Oversea-Chinese Banking Corporation

Hi, welcome to OCBC's first quarter results. We have Sam and Darren with us. As usual, we were going to take questions and we will call out your name and then you can ask your questions but we will first have Darren take us through our slides first.

Hi, good morning. Thank you for joining the call. This quarter marks the start of our voluntary results update following SGX removal of the mandatory quarterly reporting this year. and we will continue to do so in our first quarter and third quarter results. And through this voluntary update, OCBC is committed to provide the investment community and its favourite stakeholders with timely, relevant information over and beyond the full disclosures for half-year and full-year results. I'll move on to the results proper on slide 2. For the first quarter of 2020, OCBC Group reported a net profit of S$698 million as compared to 1.2 billion plus in the previous quarter and the previous year. Two main factors negatively affected our earnings this quarter. Firstly, we provided higher allowances for our non-impaired loans in anticipation of the potential deterioration to our loan book. We also provided specific allowance for Singapore-based corporate in the oil trading industry. Secondly, our insurance subsidiary Great Eastern's investment performance in both the live and share those funds were negatively impacted by unrealized mark-to-market losses. Nonetheless, the underlying businesses of both our banking and insurance operations remain sound. OCBC's banking operations achieved operating profit growth of 8% year-on-year, while Great Eastern's sales-off insurance policy continued to grow, resulting in higher net business embedded value. With our strong capital, funding, and liquidity, we are confident that we would be able to withstand the economic tsunami arising from the COVID-19 pandemic and continue to support our stakeholders. I'll move on to slide 4. As I mentioned earlier, OCBC Group Net Profit for the first quarter fell 43% year-on-year to S$698 million. Banking Operations Net Profit was down 28%, while Profit Contribution by Great Eastern was down 94%. Now if we were to exclude Great Eastern, Banking Operations Income was 7% higher year-on-year to $2.37 billion. The interest margin was stable at 1.76% as we grew our CASA deposits and shifted to longer duration and more fixed-rate loans. Costs were managed tightly, up 1% year-on-year and down 12% on a quarter-on-quarter basis. OCBC's capital and liquidity position remained strong, with CET1 Capital at 14.3% and all-currency liquidity coverage ratio at 151%. I'll move on to slide 5. Our diversified franchise continued to enable us to deliver balanced growth. Operating profit from our banking business grew 8% year-on-year, supported by a healthy 7% growth in income. On our balance sheet, customer loans grew 3% year-on-year in constant currency terms. Deposit rose 7% led by CASA growth. As a result, our CASA ratio improved to 51% this quarter. Our wealth management business. Wealth management fees rose 32% to a new high of S$291 million this quarter. Net new money inflows for Bank of Singapore continue to be positive, but this was offset by the drop in asset valuation this quarter. Consequently, Bank of Singapore asset under management was down 4% as compared to a year ago. Great Eastern total weighted new sales and new business embedded value continued to grow by 21% and 15% year-on-year respectively. However, Great Eastern profit contribution was significantly lower year-on-year as a result of negative mark-to-market to its investment portfolio. I'll move on to slide 6 on our group's fee and trading income. Net fees and commission grew by 10% to S$546 million, led by mainly growth in wealth management. For trading income, treasury-related customer flow income was higher from a quarter and a year ago. However, this was more than offset by unrealized market-to-market losses in Greyston's Shareholders Fund. Moving on to our balance sheet on slide 7, our loan remained well diversified across geographies and not concentrated in any particular industry sector. The oil and gas and commodity sector represented 5% and 6% of our loan book respectively. Within the transportation sector, loans to shipping was 2% of total loans, while aviation sector accounted for less than 1% of our loan book. We continued to progress on our green and sustainable finance, with our green and sustainable finance portfolio growing 28% quarter-on-quarter to S$11 billion. Moving on to slide 8, on our allowance and asset quality, we had proactively made provisions for a potential deterioration in our loan book, In the first quarter of 2020, we set aside an additional $382 million as general allowance. Additionally, we took specific allowance of $275 million, mainly for a downgraded Singapore corporate account in the oil and gas trading sector, oil trading sector. NPR ratio remained relatively unchanged at 1.5%. The 13% increase in NPA this quarter was largely from the same corporate account. We had also kept the regulatory loss allowance Reserve unchanged at RM874 million. As a result of all these actions, our coverage of the MPA increased to 90% from 86% in the previous quarter. Slide 9 Our balance sheet remained robust, with strong levels of capital, funding and liquidity. As of 31st March, our net stable funding ratio was 108%. our currency liquidity coverage ratio was 151% and our common equity tier 1 capital adequacy ratio was 14.3% well above the respective regulatory requirements and maybe moving on to slide 13 for some final comments on Great Eastern's performance Great Eastern's investment portfolio like most long-term portfolio insurance companies, pension funds and sovereign funds was constructed with a portfolio of high-quality equity and credit securities. This classic asset allocation was constructed to generate returns that would more than meet its policyholders' return requirements over the long term. Additionally, most of this long-term obligation to insurance policyholders were present value via long-term government rates. So the sharp drops in equity and credit securities during the quarter had negatively impacted Great Eastern investment portfolio when mark-to-market. At the same time, the lower long-term government rates had also translated to higher valuation of Great Eastern's obligations towards its policyholders. This had resulted in a double whammy, so to speak, when the asset and liability are both mark-to-market, and this in turn negatively affected Great Eastern performance. Although the adoption of RBC2 framework in Singapore primarily from the application of matching adjustment head and offsetting effect, as you can see in the slide. Now, given the high quality of Great Eastern's portfolio of equity and credit securities, it would be reasonable to expect its investment performance to revert to mean and to generate the long-term performance that we have often seen and witnessed in the past. It is important to note that Great Eastern's operating profit continues to grow as a result of the continued growth in embedded value from the growth in its sale of insurance policies. This growth in embedded value in turn will serve as a longer and better term indicator of the longer term growth and hence performance of Great Distance. Now with this final point, I will end my presentation and I will hand over to Sam.

Maybe before Sam say, after Sam speak you can ask your questions but please press star 1 to be in the queue for the Q&A session.