Oversea-Chinese Banking Corporation

Hey, good morning. Thank you for joining us this morning at our results earnings call. On today, who we have on our panel is Mr. Samuel Chen, our Group CEO, Ms. Helen Wong, which is our Deputy President, and Mr. Chin-Wei Hong, our Deputy President, as well as Darren Tan, our CFO. So we're going to start with Darren taking us through our presentation slides on our results for first half as well as second quarter. and thereafter we will take questions. And for you to ask your questions, please press star 1 and you will be in the queue and I'll be calling out your name and you can ask your questions. Darren, please.

Morning. Thank you for joining us today. I'll point you to slide 4. Now you can see from slide 4, our net profit for the first half of 2020 was $1.43 billion. This is down 42% year-on-year as compared to $2.45 billion in the previous year. Now for the second quarter, our net profit was 5% higher at $730 million and this compared to $698 million in the first quarter of 2020. I'll move on to slide 5. If you were to look at our operating profit before allowances, for our banking operations, it held up relatively well despite the challenging operating environment, rising 1% year-on-year to S$2.81 billion. And for Bank of Singapore, despite the market volatility, its AUM reported a small year-on-year increase to US$113 billion. Insurance business fundamentals remain healthy. Great Eastern continues to generate operating profit growth of 57% as compared to a year ago. And total weighted new sales were also 7% higher. I'll move you to slide 6. Our fundamentals remain strong, funding, liquidity and capital positions at a strong level. Net stable funding ratio rose to 119% from 108% as of March 2020. This would enable us to continue to support longer term duration, in this case, longer duration. Now in terms of currency coverage ratio, liquidity coverage ratio for first half was 139% and this is well above the regulatory requirement. and on our capital, our CET1 car remained high at 14.2%, while our leverage ratio was unchanged at 7.4%. I'll go into the details of our group performance, starting from slide 7. Half-year group net profit was 42% lower at $1.43 billion, largely from the higher allowances set aside for both impaired and non-impaired assets. Now if you were to move on to slide 8, our banking operations net profit was 43% lower at $1.16 billion mainly from higher allowances. Insurance operations net profit was also 37% lower at $268 million mainly because of the market volatility that we witnessed over these two quarters. And on slide 9, on our second quarter results net profit for the second quarter was $730 million 5% higher than the previous quarter and in the second quarter we continue to show up allowances to buffer against the deteriorating economic environment with total allowances of $750 million as compared to $657 million in the first quarter and on slide 10 you can see for the quarter our net profit from our operations was $480 million 29% lower as compared to the quarter before of $680 million and this as I mentioned earlier was mainly from our increased allowances, as well as an 8% drop on a quarter-on-quarter basis in terms of the income. Our insurance operations, however, have benefited from the rebound in the financial markets to report a net profit contribution of $250 million. I'll move on to slide 12 on our net interest income. For the first half of 2020, it was $3.11 billion, and this was relatively unchanged compared to the year ago. Now, although average asset grew about 5% on a year-on-year basis, this was offset by the 10 basis point compression in terms of net interest margin to 1.68%, very much in tandem with the fall in interest rate. Also, the strong deposit growth that we experienced during this period was one without any corresponding strong amount of loan growth. which also compresses the LDR, loan-to-deposit ratio, and thereby contributing to the further drop in terms of net interest margin. Now on slide 13, our first half 2020 non-interest income was 8% lower year-on-year at $2 billion, and this was largely from the combination of lower fee, trading, and insurance income. Now if you were to go on to slide 14, on the net fee itself, you will notice that for the first half of 2020 net fee income was a decline of 3% year-on-year to $986 million. The strong performance in the first quarter of this year was not repeated in the second quarter, partly also because customer activities and transaction volumes were impacted by both the weaker investment sentiment and also movement restrictions within this period. I'll move on to operating expenses on slide 17. Now with the reduction in top line income, we strive to also tighten our operating expenses. operating expenses declined 1% to $2.22 billion from $2.25 billion a year ago by a reduction in terms of discretionary spending and variable compensation that we accrued across this period. Now with 1% decline in operating expenses, our cost-to-income ratio was higher at 43.3% as compared to 42.4% in the first half of last year. I'll move on to slide 18 on our allowances. To buffer our portfolio against the uncertain market outlook, we have revised and raised our general provision to $614 million in the first half of this year, and this is compared to $35 million last year. This included essentially $197 million arising from the adjustment for the macroeconomic environment, and also an overlay of $300 million over and above what the ECL model requirement would be. And in terms of allowances for impaired assets, they were higher as well at $793 million from $325 million last year. Now for the quarter itself, we took in additional specific allowances for a Singapore-based corporate account in the oil and trading sector and also further specific provisions were taken for offshore vessel support sector as we mark down the carrying value of the OSV MPLs. Consequently, if you look at our allowances for the loans for this half, the amount would be $1.41 billion, and this compared to $360 million a year ago. And if you look at it from the credit cost perspective, for the first half of 2020, it was at 91 basis points as compared to 25 basis points last year. Consequently, as a result of the higher provisions, on slide 19, you will notice that the total MPA coverage ratio was raised to 101%. And in terms of the unsecured coverage for the unsecured MPA, the coverage ratio was at 184%. Now I'll move on quickly to slide 24 and the last slide that I'll cover before I pass on to the floor to Sam. On our interim dividend, as you are aware, MAS had called upon the Singapore banks to cap the total dividend per share for 2020. and as a preemptive measure essentially to fortify the bank's resilience as well as capacity to support lending activities in the economy. So for us, the cap on 60% of our dividend, in this case 53 cents for financial year 2019, it translates to 31.8 cents for financial year 2020. In this case, the 31.8 cents per share. Accordingly, we decline RIM dividend, in this case of 15.9 cents per share, half of 31.8 cents per share, and this would represent a payout ratio of 49% against our first half 2020 net profit. In line with MAS guidance and also consistent with our past practice, we'll be applying the script dividend scheme to this interim dividend and add a 10% discount to the dividend. Now, with the expected retention in terms of capital, our even stronger capital position will place us in a good state to tie over the COVID-19 pandemic and also enable us to continue to, in our efforts, to develop our employees and also support our customers and communities. Now, with that, I will end here the presentation here and I will pass the floor to Sam. Thank you.

