Oversea-Chinese Banking Corporation

Welcome to our results briefing this morning. We have Helen and Darren, our CFO and Helen, our Group CEO, with us. You can see them on screen. Darren's going to take us through the slides and then Helen will take the questions thereafter. Darren, please.

Yeah, okay. Good morning again. Thank you for joining us, everyone. So, we'll start with slide three. Now, for the third quarter of 2021, we reported an across our key markets, and this resulted in a 3% increase year-on-year in our net interest income amidst the sustained low interest rate environment. Okay, I've been sort of passed the message by. Our private banking AUM expanded 6% year-on-year to US$123 billion on the back of continued inflows of net new money. And the net new money is across the region that we operate in. Now on the insurance front, total weighted new sales and new business embedded value continue to grow, rising 29% and 3% from a year ago respectively. and profit from insurance was 18% higher at $311 million as compared to a year ago. Our expenses were higher for this quarter mainly from our continuing investment in people and system to support our business growth while not receiving the same government support grant upon the job front. Now, our set quality remained resilient. NPL ratio was stable at 1.5%, while our allowances in the third quarter, reflecting the improved credit environment, was significantly lower. Our common equity Tier 1 ratio remains strong at 15.5%. I'll now move on to slide 7. Group net profit of $1.22 billion, as I mentioned before, was 19% higher year-on-year and 5% higher on the quarter-on-quarter basis. The exceptional first quarter, followed by two resilient quarters on the back of the improved economic environments, had enabled us to deliver a strong profit of $3.88 billion for the nine months to date. And if I can bring you to slide 8, if you were to look at the net profit from our banking operations itself for the third quarter, it grew 33% from a year ago and 8% from the previous quarter to $1.05 billion. Great Eastern's profit contribution for the quarter, however, was lower comparatively, mainly impacted by unrealized market losses on its investment portfolio. If I can move to slide 10 on our net interest income, third quarter net interest income rose 3% year-on-year while remaining unchanged from the previous quarter to $1.46 billion. Loan growth has been able to overcome lower net interest margin to register an increase in net interest income, at least until this quarter. And you will notice net interest margin had dropped six basis points from the previous quarter to 1.52%, mainly from three factors. A one out of two basis point drop from the impact of interest reversals from the downgrade of Malaysia and Indonesian loans to non-performing. The lower-use rising competition for good quality loans against a backdrop of excess liquidity. And in terms of timing, lower gaping income as we utilize some of the excess liquidity that we have. And we will move on to slide 11 on the non-interest income for the third quarter. Now, including the first quarter, where all segments were doing comparatively better, nine months non-interest income was still 18% higher against the same period last year. Moving on to slide 12, our wealth management franchise continued to generate 35% of total income, specifically on the Bank of Singapore. AUM had dropped slightly to US$123 billion. The decline in market valuation had more than offset the net new money inflows that I mentioned earlier. Moving on to slide 13. Nonetheless, as you can see on slide 13, client activities were relatively robust, such that income from wealth management remained strong. Consequently, net fee and commission income was higher than most quarters before and after first quarter 2021. And in terms of trading income on slide 14, the weaker performance for the quarter arose mainly from unrealized market losses from Great Eastern. in a still higher trading income for the nine months at $611 million. Moving on to slide 15, operating expenses of $1.19 billion for the third quarter were 8% higher year-on-year and 4% above the previous quarter. Expenses arose mainly from staff-related costs arising from high headcount and variable compensation, and also, as I mentioned earlier, the lower government job support grants received this year. The increase in expenses would have been lower at 6% year-on-year and 3% quarter-on-quarter, should we adjust for the government grants administered. Moving on to slide 16, allowances for the third quarter were lower at $163 million. A $22 million net write-back in ECL 1 and 2 allowances arose largely from the transfer to ECL 3 as a result of the downgrade of some loans to non-performing. Correspondingly, additional ECL-3 of $185 million was set aside for the quarter. And if you look at slide 17, total cumulative allowances were lower at $4.13 billion for the quarter as we roll off more impact asset. This reduction was more than the additional ECL allowances set aside for the quarter as a result of the lower total cumulative allowances and the slightly higher non-performing assets, which we will cover in the next slide. The coverage ratio was lower at 97%. Now on slide 18, our NPR ratio remained stable at 1.5% for four consecutive quarters. Non-performing assets were $4.24 billion and was about 4% more