Dbs Group Hldgs Ltd Ord

Good morning, everyone, and welcome to DBS's third quarter financial results briefing. This morning, we announced 3Q net profit rose 18% to $2.63 billion, and nine-month net profit increased 35% to a new high of $7.89 billion. To tell us more, we have our CEO, Piyush Gupta, and our CFO, Ching Sok Huy. So without further ado, Sok Huy, please. Thank you.

Good morning, everyone. We achieved record total income in the third quarter and new highs for nine-month net profit and ROE. For the third quarter, net profit increased 18% from a year ago to $2.63 billion, while total income rose 16% to a new high of $5.19 billion. Growth in the commercial book was broad-based. Net interest margin expanded 52 basis points from higher rates, while net fee income grew 9% year-on-year from an increase in wealth management, cards and loan-related fees. Treasury customer sales and other income were up 8%. The growth in the commercial book was moderated by a 38% decline in Treasury markets' income due to higher funding costs. For the nine months, net profit grew 35% to a new high of $7.89 billion, with ROE at a record 18.6%. Total income rose 27% to $15.2 billion as higher commercial book net interest margin and non-interest income was moderated by lower Treasury markets' income. The cost-to-income ratio improved 4 percentage points to 39%. Asset quality remained healthy, with the NPL ratio little change from the previous quarter at 1.2%. Specific allowances rose to 18 basis points as allowances were prudently taken for exposures linked to a recent money laundering case in Singapore. Allowance coverage was high at 125% and 216% after considering collateral. Capital remained healthy, with CET1 unchanged from the previous quarter at 14.1%. In August, Citi Taiwan was consolidated, making DBS the largest foreign bank by assets in Taiwan, with leading positions in deposits, cards and investments. The consolidation also added $10 billion to loans, $12 billion to deposits, $2.7 million in credit card accounts and over $8 billion to investment assets under management. For the third quarter, the Board declared a dividend of $0.48. Slide 3. Compared to a year ago, Third quarter commercial book total income increased 19% to $5.03 billion. Net interest income rose 23% or $695 million to $3.68 billion as net interest margin expanded 52 basis points to 2.82% from higher interest rates. Non-interest income growth was sustained. Fees grew 9% or $72 million to $843 million, while other non-interest income was 8% or $37 million higher at $499 million. The increase in the commercial book was partially offset by a 38% decline in Treasury markets' income to $166 million due to higher funding costs. Expenses rose 12% from higher staff costs and the consolidation of City Taiwan. Underlying expenses were 10% higher equity. The cost-to-income ratio was little changed at 39%. Specific allowances rose from a low base to $197 million, or 18 basis points of loans. General allowances of $18 million were taken, compared to $153 million taken a year ago. Compared to the previous quarter, commercial book net interest income rose 3% or $103 million from an increase in commercial book interest-bearing assets and a one basis point expansion in net interest margin. Loans grew 1% or $5 billion in constant currency terms to $420 billion due to CityTaiwan. while underlying loans were 1% lower. Deposits grew 2% to $531 billion from CityTaiwan, while underlying deposits were unchanged. Non-interest income growth was broad-based. Net fee income was up 2%, or $20 million, while other non-interest income rose 8%, or $35 million from an increase in Treasury customer sales. Expenses rose 6%, or $107 million. Excluding City Taiwan, underlying expenses grew 4% from higher staff costs. Specific allowance rose $83 million. General allowances of $18 million were taken compared to a write-back of $42 million in the previous quarter. Slide 5. For the nine months, net profit rose 35% to a new high of $7.89 billion, with ROE at a record 18.6%. Commercial book total income rose 33% to $14.6 billion. Net interest income rose 46%, or $3.34 billion, to $10.6 billion from an 83 basis point expansion in net interest margin. Net fee income rose 4%, or $87 million to $2.52 billion, as growth in the second and third quarters more than offset a decline in the first quarter. Other non-interest income rose 16%, or $197 million to $1.4 billion, as Treasury customer sales rose to a record. The strong commercial book performance was partially offset by a 37% or $358 million decline in Treasury markets' income to $612 million due to higher funding costs. This view of Treasury markets which combines net interest income and non-interest income is the most relevant measure of Treasury markets' performance as there are offsets between net interest income and non-interest income lines due to accounting asymmetry, for example, in equity and FX swap products. Expenses rose 14% or $724 million to $5.85 billion due to higher staff costs. With total income growing 27%, there was positive jaw of 13 percentage points, which resulted in cost-to-income ratio improving by 4 percentage points to 39%. Specific allowances rose $112 million to $373 million, or 11 basis points of loans. while $75 million of general allowances were taken compared to $18 million a year ago. Commercial book net interest income rose 3% to $3.68 billion compared to the previous quarter, as net interest margin was one basis point higher and commercial book interest-bearing assets grew 1% or $7 billion due to CityTaiwan. Compared to a year ago, commercial book net interest income rose 23%, and net interest margin expanded 52 basis points to 2.82%. Combining the commercial book and Treasury markets, the group net interest income rose 2% from the previous quarter. Net interest margin expanded by a faster 3 basis points to 2.19%. half of the expansion was driven by the commercial book the other half was due to a decline in treasury markets assets which reduced the drag on group net interest margin compared to a year ago net interest income rose 16 percent as net interest margin expanded 29 basis points For the nine months, commercial book net interest income increased 46% to $10.6 billion from an 83 basis point improvement in