closing up that is slightly affecting that. But over longer term, as Ee Cheong said, there are actually activities coming back. I mean if you look at the domestic travels and all, which is the one now overtaking some of the foreign travels. So a lot of the domestic hotels, they are actually doing okay. So yes, there's some worry, but I think we have prudently already provided for that or actually have enough reserves that were buffer after that. So I'm not really worried about it.

I think this is a question often, Lee asks, right? You look at one just China, U.S. too, right? We have actually anticipated that a few years ago. You look at our SPs actually coming down. So it's not a major concern. Of course, the concern is I hope the economy will pick up sooner. But other than that, as far as the bank is concerned, I think we have adequate provisions to overcome this.

I also had a question about the one-off bonus to staff. How much is that expected to cost the bank? And also notice that 600 of 6,000 employees in Singapore. So could you explain why the number is relatively small compared to the...

I know when we want to do something, you offhand is something that we -- UOB will a few million dollars or it could be more, but it doesn't matter as long as -- as far as I'm concerned, these are the junior people, inflation is high, and the bank is making good profit. I think we are here to help them, okay? The number we can make it back. I don't worry, okay? I can make that -- I can earn it back, but I want to help them.

Le Cheong, it's less than 10 million not only Singapore, but also with the group.

Across the group. So we are talking about Singapore, I think will be 600 people in Singapore, the junior staff and across the group.

Thank you [indiscernible]. The next is question from [indiscernible].

So firstly, congratulations on a year, another outstanding results. My name is [indiscernible]. I'm from [indiscernible]. And my first question is the retail banking is obviously one of our main pay business that we pride ourselves on for years, if not decades. So I'm just wondering in the wake of an increasing number of new entrants in this sector, specifically from a digital space, how big is the market share impact to us in the retail banking sector? That's the first question.

Well, I think the digital bank, yes, it was -- initially, it was a threat. But I think given time -- well, I still see that as a threat, but I think it's increasingly less so, right? Because most of the domestic bank in Singapore, we also build out our capabilities. You look at our digital initiative TMRW, we actually gained a lot of traction. So I'm worried in a sense because they are more flexible. It's something that we should learn from them, but I think given banking is not just digital initiative, it's a trust business. I think today, with the scan, with all this thing, I think banks generally are a lot more secure. So the attrition rate is actually not that high. Yes, I'm concerned, but I'd like to learn from them, the flexibility. But generally, I would say we are able to hold ourselves quite well.

Yes. That sounds really encouraging. The other question is somewhat related is, I would like to have some color on some examples of digitalization efforts that we are putting in and how big do we expect related CapEx to be on a yearly basis?

Okay. I think two things that we invest in. One is the platform. Second is product capability. And I think we have been investing just in TMRW itself. We talk about the $500 million to $700 million over the last few years, setting that platform. And I think that's where the most investment would be. And now we are actually putting products. And the good thing about it is that 70% of our retail customers are digitally savvy, okay? We did that analysis with -- okay, with the Citibank coming in, Citibank a little bit higher, okay, around 80-odd percent. So there's a lot of opportunities for us to actually use that. And by using that, there is a few advantage. One is increased customer service because although people complain about coming to the bank, if we surprised they still want to come to a bank to complain about the scams. So now we're actually balancing the -- picking out the operation and refocusing our channels to support either advisory or some of those issues that are lot not predicated. The second part that we are investing really is the ability to get data to enhance it. Like Ee Cheong said, the cross-sell opportunities is actually very great. One of the questions often asked to us is that why do you want taking people FDs? Because to us is -- number one is I don't lose money because whenever I take in, I still can place it out. More important is that the analysis because we understand the profile. So we know that the stands now a huge percentage will succeed in cross-selling. There are certain percentage they are tied FDs. We have many of those in that range, and there are certain percentage, a smaller percentage that FD shoppers. They will move because of 1%, 2% and they are single products. So at least we know that we can actually look at analysis and target the right customer segment and the right opportunities. Then how do I incentivize those that we think we can cross-sell into? And what else do we need to do to lead to that? So that's just probably where we are. I think the heavy investments into our platform has been done, okay? I mean this was a real issue really for us 5, 10 years ago. Now a lot less because of our capabilities. And like Ee Cheong said, we actually saw a swing in customer sentiment. Previously, people only look at flexibility, look at ease, now people also look at safety security. And that actually swings a lot of the trust element back to bank. At least we have been around now 80 coming to 90 years, okay? They know that and with the MAS strictness on us, they feel a lot more secure. So some of those are extreme market sentiment. But we have to continue, like Ee Cheong said, look at what they do to make sure that we don't lose the customer engagement and peace to them, and that's what we are doing. So we look at customer survey. We look at the survey from customers where they are unhappy with us, then we take that very seriously [indiscernible].

