Oversea-Chinese Banking Corporation

Good morning, everyone. Thank you for joining us on our earnings call for our first quarter 2021 results briefing. So today, we have Helen, our Group CEO, with us, as well as our CFO, Darren. And we will be letting Darren take us through the slides. Thereafter, Helen will share with us her thoughts, as well as take a Q&A. So I will pass the time now to Darren, please.

Thank you, Qingqing. Morning, everyone. Thank you again for joining us. I'll take you through the slides and I'll refer to the pages so that it's easier for you to follow. So I'll move on to slide three. For the first quarter 2021, we reported a net profit of 1.5 billion Singapore dollars. This is an increase of 33% from the previous quarter. If you look at the details of our performance, you'll notice that across the of our franchise, and that will help us continue to essentially generate balance and resilient growth. Now, in terms of total income, we grew 70% on a quarter-on-quarter basis. The low interest rate and environment continued to weigh on our net interest income. However, our non-interest income, comprising fee, trading, and insurance, delivered a strong performance amid an improving operating and market environment. Now, with the strong quarterly performance, our annualised group ROE, we cannot agree, rebounded to 12.4%. Now, I would point out on slide 6, in terms of our balance sheet, you will notice that our balance sheet remains strong with ample liquidity and funding. Specifically, if you look at our CET1 capital, it rose to an even stronger level of 15.5%, mainly from the strong earnings that we registered for the quarter. Moving on to slide 7, total income rose 17% quarter-on-quarter and year-on-year, largely from the rise in non-interest income. Allowances were also lower against the previous periods, mainly from an improving credit environment. Now I'll move on to slide 10 on our net interest income. For the first quarter, net interest income was only slightly above the previous quarter at $1.44 billion. following sharp contraction in tandem with global interest rate, our net interest margin has stabilized, albeit at a lower 1.56% over the last three quarters. Now on slide 11, you will notice that non-interest income rose strongly at 40% from a quarter ago and now contributed to about half of the group's total income. The non-interest income growth was broad-based across insurance, wealth management, and are reflective of the strong diversified franchise that we have built over the years. On slide 12, you will notice that our wealth management income flows to $1.21 billion, driven by a combination of the rise in customer activities and market performance. And if you look at slide 13, net fee and commission income also highlight the same story. Essentially, net fee and commission on an upper trend for the last three quarters rose to $585 million, with wealth management fee reaching a new high of $321 million. On slide 14, we also continue to see strong customer activities, and that lifted our trading income to $316 million for the quarter. Site 15, operating expenses were 2% higher quarter on quarter at 1.15 billion. The staff costs increased in tandem with improvement in performance. Meanwhile, we maintain discipline in terms of our discretionary spending. Now on slide 16, on our allowances, given the improvement in economic outlook, a lower credit cost of 22 basis points was booked for this quarter. Allowances of $161 million, comprising mainly allowances for impaired assets, were set aside. Roughly half of the allowances for impaired assets was for the remaining oil and gas exposure that we have on our book. Now on slide 17, you'll notice that with the added allowances, our coverage for MPA rose to 118%. Now, in terms of asset quality on slide 18, you will notice that our loan book remains sound with NPL unchanged at 1.5%. And if you look at the details on slide 19, new non-performing assets of $375 million were roughly offset by an equivalent increase in recoveries and upgrades. And this increase in upgrades and recoveries were mainly in the oil and gas offshore support vessels and also transportation sector. Now, moving on to slide 20. Our loans grew 1% to $271 billion, mainly outside of Singapore and to our network customers in China and in the United Kingdom. and in terms of the details of our customer loans slide 21, loan portfolio remain well diversified. Building and construction still represented the largest segment at 27% of our total loans. Oil and gas constituted 4% of our loan book, including 2% in the oil and gas support vessel sector. Specifically, our OSV exposure net of specific provision now represents about only 0.1% of our loan book. We continue to grow our green and sustainable finance portfolio, increasing 9% quarter-on-quarter to 15.3 billion. Slide 22, on our loan relief program, total relief loans now represented 2% of our total loans. Although, as you can see in the details, the quantum has reduced from 5.7 billion to 5.1 billion. 92% of these relief loans were secured, and most of our customers indicated that they did not require further assistance beyond this program. On the final slides on deposit, you will notice that our liquidity remained ample, CASA continued to grow 3%, in this case, to $195 billion. Correspondingly, our CASA ratio rose to 61.8% this quarter. We continue to emphasize fixed deposit, and also our customers prefer the flexibility arising from current accounts and savings accounts. Now, with this, I'll end my presentation and pass it over to Helen.