net interest margin to 2.77%. Group net interest income was 33% higher at $10.2 billion as net interest margin rose 51 basis points to 2.16%. Treasury market's net interest income was negative for the third quarter and nine months. As mentioned earlier, this has to be viewed together with non-interest income to provide a relevant measure on Treasury market's performance. Slide 7. During the quarter, loans grew 1% or $5 billion in constant currency terms from the consolidation of City Taiwan, which added $10 billion of loans. Trade loans contracted due to unattractive pricing, while non-trade corporate loans were lower due to higher repayments. Consumer loans were also lower by $1 billion. Over the nine months, loans declined $5 billion, excluding CityTaiwan, as growth in non-trade corporate loans was more than offset by a contraction in trade loans. During the quarter, deposits grew 2% or $12 billion in constant currency terms from the consolidation of CityTaiwan. Excluding City Taiwan, underlying deposits were unchanged, as CASA outflows were replaced by fixed deposits. Liquidity was amper, with LCR of 138% and NSFR of 117%, well above regulatory requirements. Slide 9. Third quarter gross fee income of $1.05 billion was higher than a year ago and the previous quarter. Wealth management fees increased 22% from a year ago to $393 million from higher bank assurance and investment product sales. Cut fees grew 21% to $269 million from higher spending, as well as the integration of CityTaiwan. Loan-related fees rose 12% to $137 million. Transaction fees were little changed at $228 million, while investment banking fees fell 16% to $21 million on slower capital market activities. For the nine months, gross fee income of $3.06 billion was higher due to a growth in cards, wealth management and loan-related fees. Slide 10. We have introduced a new slide which provides a clearer view of group non-interest income. The commercial book non-interest income accounts for the majority of group non-interest income and is highlighted in the red box. It comprises net fee income and other non-interest income which are customer driven. For the third quarter, commercial book non-interest income rose 9% from a year ago and 4% from the previous quarter to $1.34 billion. From sustained recovery in net fee income and growth in Treasury customer sales, for the nine months, commercial book non-interest income increased 8% to $3.91 billion. Treasury markets' non-interest income is highlighted by the black box and for the nine months is up 69% from a year ago to $1.05 billion. As indicated earlier, the strong increase from a year ago in Treasury markets reflects the offset against the decline in net interest income from accounting asymmetry. So the best way to look at a bank's performance is through the lens of the commercial book and then for the Treasury markets income to look at net interest income and non-interest income in aggregate. Commercial book non-interest income accounted for about 80 percent of total non-interest income in the third quarter and the nine months period. Slide 11. For the third quarter, expenses grew 6% to $2.04 billion from the previous quarter driven by higher staff costs. Underlying expenses, excluding City Taiwan, grew 4%. Compared to the previous year, expenses were 12% higher, while underlying expenses grew 10%. Cost-to-income ratio was little changed at 39%. For the nine months, expenses grew 14% due to higher staff costs, while the cost-to-income ratio improved 4 percentage points to 39%. Slide 12. Non-performing assets rose 6% or $313 million from the previous quarter to $5.30 billion. The increase was due fully to the integration of CityTaiwan. Underlying non-performing assets were little changed with new non-performing asset formation in line with the recent quarters. The NPL ratio rose slightly from the previous quarter to 1.2%. Excluding CityTaiwan, the NPL ratio was unchanged. at 1.1%. Slide 13. Third quarter specific allowances of 196 million or 18 basis points of loans were higher than the low levels in recent quarters. The increase of 80 million during the quarter was due entirely to the allowances that were prudently taken for exposures linked to a recent money laundering case in Singapore. excluding this Anti-money laundering specific provision, underlying specific provision was flat to second quarter. For the nine months, specific allowances rose three basis points to 11 basis points of loans or $374 million. Slide 14. Total allowance reserves stood at $6.63 billion, with $2.72 billion in specific allowance reserves and $3.91 billion in general allowances. Slide 15. We have continued to add on to general allowance reserves through prudent overlays given the macroeconomic uncertainties. As at 30 September 2022, model overlays to cater for stress situations which are over and above baseline general provisions stood at $2.2 billion, out of the total GP of $3.9 billion. Allowance coverage stood at 125% and at 216% after considering collateral. Slide 15. The Common Equity Tier 1 ratio of 14.1% was unchanged from the previous quarter as the impact of City-Taiwan integration was offset by profit accretion and a decline in risk-weighted assets the leverage ratio of 6.4 percent was twice the regulatory minimum of three percent slide 16 the board declared a quarterly dividend of 48 cents per share for the third quarter bringing the dividend for the nine months to 1.38 per share Based on last Friday's closing share price and assuming that dividends are held at $0.48 per quarter, the annualised dividend yield is 5.8%. Slide 17. So in closing, we achieved record total income in the third quarter. and new highs for nine-month net profit and ROE. Net interest margin continued to expand from higher rates, and the growth in commercial bulk non-interest income was sustained. The successful integration of City Taiwan progresses our strategy of building meaningful scale in our growth markets. As we enter the coming year, higher for longer rates will be net beneficial to earnings, while a solid balance sheet with ample liquidity, prudent general allowance reserves, and healthy capital ratios will provide us with strong buffers against macro uncertainties. Thank you for your attention. I will now hand you over to Pish.