Good morning, everyone. This is Sam. I was originally planned to see you in person by this quarter, but I guess we have to wait until the next quarter. I want to cover the key highlights, and then I'll talk about some of the matters, particularly on the forward-looking basis. First of all, the key highlight is that on the revenue side, we are basically flat with the previous year. Our group revenue is also impacted by the mark-to-market swings between the quarters for our insurance operation. But if you then look at our banking operations, which is the largest operation within the group, our revenue was flat, our expenses were controlled, and as a result of that, our operating profit actually increased by 1%. As a matter of fact, our first half operating profit before allowances was the highest half yearly results that we have ever reported. So it's a record high for us for the first half of this year. Having said that, however, the allowances have significantly increased. For the first half of this year, we created a total allowance of $1.4 billion, and within which, as Darren had said, there is the ECL 1 and 2 which previously we call it but it's not exactly the same but similar to the general position and within that we have included two components. One is the $195 million of macroeconomic factors which is a forward-looking economic market development and if the indicators of the future economic development is weak we will create more into this ECL 1 and 2. And then in addition to that, we have also increased our management overlay, created a management overlay of $300 million, which is an anticipation of the uncertainty that may develop and that may adversely impact our portfolio. So it is done on a fairly prudent and conservative basis to make sure that we shore up our balance sheet. Then we talk about ECL3, which is equivalent to the previous specific provision. We have taken two major actions in ECL3. One is on our carry-forward offshore support vessels portfolio. We have written the carrying value down by $350 million. Now, why would we write down this portfolio at this time? That was because on a forward-looking basis, we believe that the demand for offshore support vessels will come down quite significantly for a period of time. We do not know when the market is going to pick up because we do not know when all the markets will open up. And you know that transportation is a fairly important demand for the oil industry. And with airlines and with normal transportation down, we estimated that just from the lockdown relating to transportation demand for fuel it reduced by 35% in demand and as a result of that the offshore support vessels which goes out to help explore the oil from the oil majors are in significantly reduced demand and as was indicated by some other corporates involved in this industry. They've also taken a dimmer view than before on the future, and so we took the opportunity to also write down the value. After we've written down the value, our OSV portfolio, if you exclude the conglomerates, then it's basically down to a very low percentage of our total loans outstanding of less than 0.3%. In the area of credit cost, you will notice that the credit cost for the first half has gone up, but we anticipate that the credit cost for the entire two-year period, 2020 to 2021, during this COVID-19 times, will still be at 100 to 130 basis point over a two-year period. So the write-down and the creation of additional provision is well in line with our original expectation. Darren has talked about the dividend side. So our dividend is currently kept by the MAS guidance. However, we are still committed to our policy to pay progressive dividends that are sustainable and in line with OCBC's long-term growth as market stabilizes. I also want to talk about the moratorium. because there were uncertainty relating to the impact on the portfolio when the moratorium programs started to exit, started to wind down. Our total moratorium relief across the group, including Singapore, Malaysia, Hong Kong, and Indonesia, amounted to $27 billion. That's slightly under 10% of our total loan portfolio. But I want to point out that within the 27 billion moratorium relief, 88% of that is actually fully secured, which therefore gives us comfort that even if the exit from the relief program will have some challenges along the way because the market may not have fully recovered by that time, we still expect that the primary and the secondary source of repayment, which is from the collateral underlying those moratorium, will be able to provide us comfort that the repayment will be available. With respect to our cost management, we will continue to maintain our discipline on cost management. You will notice that although on the group basis, our expenses was basically flat, but for our banking operations, our expenses were down on a quarter to quarter basis. In the second quarter, our expenses were down by 3% versus the first quarter. We expect that our expenses on a quarterly basis will continue to see a downward trend. And this will basically be managed through our discretionary spending, our adjusting of variable compensation, our rationalization of real estate costs and realizing efficiencies from the technology spent that we have been able to derive benefits from going forward. Having said that, we are committing to the community that there will be no layoffs in the midst of this COVID crisis. As a matter of fact, we are creating new job opportunities for the community. You would have recalled that A few months ago, we have made a commitment of creating 3,000 job opportunities across the group, including our bank and including our insurance company. During this point in time, we have the social responsibility in addition to our banking responsibility to support the community, support our customers, and to support the national requirement to have job creation as the market slowly transits out of this COVID-19 situation. Our name was down during the quarter, but we expect that the name will continue to be slightly down going forward in the second half, but it will be maintained at the high 1.5% range. Our second quarter name was 1.6%. We think that it may slightly come down, but the magnitude of downward adjustment will not be as high as we saw in the second quarter versus the first quarter. So that completes my overview. I'm sure that some of you may have some specific questions and Darren and I will be opening up to take any questions that you may have.