Thanks, Darren. And good morning, everyone. Thank you for dining in for our first quarter results. I have met some of you, but hopefully with the pandemic situation continue to improve for the mid-year, we'll be able to see you in person. So I'd like to just cover a few points. And since Darren has talked about the numbers and the results in full, I just want to highlight a few points regarding our business performance for the first quarter. I see the first quarter performance as exceptional. I think this is due to market conditions that is inducive. And we have had very strong earnings across key markets and businesses. and indeed we also see diversified earnings and that rests on the strength and resilience of our three pillars of our business which is wealth, insurance and of course banking operations. Also seeing a stable loan bulk and then with some growth in Greater China and network customers in the UK as Darren has mentioned. Happy with the CASA ratio which is now at 61.8% and it grew from something like 51% a year ago in the first quarter of 2020. Also see a stable NIM at 1.56%. And lastly, a lower allowance of 161 million, which is in general commerce, transport and manufacturing. So with that, I also want to touch on the market conditions We are seeing strong recovery in global output and trade in 2021, led by revival of economic activities in the U.S. We are well aware that U.S. growth is driven by monetary stimulus and also fiscal spending. Another important economy, obviously China, has seen an accelerated pickup in exports and also a very strong domestic demand. Economic recovery is also expected to be strong in our core markets of Singapore, Malaysia, Indonesia and China. However, recovery is not broad-based yet. We see actually this is very much due to emerging variants of COVID-19 and also slow roll-out of vaccination in certain countries. So a true return to normal, I guess, will take time and perhaps longer than we think in this year. So we'd like to focus on dimpling our network to support our customers and also to capitalize on science of sectoral recovery. So, and with our strong balance sheet and capital position, I'm happy that we are focusing on a lot of the business momentum based on the recovery. So on the outlook, I will look at our loan growth as having momentum to lead to faster growth in the rest of the year. And I'm thinking about a mid to high digit, single digit growth in our loan book. and we will be focusing on the large Singapore corporates, Chinese business diversifying banking relationship in ASEAN, the activities of the SMEs across our core markets as the economy recovers. And we are also already seeing a momentum of demand for loans in infrastructure, logistics, transportation, real estate and also a lot of demand from private funds that is managing the wealth in the region. So on the provision side, the allowances size, I do not expect huge amount in the next three quarters. The relief program has seen healthy repayment trends since they start leaving the relief period. We stay with our guidance of 100 to 130 basis points for two years for our allowances, but we believe that it will be on the low side. So I would end here and we'll open the floor for questions.

Okay, thank you, Helen. First person in the queue is Chania. So Chania, if you could unmute yourself and ask your question, please.

Hi, hi, Helen and Darren. that we reported today. My first question, could I get guidance for NIM for 2021? Second question, could I get Helen's comments on your appetite, whether you are interested in city consumer banking and could you share that if you are interested, which markets would be most beneficial to OCBC? Those are my two questions.

Okay, thank you, Chania. If you could mute. Okay, thanks. Thanks, Chania. Okay.

I just want to recap your two questions. The first one is guidance for NIM, which is the LIM. And then the second one is about city retail business. So I think for LIM, because we are in a low interest environment and I think there is no particular events in the market that would lead to a sudden change, I think we will be able to protect the LIM on a rather stable manner. So I think that's the answer to your first question. On Citi, I just want to say we are always open on opportunities on the markets that we have an operations in. So we'll stay open on this particular opportunity that arise.