Thank you, Sokwi. So, again, as usual, a few comments to add to what Sokhi's talked about. You know, given, obviously, we've had a few challenging weeks. It's been a challenging quarter from a technology standpoint. And, therefore, it's refreshing to be able to record that the business itself has actually been quite robust in the quarter. Sokwe walked you through the big numbers, but just highlight, you know, 16% income growth for the quarter reflects solid growth not just on margins but on fee activity, the non-interest income. I guided earlier the second half of the year we should start seeing strong high single-digit growth, and that's coming through to about 9% for the quarter, which is very solid. NIM, like I said, went up, continued to grow up. The total NIM was up about three basis points for the quarter. Some of it is due to the fact that the TNM book shrank, and so the negative drag on TNM is lower, right, because it's a negative thing. So about half and half, half from the commercial book, half from TNM, if you will. I do think, though, that NIM probably peaked in this quarter from where it is. So given our view, and I talk about outlook, I don't see more rate hikes coming out of the Fed, and therefore NIM will be unlikely to go up from here. The little challenge was loans. You know, at the beginning of the year, I thought we might be able to get close to single-digit loan growth, mid-single-digit loan growth. Then by the middle of the year, it wasn't coming through. So we said we'll probably slow down and get to low single digits. In reality, I think the loan growth has been even more subdued. And therefore, loans in this quarter actually declined, partly of our own violation because we weren't getting pricing on trade, and so we continued to let trade run off. And partly overall, a lot of people, because of the high interest rates, if they can pay down the loans, they choose to pay down the loans. And so loans were actually a little softer than we'd anticipated earlier. Like I said, fee income was strong. 9% year-on-year is very solid. And that's broad-based. We had 22% growth in wealth management. We had 20% growth in cards, but that includes the city of Taiwan. Excluding city of Taiwan, it was 12%, 13% growth in card fee. Loans, everything, fee income was very solid. Cost-income ratio continues to be well-managed at 39%. And asset quality is good. Sokhi talked about the fact that we've taken some provisions for this recent money laundering cases. People are aware we've filed some charges against companies who've been associated with the money laundering case for properties. And we just chose to be conservative. No idea what's going to happen with the case, but we just chose to be conservative and provide for all of those. So I said, you know, we haven't done well on technology, and so let me talk a little bit about that. You know, both the internal reviews we've done, the third-party reviews, internal reviews we've done, really point to four areas that we need to do better from a technology standpoint. So the first I look at in terms of chain management, we look at the issues we've had this year. Several of the issues actually boil down to either software bugs which come in the vendor systems we get or mistakes made by our own people. And it's hard to figure why you're getting more bugs now than we have in the past. Now, this is purely my speculation that, you know, post-COVID, people working from home, I think there has been some pressure on software quality in general around the world. I mean, it's only a speculation. I don't know. However, the key thing this raises for us, which we are working on can do better, is to actually improve the quality of the chain management that we go through. So what does that mean? That means we've got to, A, tighten the processes, so put more gates and quality assurance on every software before we put it into production. So we're tightening that up. That's a process-related change. The second thing that we need to do, though, is we've got to do more comprehensive chaos testing and more comprehensive production assurance testing. That means today when we get a system, we test the system, we test the periphery of the system, but sometimes it's not easy to test in a live production environment because you can't test with, you know, close to live data. It has consequences. But one of the things we're going to do is create a very close to life production assurance environment. We should have that ready by year end. So you can really do a lot more comprehensive testing of anything you put on board. As you know, we have a microservice architecture. And what that means is, therefore, that we take a lot of different systems and package them together. And that's fantastic. I mean, there's the architecture most tech companies have, and it's a great architecture to have. But one challenge it poses is the butterfly effect challenge. So if you have a bug in one part of that ecosystem, you can start seeing problems elsewhere. And so more comprehensive production assurance testing, I think, should be able to help that process. We already started this process. We started the process a few months