than the second quarter. The quarter-on-quarter increase was largely from downgrades of secured consumer loans in Malaysia and a couple of Loans grew at a faster pace this quarter to register an increase of 6% from the previous year and 4% from the previous quarter. The largest increase for the quarter were in Singapore and Greater China led by building and construction, general commerce and housing loans. Our loan exposure to China both onshore and offshore currently accounted for 11% of total loans. These were largely lending to SOEs, large local corporates, and our network customers. And of the China onshore exposures of $6 billion, less than one-third were lending to corporates in the real estate sector, and these loans were mostly to our network customers. And if you look at slide 21, our loan composition by industry remains stable in well-diversified core sectors, sectors remain the largest segment at 28% and 21% of total loans respectively. And on site 22, where we provide some update on our total relief loans, you will notice that total relief loans for the quarter were higher at $6.3 billion as compared to the previous quarter of $4.5 billion. The increase in this quarter was largely from secured customers' loans in Malaysia, followed by the rollout of the new per mullet package in July 2021 by the Malaysian government. In Singapore, exit from the relief loans program had reduced outstanding balance to $1.6 billion from $2.2 billion a quarter ago. Total relief loans accounted for 2% of the group loans, of which 89% were secured against collaterals. Majority of these relief loans are still performing. Now, I'll move on to slide 23. Thank you Darren. I hope you all hear me well and good morning again. I have prepared some update but before I go into the presentation slides,

allowed me just to talk about how I see our performance for the third quarter and the nine months of the year. I do feel, I do see that the year demonstrates our strong franchise and was underpinned by the good progress we have made on our strategic priorities. We have three quarters of resilient results which drove our nine months earnings to a new high actually. On a year-to-date basis, loan growth is up 7% or SING dollars 18 billion. And loan growth is on track. I talk about mid to single digit growth for the year. I think we're on track to reach that by year end. As I mentioned in the first quarter results, I expect momentum to grow in the later part of the year and we have seen a third quarter loan growth to be 4% year-on-year. We're also seeing a pipeline pick up in Singapore, greater China, and other overseas markets across both consumer and corporate banking. Another point about loans to take note is our green financing loans saw strong growth trajectory. make up close to S$6 billion or one-third of our year-to-date overall loan increase. Wealth management franchise performed well, performed strongly as reflected by net money growth quarter-on-quarter across our premier private sector and also Bank of Singapore for our private banking customers. Customer-related activity holding steady despite recent tightening measures. We saw the third quarter fee income as higher than pre-COVID levels. Customer treasury flow income is also steady and insurance business also doing well. To some areas to highlight, Darren would have covered most of this earlier, but I also want to touch on these key areas to provide more insight on questions you might have. So trying to address your questions beforehand. The first one is the 8% increase in operating expenses in the third quarter. Without the effect of higher job support grants a year ago, OPEX would have grown 6% instead of 8%. This increase reflected both higher variable compensation in light of business volume growth but importantly, investing in headcount in our strategic priorities, which I will cover later on. Technology costs take up 12% of cost for third quarter and also for nine months in the year, but to continue to see very good progress in our digitalization efforts. I want to emphasize when we say cost, it is investment into the technology. And indeed, this is before technology staff cost, so we are making quite a lot of investments in this area. The second point I want to highlight is I think there will be question on China exposure. particular on mainland. So I just want to recap what Darren has mentioned. Mainland China onshore exposure is only 2% of our group loans. This is largely lending to our network customers and large SOEs. And the reason is very simple. A foreign bank that aims to connect China companies with the rest of the world. And so total exposure outside is always higher than the exposure onshore. So, mainland China onshore real estate exposure is one-third of total loans, and even then, this is lending mainly to our network customers. Focus is still partnering the China SOEs and large corporates as they move out of China into our region, more predominantly, obviously, ASEAN. On credit quality and relief loans, credit quality of our overall portfolio remains healthy and we are committed to help our customers with orderly exit from the relief programs. The group relief loans make up 2% of total loans. It's down substantially compared to last year, this period. This is also nearly 90% secure. This is well below the peak a year ago when relief loans make up, as I said, much