And since this is the first time and you are new, I think let me just repeat. We have a centralized infrastructure for technology, right? This is why you look at the TMRW initiative. We started, actually -- we started in Thailand because it's a big market. And we are using technology to penetrate the market. And it was quite successful, then we roll it out to Indonesia. It took us about 14 months, right. From Thailand, we moved to Indonesia. And Singapore, it took us 9 months. Why we are able to do that fast to set up a digital bank in different countries? Because we centralize. Once you centralize, it's easy for you to replicate. And now we're into Malaysia and the next thing will be Vietnam. So we want to see the whole region using our technology platform to improve our productivity, right? Because people is the key challenge. It's not easy to get good quality people. We are using AI. We are using all the technology platform to see how we can standardize a lot of processes and customer service. Once you have a big customer base, I always believe strategically it's the most important is to get good customer service, okay? And this is something I think there is still room for us to improve. And we want to be the #1 in customer service given our Southeast Asia platform. It will come. It will come, but it's a matter of time.

Okay. We have one question online. We have one from Reuters.

This is [indiscernible] from Reuters. We would like to hear your views on the latest Singapore budget announcement about the new corporate taxes to be implemented in 2025? And what kind of impact do you see from a financial sector perspective on this new tax? And what is, for example, you will be planning to do in response to this?

Well, I think I will just make a very general statement. I welcome the prudent, inclusive and business-friendly budget to support growth for Singapore. I think end of the day, Singapore -- I believe the tailwind is strong for Singapore, okay? There are so many family offices coming to Singapore. There are so many people asking me to help, asking the government to apply for PR, to apply for citizenship. The tailwind is strong. The question now is how to translate into business opportunity for Singapore? How to create home for younger generations. How do we work in ASEAN, right, to make Singapore viable -- small and yet viable city? Now in terms of specifics, I think Wai Fai, you have any specific in terms of budget, in terms of number that will benefit the bank?

So I think if you look at this budget itself, it didn't go into a lot of tax incentive to incentivize ourselves as a capital market for previous years. I don't know maybe your question you're asking for is the tax equalization of 15% by 2025 and what's the implication to us. You look at my overall corporate rate, tax rate is already 17%, 18%, okay? Because those that are outside of Singapore that need a higher tax rate. So they are actually not effect not really that much affected. And also of Singapore that is less incentive like Singapore to develop ourselves as a capital market and a financial center. So the main difference will be back into Singapore itself. Most of the previous incentives that will bring in a lot substantially lower than the 15% will be in the areas of capital market and time management development. We have some of those, and we are watching that, but we are technically not that big. So my overall effective tax rate in Singapore will not be that much affected. There will be some implications on north Singapore, but where we park investments into what we call tax haven countries, okay? I think both will change. Okay, those will change. So for us, operationally, we are looking how to improve it. We're having a team to look at the differentiation, but I think the impact to us is not as big as somebody who is very big in the treasury and the capital market space, which we are less aggressive on.

And [indiscernible]

I've got two quite broad questions. The first one, since we're talking about the budget, I mean there's some support that was announced for SMEs. And I'm just wondering whether UOB benefits from that in the next many years, for instance, reduced risk weight or something like that, that would help the bank?

Yes. If you look at the new Basel IV, that will benefit the SME segment. that will take, I think, maybe the next 1, 2 years to see the benefit, okay? So I believe globally, every government want to promote SMB because SMB is a backbone of any country economy, right? In Singapore, if you look at SMB, tick up maybe 60%, 70% of the workforce. So I think that is strategically very important to -- not so much help to give confident, encourage okay? You see how we can do better.

And then the second question was -- okay, the second question relates to ASEAN because you said that you wanted to be the on trade finance bank in ASEAN. So is that, I mean, will you at some point sort of lay out the strategy for that? I mean do you need new infrastructure or anything like that?

Well, as I said, we already invested very heavily, $800 million over many years to make sure that we get our connectivity right. It is complex, but I think the system is already ready. We are rolling out and the traction is quite good. But it takes time to roll out the business and to be number #1 in exploration, but strict number is huge, right? We want to capture as much as possible, right? And that also, in a way, reduce our [indiscernible], okay, because it's trade? So this is something, I think this is one of the initiative for wholesale bank. You can see the cash management will take up half of the wholesale business already today, okay? So we'll continue to drive that initiative. And we have a big team of people focusing on that.

Staying with ASEAN I mean one of your peers has expressed the desire also to be bank to be the ASEAN bank of choice. So what are you doing about what competition?