ago, actually, improving the system development lifecycle, retraining our people into making sure this thing, creating a new quality assurance team to make sure the gates before we roll things into production. The production assurance system and the environment itself will take till year end to get up. But once we have that, I'm confident that we can do a much better job with the chain management process. The second thing that we need to do better is system recovery. So, well, chain management is to make sure that, you know, we minimize the challenges we have. The second relates to if you do have a challenge, how quickly can we recover from that challenge? And, again, the recent incidents have continued to point us that we're not as quick as we need to be in terms of recovery. Now, the issue is actually really two things. One, for some of the systems that we have, and, you know, like I said, we use systems from various places, we've got very good talent to understand and troubleshoot, but sometimes the problem and the bug is really deep down in layer three, layer four. And, therefore, we rely on our partners to try and figure out where the real underlying problem is. That's an area that we have to improve, which is to get more engineering and deep-down understanding inside those jobs so that, obviously, we're in the process of getting talent on board. It takes a little bit of time to get the right people. The other thing we need to do is our whole system architecture is what's called active-active or self-healing. In all of these systems, recovery happens by itself because you have redundant systems and all the systems and multiple data centers. So the same application is running on multiple machines, is running on multiple data centers, and what that means is it should self-heal. If one thing goes down, the rest of the system just picks up the load. You don't really have to do anything with it. But one of our realizations from all of these things is sometimes what happens is that because underlying systems running everything have data replication, actually you do wind up with problems where all across the data centers, across the machines, across the servers, everything can get afflicted by a bug at the same time. So then you need to improve your what's called a passive recovery. So how do you actually go to some passive source and make it back? And we are working hard on that. So for all of our critical, we identified the critical applications, and we're working on building these more warm standbys, hot standbys, and passive recovery to be able to do that in the event that something like that happens. So this is, again, work which has been ongoing for a few months, but over the next few months, hopefully by the end of the first quarter, we should be able to make a far more robust recovery pathway to be able to get back. There are a couple of other things. Incident management, really, when an incident happens, how well can we manage it, how do we get on top of it, our communications. There's some improvements we need to and can make with the technology risk governance, including, you know, beefing up line two, line three. We're hiring some new talent, which will be on board in the next couple of months. for some of these areas as well. The other thing that we're trying to do is, you know, we, in terms of service recovery and service availability, we set up some new targets for service availability and recovery. And this is a little different from the MAS regulations. It's on top of MAS regulations, not different. MAS regulations require us to maintain uptime and delivery at the system level, at each piece of technology. And it's quite obvious, however, that if you have a service, let's call it payments, the payment service actually relies on many pieces of technology. They're like six or eight systems. And while we can focus on each system, what we now want to do is focus on the whole service across all of those systems as well. And we're trying to set up some targets at the service level, which mean that, let's say payments, stick to payments a minute, that even if a system goes down, we should be able to provide an alternate path to be able to make a payment. In the case of payments, we can do payments, in our case, through Pela. You can do payments through the mobile bank. You can do payments through a web browser-based app. And one of the things that we're going to work on is to decouple these three so that if any one of these goes down, the other pathways can still be brought up. Today, all of them are three in the front, but in the back, sometimes they have a single common system, so we're going to try and decouple that. This is also going to take us a few months, but we're quite hopeful. In fact, we're quite confident that over the next few months, well within the six-month period, we should be able to make these changes, improve our production assurance, decouple some of our systems, improve the passive hot standby where we need to be able to do stuff. So like I said before, we're not proud of this. You know, we, our customers expect and deserve better. But we're also fairly confident that the issues that we've been able to identify are