Thank you, Helen. But just to follow up, I mean, you already have quite a huge franchise in Greater China. would something in Southeast Asia be more beneficial or more attractive to you?

We actually have our core markets in Singapore, Malaysia, Indonesia and British China. So we are constantly open to ideas and opportunities. And I don't necessarily think you need to think about particular markets in that sense.

Okay, thank you, Chania. Gula, you're next. If you could unmute yourself.

Oh, can you hear me? Okay, great, great. Okay, sorry. Hi, Helen and Daryl, and congratulations on your very, very good results. So in terms of your very high set one, would you... Would you be open to returning some of this capital to shareholders or would you prefer to focus on growing? And if you are focused on growth, would it be sort of organic growth in terms of your market or would you look at bolt-on acquisitions?

I'll let Darren take the first part of the question and then I'll talk about growth.

Thanks for your question. Maybe before I answer your question specifically, I want to highlight that essentially CT1, Common Equity Tier 1 Capital Adequacy Ratio, is a ratio, meaning it's equity capital as a numerator and risk-weighted asset as a denominator. Now the high CET1 came about essentially because we have been optimizing our risk-weighted asset, which is also why you have seen that the volatility over the years, especially in 2020, whereby it first declined to 14.2%, and then recently going back to 15.5%. In terms of the numerator, sorry, and the movement during this period essentially arose mostly because of the optimization of risk-weighted assets, as I mentioned to you. Now, your question pertaining to how we plan to essentially then, because of the optimization, having the option then to return some equity capital to our stakeholders. Now, if you look at our history in terms of how we manage our numerator, it's always been one of your dividend in a sustainable, progressive manner. And obviously this policy pertaining to sustainable, you know, sort of a progressive dividend policy will have to take guidance from the regulator as well. In this case, as we all know, last year, the regulator has also set a cap in terms of the dividend that we could pay out. So the prospect of that return of capital would, to some extent, depend on the regulator leaving that cap. And from there, we'll have to then assess the outlook going forward and see how we can fine-tune that dividend accordingly.

Thanks, Darren. I think on growth, we are obviously positioning ourselves for the future. There are a few things you can classify as organic growth, obviously. and we want to capitalize on the flow of capital, trade, investments across ASEAN and China. We do want to continue to expand our leading wealth management franchise. We also want to continue to invest in elements into sustainability, want to continue to expand our sustainable finance book, and also we want to accelerate digitalization, so we'll be making investments in those. So as to inorganic, I just mentioned we remain open to opportunities that come up, but yeah, nothing further to comment on that.

Okay, thanks, Alan. Anshuman, you're next. Please unmute yourself, thanks.

Hi, Alan. Thanks for the time for this, for the numbers. I want to check with you on you highlighted some of the points about loan growth, net interest margin. What would you say would be among the biggest risks for the banks on the recovery path? I mean, almost all the banks have provided for lower credit allowances and pointed to loan growth. But can you highlight any key risks that could sort of really prevent this from happening or something that you are mindful of in the next few quarters. Thanks.

Thank you for that question. This is something we look at all the time as to the risk of the portfolio. I think the first thing is we have a well-diversified loan book in different industries. On some of the sectors that have given us some NPLs in the past, I think we have made enough provisions and cleaned up quite a bit. And as the economy recovers, we actually do have some right back. on realising some of the collectibles. So there are important sectors that we are focusing in. I think on healthcare, on transport, on manufacturing that lead to imports and exports. And yeah, there are sectors that are still under pressure. Hospitality, aviation, this is still under pressure. But I think for certain sectors, we are already past the 12th, I think. But we'll continue to look at which are the sectors that offer more growth and healthy growth as well.