higher, which is 10% of our loan book. Another point is regarding Malaysia. Relief loans rose to $4 billion or one-fifth of Malaysian book. Some of these loans were downgraded to non-performing. according to regulatory reporting and accounting, and the associated interest accruals were reversed from our P&L. This makes up for close to half of the six basis points quarter-on-quarter decline in our third quarter NIM. Nonetheless, we are comfortable that we have set aside sufficient provisions, including management overlays to buffer for any unanticipated stress in our book. Overall credit costs, if the credit environment remains stable, I'm still expecting credit costs to be at the lower end of our guidance of 100 to 130 basis points for two years. So for NIEM guidance, it remains stable at current levels. I'd like to just cover very quickly the slides that I have prepared as an update. You have seen it and I just want to share my thoughts. And if you look at slide two, my thoughts on economic outlook in 2022. I would say GDP of ASEAN and China largely expected to be better than the world average. and trade for the region has also rebounded strongly. And you do know that intra-Asia trade is more than 50%, constitute more than 50% of Asian trade. So meaning Asia is trading more with ourselves than with other parts of the world. I do expect a 3% to 6% GDP growth for our key markets in 2022. Western Asian is a very important part we have seen COVID situation in Malaysia and Indonesia improving as vaccination rates grow. Malaysia, 90% of adults fully vaccinated. Indonesia vaccinated about one quarter of population. For our staff, we try to help them and our staff are highly vaccinated in Malaysia and Indonesia. encouraging to see gradual opening of travel links in Asia, and so we expect business activities to continue to pick up in tandem. Another megatrend is obviously sustainability, no longer optional, no longer optional, I want to repeat that, and there is increased global focus on climate change, and of course COP26 is happening at the moment, and we see there's a lot of demand for sustainable financing and products and investments. We remain watchful of some near-term headwinds, concerns on power crunch, especially in China, rising energy prices globally, limited industrial output in the short term, supply chain disruption is happening and continue, dislocation in the container market, shipping, and also shortage of key manufacturing components. These are all threats. And of course, we want to continue to support the China Plus One strategy for the MNCs. And a lot of them are coming into, continue to come into ASEAN. So driving our strategic priorities in the next slide, slide three, I'm pleased on the progress so far, and these priorities will also power our future growth in the next few years. I talked about four pillars in the past, and indeed, if we look at slide four, regarding the continued investments in our wealth platform, and also, you will see that as you look at our numbers, it does reflect in wealth management income and fees, and the robust AUM growth across our wealth tiers. Just announced our partnership with Ping An Bank, as you have read, under China's Wealth Management Connect Scheme for the Greater Bay Area. This will open up a whole new segment of customers. As you all know, Ping An is among the top banks in China. In particular, they're based in the Greater Bay, the headquarters there. They have more than 300 branches in the Greater Bay Area and over 100 million retail customers. Customers in mainland China and Hong Kong and Macau can now open wealth management accounts for wealth management through our partnership with Ping An. This is both for southbound and for northbound. will start by offering investors to access our unit trust and continue to extract value from our business franchise. So for ultra-high net worth and high net worth individuals, we target opportunities from key markets. We're growing our China onshore wealth, emergence of family office, and indeed a lot of the wealth investments overseas. And we continue to see Singapore as the hub for wealth management. And we are helping, we are servicing a lot of customers coming our way here. For the emerging affluent and mass market, we continue to drive acquisition through digitalization and strategic partnerships. So we do build wealth conversation and execution on mobile. You will see more and more new apps actually on the phone, allowing us to do banking a lot more effectively. including not just transaction but wealth management. We continue to build our team to support future growth. We want to double the number of relationship managers for Chinese clients to 500, I mean RMs to 500 by 2023. Go on to the next pillar which is powering growth in the ASEAN Greater China Corridor. We are strengthening capabilities to capture this trade and investment flows in this corridor. Crypto-China loans have expanded 12% since end 2020. We focus on a regional hub and spoke model using TrinHub Singapore and Hong Kong and average regional network strength. We want to enhance our crypto-China transaction banking, investment banking valuable position to support import inbound and outbound clients. I'm happy that we have made some inroads there and we have been winning mandates, in particular helping clients from CryptoChina as they expand into ASEAN. So this