issues that are fixable. And so over the next six months, we think we will be able to get our hands around them and get to much better levels of stability, resilience, and services as we go forward. Last thing I want to talk quickly about 24. I'm going to try to give slightly more specific guidance at this point about the next year. It's a little trickier this time because of uncertainty from various things. I'm quite clear the U.S. has been far more robust than anybody expected. But with the rates where they are, and I think rates are going to stay higher for longer, you should expect a slowdown in the West. China, I think we've seen the bottom. I think the measures coming through after the end of July have put a bottom under things like the property market. But nevertheless, I think the recovery in China will still be a little up and down, a little patchy. So I don't think it'll get much worse, but it'll be patchy. And one of the challenges, well, the rest of ASEAN is doing well. India, Indonesia, the big countries are doing well. I do think we have to keep an eye out on the geopolitics, especially oil prices. So because of the Middle East conflict, I'm hearing binary views on oil. And if oil, you know, really gets to be much more expensive, then obviously many of these oil importing countries have got to keep an eye on it. And therefore, since there's so much uncertainty, we'll reserve more specific guidance for later in the year. But the high-level thing I think is worth being able to reflect on how we're thinking about. The interest rates, I don't think you'll see any interest rate cuts in the first half. I don't think you'll see an interest rate hike, by the way. First, I think we're pretty much done with rate hikes. From everything we're hearing, as well as the latest data, I think they'll stick to rates where they are. How much rates drop in the second half of the year is an open question. My own view is you'll probably get a couple of rate cuts, but not more. But I could be wrong. This is why it's uncertain. I could be wrong because if there is a big issue in the Middle East and it becomes a bigger, this thing, then, yes, that kind of event could promote them to do a bigger rate cut, set of rate cuts. However, from a business standpoint, for us, I mean, it's not the material. I think a full year NIM this year will wind up at about 216, the full year NIM for the year. And for next year, I think the NIM will be about there. We could be a couple of basis points off, but from a net interest income, I think it will be flattish or maybe slightly up for the year. So even if NIM is off by a couple of basis points, it will be made up by loan growth. And... The correlation between NIM and loan growth actually is actually quite distinct. So our model shows that if NIM goes down a little bit more, loan growth will pick up more. So right now, because rates are high, loans are not growing. So I think there's a counterbalancing effect. But net-net, I think, is safe to assume that our net interest income will be about stable. And frankly, when you add back city Taiwan, we might even see it up a little bit. On the fee income side, as I said, we're getting strong high single digits this year. I think we'll get double-digit fee income growth, non-interest income growth next year. Momentum is good in wealth management. Momentum is good in cards. If the capital markets are a little bit kind, we should get some pickup in investment banking. But even other than that, I think fee momentum should be likely to be sustained. From a profit standpoint, I think we'll get mid-single-digit income growth. We'll get 2%, 3% growth ex-city Taiwan, another 2%, 3% from city Taiwan, so we'll probably get mid-single-digit. And we'll probably get high single-digit expense growth. Again, 5%, 6% ex-city Taiwan, maybe 8%, 9% with city Taiwan. So our overall profit for allowances should be up. Our total allowances, you know, we have no insight. We're not seeing any major pickup in delinquencies or stress or strain in any of our portfolio. But I just like to start there figuring that we will, you know, revert to mean. And we think at this stage the 17 to 20 basis point is a good way to think about allowances if it's much more than that because the world gets much worse we have enough gp cushion that's what we talked about to release it um if it stays this year this year we'll wind up at about 12 basis points 11 12 basis points so if the world stays the way it is we might actually beat this but i think if you know you guys are analysts are doing the models it's not a you know 1720 is not a bad number to look at So when you put all of that together, I think we'll wind up with holding net profits at about this level. You know, this year, as you know, we're fairly confident we'll cross over $10 billion. And I think we'll be able to hold and protect that $10 billion number into next year. And like I said, as we get closer to the end of the year and get some more definitive views on the markets, we might be able to sharpen that a little bit. But that's a good way to start thinking about the future at this point in time. So why don't I stop there and we can take some questions.