Okay, thanks. Kelly from Business Times. Oh, sorry, it's Takashi. Takashi, you were actually next in queue after Anshuman. Sorry, Kelly, if you could just hold for a while. Takashi, you're next. Could you unmute yourself, please?

Hi, net profit for this quarter is 1.5 billion. So is this a historical high?

Yes, this is historical high for the quarter.

Yes, Takashi, it is a historical high for us, yes.

Yes, thank you, thank you.

Okay, is that all? Okay, we will take questions from Kelly, please. Kelly, you're up next.

Hi, thanks for the presentation and congratulations on the results. I wanted to ask, how do you see competition shaping up for the Greater Bay Area, especially given that DBS recently bought a state in the Shenzhen Rural Commercial Bank?

Thank you for the question, Kelly. I think the Greater Bay Area has been discussed for quite some time now among ourselves and our peer groups. But I just want to highlight that it is a very big market. If you look at the population, it's more than 60 million. If you look at the wealth accumulated in that area, it is huge. And we're talking about flow that we already seen Chinese customer very interested to invest outside of China. So that was expected a lot of outbound investments. Actually, as China open up its capital markets, we do actually see inbound interest as well. So bringing investments into China. Yeah, although we are yet to see more details of how the WealthConnect open up, but I think we are well positioned in the Victor Bay area with our presence of around 80 branches in that part of the world. So in terms of working with other partners, we have a very strong partnership with a couple of financial institutions. in China. So I think that also helped us in sourcing of customer and also taking customer on both inbound and outbound. So we're pretty happy about it. Very strong competition, I expect. But indeed, the market is so big that I think the pie is big enough for everybody to do reasonable business.

I have a question about OCBC's

sharing last week during its annual shareholder meeting that it might be reviewing its office space requirements and cutting down its number of branches. Does the bank have an update on this in terms of exactly how much space it plans to cut and how many branches it plans to close?

Yeah, Crisco, thank you. I think branch networks continue to be a very important part of our infrastructure to serve our customers. If you look at demand or footfall into branches, obviously there are two things that actually impact the way we think about how we optimize our real estate branch. The first thing is obviously, in particular driven by COVID, more and more customers are using digital means. and that means that the requirement of visiting a branch has fallen. But also, as customers begin to consider a lot more about how to manage the wealth, we do need our branch to actually talk to customers, meet with them and actually do financial planning with them. So there are these two forces that are always there to allow us to consider how to optimize our branch network. Yes, there will be a reduction in space if you see that there is no longer the requirement for the number of branches. We have reduced some branches last year, but mainly in Indonesia. Indonesia has a larger number of branches and actually the reduction is mainly there. So going forward, we will continue to look at requirements and then optimize our branch network planning as appropriate.

Prisca, is that all right? Yeah, that's fine. Thank you. Great, thanks. Chan-Yar, it's up to you again. Okay, go ahead, Jonia.

Oh yes, I just managed to unmute, sorry. Yeah, Helen, could you a bit, actually my question was the same about office space, but could you clarify how many branches in terms of percentage that you reduce in Indonesia? and in Singapore, how is your space for each employee like? Is it like more than one meter per person? More than 1.7 meter? How much room do you have to reduce? Thank you.

So Chania is asking about percentage of change in Indonesia branch network as well as the reduction in office space, right Chania?

Yes. Chania, I think we do actually, we have reduced branches over the years. I think potentially, I think as a ballpark number, maybe over the last three to five years, we may have reduced 10% of the branch numbers across the group. So that would be a percentage in mind. If you talk about office space, obviously in Singapore in particular where we have the most real estate and also the largest number of employees, we have been adopting a hybrid model of working from home and working in office and obviously following guidance from the government as well on that. But indeed, I think our hybrid model has become quite mature. and in office, of course, we need to continue to allow people to have safe social distancing. So all in all, I think we are not reducing our real estate asset because we own our buildings, but we continue to optimize the space that we use and we create, for example, more space for discussion. and more space for people to, for example, do a call on a private basis without having to share space with people. So it's a lot of optimizing, but the important thing is to make sure that our colleagues can work effectively either remotely from office or in office.