Competition is over, okay. I mean I don't know which peer you're looking at. We have so many peers in Singapore, you have Hanover banks in Singapore. I think end of the day, you have to be a long-term player. You have to be very forward-looking. And the good thing about the bank is my senior management has been with the bank for many, many years, okay? So our vision remains -- having a vision is one thing, but you have to make sure you execute it, right? You have to have the stamina. If you're marathon runner, you know that. You just have to make sure you do the right thing, and the benefit will come not immediate. It may look ugly from the overhead income standpoint. Why are you overinvest? But I think now we are getting the benefit. It's so different than a few months ago, I know you asked me about the NIM and all this liquidity. Today, people focusing on NIM again, but a few quarters ago, I look at my reports. Everyone was so concerned about liquidity with the Silicon Valley Bank collapse. Today, we have too much liquidity. And frankly liquidity NIM is a function of how much liquidity you want, okay? So I think it's important. We want to make sure our balance sheet is there. As my CFO will say, we are focusing on total income. NIM, yes, short term, you will sacrifice the NIM. But in the long term, you will translate into more customer base, more fee able to generate. So you have to look at things in the medium to long term, right, rather than every quarter, you say, "Hey, what happened to your NIM? Yes.

But what has happened to your NIM?

Yes, NIM because we have...

Deposits -- too many deposits.

Yes. Maybe we have AAA country. A lot of people want to put money with us. Maybe we can deploy it in a -- and the loan is not growing, okay? And we are taking a slightly different view because we think interest rate is coming down, right? So why should I go and lock into the long term, right? So this is something that we took a view, maybe in some sacrifice. But if you focus on total income, it's still okay.

Okay. So you didn't give a guidance for NIM this...

Yes. I think we will still continue to hold around 2%. This is our guidance, okay?

So I think I just wanted to put some context into that explaining. We look at funding on a more holistic basis. There were concerns over liquidity a few months ago. There's less concerned now. Okay. So -- and it's very clear on the declining interest rate environment. The ability to manage cost of deposits will be more important than the ability to manage yield because there's no market demand. So now the challenge we have is to sustain the NIM. We have to manage aggressively our deposit base. So some of you have noticed 2 years -- 2 days ago, we just cut our rate because we are the first to test the market on the way up. Now we're the first to test the market on the way down. And the ability and whoever that can manage that a bit better will come out a winner. But we are quite happy with the structure of our deposit base. One is that if you look at the CASA ratio, there were a lot of concerns that the stability of that, and our CASA ratio has been increasing. In fact, the whole of last year, absolute CASA has already turned, okay, my wholesale part, which is the investment that Ee Cheong talked about. The wholesale CASA is actually more than 50%, higher than the retail CASA. That gives us a lot of comfort because at least you're big players, are actually putting in the sensitive FD rates itself is something now that we are looking at. So there are a few things that we really look at. Second is whether you have to extend duration, which is another play that you get, which is in the security book, so you have to extent. And our views were that is still a bit uncertain today, but we started extending that the second half of last year. Even now, you look at the U.S. rates, it can drop and then now you went back a yesterday, depending on where the inflation will be. So we are as sensitive to make sure that we have certain benchmark rate. If it doesn't, then we will sacrifice because don't forget that in Singapore, we actually have an inverse new curve the shape that I place today is actually give me as much return, a lot better than the long term that we have to position our structural book for the turning interest rate. So extending that is actually something that we look at, looking at opportunities, looking at which -- where we see the U.S. rates would be, and what does it mean to the Sing because the correlation between the Sing and the U.S. rates today is not as clear straightforward as previously. So those are things that we look at, we will do above all the rest, but you will see a lot of activities managing cost of funding, okay? Because I mean I do want to got away that -- it's not a concern. It is because on the rising interest rate. Are we on the declining interest rate? You will drop faster, so I have to manage cost of funding. And that's the way we are. We are comfortable managing the structural book. Sometimes sacrificing some NIM in the short term, but protecting that outlook that NIM will correct sometime in the second half. So this part, you might see some sacrifice for the next 1, 2 quarters, looking at the turnaround. But for the year, I think we, okay, we look at liquidity. Of course, Today, we have a lot more comfort with the liquidity position. We are to be aggressively take some risk on that at the expense of some deposits outflow, which we don't need okay? So I think that's where we are. Previously, we were worried about the deposit outflow because of liquidity. Today, we have more confidence and the stability of our book has increased, because the CASA base has actually increased, et cetera. But that gives us a lot more to take more aggressive action, and you'll see some of that coming out this year.

So the CASA base has increased because of the wholesale side -- both sides. So on the transactional banking side, have you've been getting more of those transactions accounts?

Because of technology, our infrastructure because to put the CASA means you have to make sure that the whole process is automated, right? So that takes time to build.

So we're always worry about the wholesale base actually less than the retail rate. And I go back in time when I look at the last crisis, the wholesale CASA ratio was 30-odd percent. We have 50-odd percent. That shows the power of the investments that we get for people to put it in. Because as I said they use it for their transaction working capital and the ability, and people will sit. And we have to realize and have to understand that because nobody will keep big free float in CASA, but the ability to manage and help customers, how to optimize that is what the cash management system is helping customers. So people will tend to keep a bit more because you have more transaction review, our pace will be bigger. And that's what's happening today.

Thank you, [indiscernible]. Thank you for the comprehensive discussion this morning, especially from some of our new friends here. Unfortunately, that's the time we have for today. Yes. Thank you for joining us this morning, and we wish you a good day ahead. Thank you.