Before you ask your question, if I may request, we have mics in front of you, or roving mics. Please speak into one so that the people tuning in virtually can hear your question too.

Chania? Hi, Chania Phuong, from Bloomberg. I have three questions. You mentioned a few basis points of NIM. This is for the whole year in 2024. From 2.19, yeah. For second questions, you touched a little bit on AML exposure. What kind of charges were you talking about, court charges? And the AML case? You mentioned you filed charges on property. Could you please elaborate? Did DBS file STRs to the police before the arrest? Are you expecting any regulatory penalty on this case? My third question, regarding the digital outage and MIS penalty, what impacts do you see on your system? There's some talks about projects that you have with JPM and maybe and, could you elaborate what projects could be affected because of the ban? Peter Seah also mentioned compensation matter. Could you give colors like what kind of level of management that will see pay cuts and how much? Thank you.

So on the first one, I think I said NIM will be off maybe a couple of basic points from this year's average NIM, not 219, but this year's average NIM, which is closer to 215, 216. I think 219 peaked in the third quarter. But if you look at the average for the year, the first two quarters were lower. The last quarter likely be a little bit lower. So that's what you should look at from there. We could be around the same levels next year. But like I said, it all depends on what happens to rates. If they don't cut rates, then we have some tailwinds. We have some headwinds from loan growth, but somewhere there. The second in the allowance is, you know, when you file charges, for any lending that we do, we file a charge in two ways. One, we issue a charge against an ACRA for any company that we give a loan to. We file a charge saying we've given a loan to such and such company. Or if you're given a loan against property, we file a charge with the mortgage thing to make sure people can see. So there's a standard in banking anywhere in the world. So people can see is this property unencumbered or does this company have borrowings from somewhere. So that's when we say we file a charge. And so we look at our data. It shows that we have filed charges against companies which are linked to this thing, i.e., we have some exposure to these companies, if you will. The total extent of the exposure and the provisions in this quarter's number are just a tad bit below $100 million of charges and exposures. The third thing on the outage and the overall impact, So if you look at the guidelines, I mean, obviously, like I said, you know, we're going to focus a lot of our energies in the next few months at trying to build the resilience in the areas I talked about, right? So the improve our change control, our testing procedures, our, you know, unlocking systems. That's going to take a lot of our energies and effort. But in terms of the specific directions, we really didn't have any M&A or new business venture plans. So you don't really see a direct impact of that. Also, we haven't really closed any branches and ATMs in the last three, four years. We closed some in the early years of COVID. And in fact, in the recent years, we've only built back. We've actually added some. what we will have to do is defer some of the other product features, new products, new services, et cetera, which we might normally have done. But in reality, because we're going to have to focus on building the resiliency, it is not something that we would have been able to put resources against anyway. So we would have to, I would have started doing it, and because the MS thing, it actually is good. It gives us a six-month window to consolidate. And that's actually a good thing. So it does mean that we will be somewhat later in delivery of some products and services and stuff to the market in terms of what we want. And it's never something you want to do. You don't want to defer some of the stuff. It's like putting brakes on. When you have good brakes, then you can run faster later. So my thing is we can get the resiliency and the underbelly stronger over the next six months and give us the opportunity to speed up the delivery of products and services in the subsequent part of the year. Your last question on compensation, frankly, the way the compensation process works is it will all happen between now and the end of the year and early this time. And it's not something that we, the management, decide. The board gets together, reviews the whole thing, and comes to a view on what the compensation effect needs to be. What I can tell you is that from, you know, we as, you know, we run a tight management team. From a senior management team, we have agreed that we will share responsibility and accountability together for this. But what the actual quantums and cuts in size, you'll have to wait until we know. We announce and our competition is public and annual report findings which come out at the end of the first quarter. So it will be visible at that time.

Sorry, one question you didn't answer. On the money laundering case, did DBS file SDR? You filed, thank you.

I wanted to ask whether DBS is considering taking its tech 100% in-house moving forward, considering that the October 14 outage is caused by a vendor contractor. And also as a follow-up, what was the rationale behind the bank's decision to outsource its data center to a third-party vendor? And then another question, like how many data centers does DBS own at the moment?

So, actually, almost every big company in the world outsources data centers. Managing data centers is a very specialized business. And few companies try to do it because managing large real estate in very complex ways. And that's why the biggest data center providers in the world are specialized, whether it's ST, Singtel, or ST Telemedia, or M1, or Equinix. Equinix is the world's biggest data center provider. They provide 250 data centers around the world. And now increasingly as there's more focus on green data centers and resilient design with data centers, it's much harder for individuals to do it. These big companies do it. Frankly, even the Amazons, Googles, and Facebooks of the world don't. They also use third parties to provide and put together data centers. So it's not an unusual thing to do that. We got out of this business of running our own data centers 15 years ago. So we decided a long time ago that we would outsource and let other people manage the physical data center capability. These people build high-quality data centers. Data centers are tagged as 1, 2, 3, 3 plus 4. The current data center, 3 plus, is the highest-tagged data center in Singapore. When you do your own data center, it's very hard to achieve that level of resiliency. Three plus or a four level data center is very hard to achieve. And so no, we have no plans to take in data center management. I don't think we are very good at managing physical infrastructures, if you will. Most of the big data center providers run at 99.9999% operations. So it's an extraordinarily high level of resiliency that they run with. And frankly, it's the first data center problem we've ever had.