would be cross-border support on trade and cash management demand of our clients. We also continue to build our team to support the growth. I announced CryptoChina organizational structure and appointed Mr. Tan Mingming as our head of Crypto China. And we have made major management appointments, including investment banking head for Crypto China who joined us in August. And we continue to target corporates across the region to grow our loans and fee income. So this would include technology contract manufacturers in Southeast Asia and China, Infrastructure Data Centre, which is continued to be a hot investment subject, Logistics, Life Sciences Facilities, of course, Telco 5G, Technology, Biopharm, Medtech, you name it. Of course, healthcare, very important. And agritech, about food and green businesses. And again, the mobility ecosystem, EV, how we help our customers from building, for example, charging station, manufacturing of EV batteries, car loans, EV car loans, etc., etc. So quite a lot to target on. and of course we want to continue to build our emerging business banking through digital channels and we have seen in Singapore in particular 98% of our SME account opening is entirely online. So going on the next one, driving sustainability efforts, I need actually two slides to talk about it. We want to build a leading sustainable regional bank and have set clear priorities and targets. There are many, many growth opportunities in the sustainability space which we can capture. I hope page six summarizes a lot of the things that we have been doing and some of the achievements we have made. We are certainly committed to create lasting value for all our stakeholders, be it our shareholders, our customers, our community, and our employees. We want to deliver positive social and environmental impact. So just to go a little bit deeper into that, on the financing side, we saw strong traction in growth. I mentioned this year's green financing is growing very well and you will remember we have a 25 by 25 target, which is $25 billion on our books by year 2025. I'm glad to say that our commitments have already exceeded that. We are almost $30 billion in commitment. So we are waiting for some of the drawdown, of course, in order to cross that 2025 mark. We will also be looking at a new and ambitious target in due course. and we also grow our sector coverage such as sustainable food production. I mentioned architect which is very important as Singapore in particular go for our 30 by 30 target. We look at renewable energy ecosystem. It is not just financing the creation of energy but how energy is supplied and as I mentioned earlier on how energy is supplied and that will lead to other business such as I use EV as an example just now. Green trade and working capital SME framework. We have a framework for SME to allow them to do green financing without additional cost meaning we create a framework as long as they fulfill the requirements in the framework the certification is already done for them. So we are looking to double sustainable financing to SMEs by year-end. We have EBIT partnership and well-financing green instruments. On sustainable investing, we expand private bank ESG investment solutions and we integrate ESG consideration into our research. and discretionary portfolios. I hope you find some of our research interesting on this front. BOS is also first in Asia to incorporate ESG factors in the assessment of the loan quantum for investment financing, encouraging clients to invest sustainably. I do want to mention, we just have our inaugural TCFD report last month, reflects our commitment to drive transition to a sustainable low-carbon world. And in terms of equipping employees with skills, we launched a suit of sustainability training modules to groom more subject experts within the bank. I did say we need to make the program interesting, and I thought that is truly quite informative for our colleagues. Last but not least, on the fourth pillar, which I always describe as accelerating digitalization, We have high take-up across digital platforms and increased penetration. I talked about high level of SME accounts open digitally at 98%. We also are seeing 85% of transactions in digital. For consumer business, 62% of our new secure loan sales are digital and digital secure loans have grown 3.5 times in a year. digital wealth acquisition and sales is also up four times year-on-year. We have a number of new digitalized offerings this year, announced in mid-October that we'll be rolling out travel with OCBC in the coming weeks as Singapore opened up vaccinated travel lanes. It is a one-stop digital platform that will enable our customers to book airline tickets, hotel, car rentals, at preferential rates, use our card reward points to offset purchases at checkout with OCBC cards using OCBC Pay Anyone and also buy travel insurance. I hope that helps you as you plan your travel based on the VTLs. And I do want to say we also are looking at instant buy-sell of precious metals so we are allowing OCBC digital app on Monday to Fridays 24 hours a day if you are interested in precious metal. So these are just examples and obviously we'll continue to drive initiatives across our digital ecosystem and enhance our customer value and experience. I'll stop here as it's quite a long message but indeed thank you. We'll now move on to questions.