I see. Thank you. And one follow-up question on loan growth. I think your loan growth in the first quarter was about 1% from a year ago, but your outlook that you mentioned at the beginning is about mid to high single digit. When do you see such acceleration of growth? Thank you, Helene.

I think first thing is we already see a lot of momentum build up and for our customers, quite a lot are talking to us about new facilities in the activities. So that's why I think we will have a more accelerated growth rate in the next three quarters.

Thank you.

Actually, we don't have anyone else in the queue. Anyone else would like to ask questions? Everyone is happy? I almost see a raised hand. Okay, we are going to end today's session. Thank you very much and have a good day. Oh, sorry, we have Gola. Yes, Gola, you... and last before our phase two tomorrow. Go ahead, Gula.

Sorry, I'm trying to, all right, I was trying to unmute.

Yeah, yeah, you're good, yeah.

Can I just ask Darren a question on the allowances? What are the, could you just remind us, what are your total allowances and how much of this is a management overlay?

Yeah, good luck. The slide 17, you actually will be able to see our total allowances. So if you were to look at the breakdown in terms of allowances, we have about 4.7 plus billion over there. and it's a combination of essentially ECL1 and ECL2 allowances for non-impaired asset and ECL3 allowances for impaired asset which is the darker blue inside the bar and then obviously what we call regulatory laws and allowances in the yellow part of that bar which is $874 million. So the overlay that we set aside is roughly about 400 million or so, and that's predominantly in the ECR 1 and 2 portion of this allowance.

So can I just check, so the RLAR part cannot be written back, can it?

No, that part can be written back.

Oh, I see, okay.

So if I may just elaborate, essentially when you make provision, whether it's ECR 1, 2 or 3, quarter earnings, right? Whereas for RLAR, internally we call it RILA because it's quite a long, you know, form letter to kind of read out, right? That is from past earnings, retained earnings. So in a sense, as long as we have sufficient, and we do feel that we have more than sufficient coverage, at some point in time, we may actually also look to write that back into our performance. But one thing I want to point out for this quarter, if you notice, we have not, you know, sort of write back any allowances across the three categories.

And the management overlay, can you write that back as well? Because I think one of your peers said that they wouldn't use that to write back.

Yeah, maybe this is a bit technical in terms of the management overlay. The reason is because going into the model approach, there is certain assumptions that is very much based on mean variance, right? Very much, you know, sort of a standard model pertaining to mean variance based on history, what is the average expected loss and what is the variance or volatility around that expected loss. But as we experience in this pandemic, depending on who you read and who you talk to, it's a multi-standard deviation event. and in that sense the model may not be able to capture that multi-standard deviation event hence the need to set aside some model in this case a management overlay to adjust for that multi-standard deviation event. Now then the question going forward is whether you think that multi-standard deviation event could potentially arise at some point in time and that is where you might want to make that assessment of whether to write back on management overlay or not.

So you won't use that to write back at the moment?

Sorry?

I mean, if you are going to write back, it will be from your general allowances. Is that right?

I think one of our peers did undertake some of that. But for us, there's no intention whatsoever at this point in time.

Okay. So is there any condition which would allow you to write back? That's what I meant to ask.

Sorry, Gulag, do you mind repeating that question?

Under what condition would you write back some of the allowances, some of your provisions that you've made? Because everybody's made more than they require.

Yeah, again, if you refer back to the model in terms of ECL, and I mentioned mean variance, right? I guess to some extent, the experience of their volatility will over time accumulate in that model. So in that sense, as long as that mean variance component has sort of stabilized, meaning in terms of outlook being clearer, the trajectory in terms of what we are experiencing now becoming clearer, then potentially we may explore them.

Okay, thanks. Okay, thanks, Gulan. I don't see anyone having other questions to ask. With that, we will end today's session. Thank you, everyone, and take care. Thank you, everyone.

Thank you.