Prisca?

Hi, yeah, just following up on the digital disruptions a bit. Ravi Menon said over the weekend that there are some deep-seated issues that need to be resolved. What are the biggest deep-seated issues that you see here among the ones that you've identified?

I just went through that at some length, so I can repeat my comments.

Maybe the biggest ones, if you would like that.

The four biggest things, I think, like I said, the chain management process, if you look at the bulk of our problems, it's because we ran into bugs, both either third party bugs or our bugs. So each one, the incident in March was bug related, the incident in May was bug related, the incidents in October, other than the data center outage, all the other four data centers were bug or software related, right? So to me, the big issue is how do you make sure that you get good change control? Because the reality is that as you use a lot of different systems in architecture, you will run into more software bugs. It happens, you know, your phone gets a bug, everything gets a bug. But to get high resiliency, you've got to be able to make sure that you test well. And so to me, the first deep situation, how do you make sure you get discipline and rigor before you put things into production and improve the quality of the production assurance testing you can do so you don't wind up with buggy software and this thing. The second I point you about that if you look at recovery, there are two issues with the recovery. One issue is we've got to have the deep engineering talent because in at least two or three of these incidents, the bug itself was so deep that we wouldn't be able to pick it up. So we had to go back and work with the vendor and they had to put a team to try and figure where the problem might be and that takes time. You know, you go there, even though we have SLAs, we've got to go talk to them, they come back to us and so on. So we've got to improve the engineering depth in some of these things so we can try and resolve some of those troubleshooting better. So that's a deep-seated issue. And the third deep-seated issue is just in terms of thinking about a whole thinking is active-active. So redundant and self-healing for recovery. And we've got to figure how we, in addition to redundant and self-healing, we add some passive recovery systems in the critical areas in case we need those. So these are all the three that I called out. All of these are work in progress. We started work on this in May. So we've had six months under our belt. And I think we can get most of this done within the next six months. But each of these is not trivial to get done.

Ultra?

Hi. Can you please share with us a bit about your views on ROE expectations for next year? And the second question is, can you please share your view on the impact from more geopolitical tensions in the Middle East on business in general and wealth flow in the region? Thank you.

So on the ROE, we guided before that we should be able to stick to north of 17% ROE, and I think that's a safe assumption to continue to work with. That's correct, right? On the Middle East tensions, our direct exposure to Israel, Middle East, et cetera, is quite limited. We've got some bank facilities to UAE and Qatari banks. And I don't think anything is going to happen with that. So I'm not concerned directly from a DBS standpoint about those tensions. The indirect issues, though, can be a little bit more concerning. It depends on how bad it gets. If you do, if it stays targeted and contained, I don't think you see too much spillover. But this has the potential to become a larger regional escalation. And if it does, then I do think that you have some possibility of oil getting out of hand. And the principal mechanism by which the rest of the world will be impacted is what happens to oil price. So if you see oil price getting up to $150, for example, we know, we've seen that before, that at $150, then most of the countries in the region start having challenges with their trade deficit, trade account, etc., etc., And so that will result in some further slowdown in the region, as well as some more currency volatility, if that were to happen. And so that's something you've got to keep a close eye on. And I can't forecast whether it escalates or doesn't escalate.

Anshuman.

This is Anshuman from Breaking Views. Can you just elaborate about the total exposure of 100 million for the episode that happened in Singapore? And also, how do you see this affecting wealth flows overall for Singapore and the region? If you can just elaborate some trends in that.

Yeah, so we had about 100 million in exposures and we basically provided for most of it. Most of these are basically property. So, you know, a lot of these, some of these people had opened actually retail consumer accounts with us. We had filed STRs. Consumer accounts is like, you know, they transfer money from this thing and so we didn't have big PB accounts and things. We had consumer and this thing accounts. But what they do in the open accounts, they use us to finance a property purchase or something and that results in these exposures. In terms of total wealth flows, I don't think it will have a material impact. I think we will all, you know, continue to tighten the process. But I've said before, I think Singapore as a regime has a very robust money laundering regime and process. And so, you know, you will find people who get through the system, but won't change very much. I think net new money flows have continued to be robust through the third quarter. They continue to be fairly solid into October as well. So I don't see the actual money flows and growth of wealth materially suffering. I do think that, like other players, we will continue to tweak and tighten what else we can pick up. In this case, it's obvious that we're going to tighten up again use of multinationality passports. Now, you've got to do that carefully, though a lot of legitimate people also have passports from other countries. So we don't want to wind up with financial exclusion. either. So you can do a little bit more of that, trying to make sure you pick up multi-country passports kind of thing. Or, you know, all of this, where these people came to the consumer bank and so they didn't bring large money flows, but we could tighten up to see, you know, what happens when money comes into consumer flows. You can't do it at scale because you have 12 million consumer accounts, so, you know, you can't do a lot of that. But the things you could tighten, but I don't expect it to have a material impact on wealth as a total segment to industry.

And I mean, what's the reason you don't expect a big impact? I mean, if there are other sort of high-profile individuals looking at this, and they would obviously look at the safeguards that are happening, I mean, why is this not a concern in the sense that this flow of money is coming into Singapore and could be disrupted now?

Most of the money coming to Singapore is legitimate. Think about how much money came into Singapore in the last two, three years. And this is a small fraction of that money. So, yes, even if you assume that the fraction of the money and people who are doing money laundering are warned, shot across the bar, don't bring money in. This is like, you know, a small fraction, maybe, I don't know, but a small decimal percentage of the money that comes into Singapore.

And also, if you can just speak about the loan growth. I mean, that's been a bit of a disappointment. And how do you see this shaping up, especially when the economy is going through a tough time? Obviously, the forecast is it's better next year. But how is that impacting? And some color on the sectors where you would expect a revival for the loan growth?

We're actually seeing loan growth even now. So it's a mix of things. We saw loan growth in this quarter and continue to see growth in the property sector, continue to see some growth in energy, some in commodities. But what's been happening so far is that because rates are so high, anybody who can access money, either through equity or through their own cash flows or through tightening their working capital, is also paying down. And so you're seeing whatever loan growth goes away because anybody who can find money pays down the loan because when you're borrowing at 6%, the quicker you can repay, the better it is. And the other piece on loan growth has been that particularly in trade, but also at the margin through that mortgage, there's been a little bit of compression on spreads. And so we've let some of that go because there's no point keeping the loans if you can't make a decent spread on it. So going back to when I said next year is harder to call because it depends on your rate outlook. If rates stay where they are, then I foresee that you might continue to see that. You'll get loan growth in some sectors, and our pipelines are quite robust, but you might continue to see people pay down at the same time because of the high rates. So net-net, you might – we focus – our loan growth right now – The underlying business forecasts are 5%, 6%. But when I look at the top-down view on how many people, I figure we might wind up with only a 2%, 3% tone growth. So by the end of the year, I have a firmer view.

Moola?

Yeah, thanks for taking my question. Can I ask about, once again, about the loan book? Is it all now priced at the higher yield? And because there's been some pressure, I think maybe just anecdotal pressure in mortgages, you know, they're all coming off. So do you expect lower yields if the book reprices into 2024? If you could, and do you expect the cost of funds also to come down if that happens?

So Gulab, the short answer is no. We have another $105 billion of loans which have yet to be replaced. And of the 105, about... 10 billion get repriced this quarter, another 40 billion next year. So about 50 billion in loans will get repriced. And the loans which are getting repriced are still getting priced up at close to 2 percent lift, so between 1.8 and 2 percent lift. So that's one of the tailwinds that protects our NIM, that we still have a chunk of our fixed-rate loan book which will continue to reprice and give us a pricing lift. But it is also true that the through-the-door pricing on mortgage has been coming down as well. So our through-the-door pricing for the quarter was about 3.3% through the door coming in. But it has been creeping down as well. So there is some pressure on NIMS because of the new mortgage bookings. But for us, because so much of the loans are repriced from a very low base, you get a lift from there as well.

And then on the SPs, I mean, you've said it was for the AML, but there's some concern over the CRE, the commercial real estate in the US. And I think we talked about China, but what's the size of this? Is it very small? And I know you have a lot of overlays. Is it all covered?

Yeah, it's all covered. So actually, we don't have a big book in commercial real estate in the West. But nevertheless... In our macro overlay this quarter, we added some more for the potential of commercial real estate in the U.S., so I think it's well covered.

Okay. If there are no further questions, then thank you, everyone, for coming. We'll see you next quarter.

All right. Thank you all.