Oversea-Chinese Banking Corporation

Good morning, everyone. Thank you for joining us virtually this morning for our 2021 full-year results briefing, as well as the fourth quarter 2021 results briefing. On our panel today, we have our Group CEO, Helen Wong, our CFO, Mr Darren Tan, as well as our Group of Global Treasury, Mr Kenneth Lai. We will start today's session with our CFO Darren taking us through the slides and then after we will have our CEO Helen Wong going through her presentation and we'll take questions after that. Thank you.

Thank you, Ching Ching. Good morning. Thank you once again for joining us. So I'll start with the third page of the full year 2021 result presentation. For the full year of 2021, OCBC Group achieved a net profit of S$4.86 billion. This is up 35% from the previous year and close to the pre-pandemic level of financial year 2019. Growth in non-interest income was strong, although the momentum has slowed in the second half. Net interest income had remained soft amid a low interest rate environment. With general expectation of higher interest rate, which will see stronger net interest income in 2022. Expenses has risen in tandem with continued investment in systems and headcount, and with better economic outlook, significantly less allowances were set aside for the year. With a strong common equity Tier 1 of 15.5%, the Board had proposed the final dividend to be raised to $0.28 per share from $0.25 per share in our interim dividend. This will bring the full-year dividend for financial year 2021 to $0.53 and back to the financial year 2019 level. Now, I'll cover our results in greater detail in the following slides. Moving on to slide four. As I mentioned, our group net profit at $4.86 billion for financial year 2021 had returned to pre-pandemic level. Consequently, our return on equity had also rebounded two percentage points to 9.6%. Our operations continue to be well diversified, with relatively stable contribution geographically from the year before. Moving on to slide 5, for the full year 2021, our three business pillars continue to deliver reasonably good results. In terms of banking operations, our net profit for financial year 2021 of $3.93 billion was 41% higher year-on-year, with strong loan growth of 8%. Our wealth management income rose to a new high, of $3.92 billion, while our insurance business continues to deliver strong results. On slide 6, you will notice that our funding liquidity capital position remains strong, putting us in a very comfortable position to support our customers and pursue our long-term growth. Slide 7, the Group's full-year net profit of $4.86 billion was 35% higher than a year ago, This was mainly driven by higher fee and insurance income, as well as lower allowances. For the fourth quarter, net profit was S$973 million, 14% below the previous year and 20% lower than the last quarter, mainly as a result of higher allowances that we have conservatively set aside for impaired assets in the quarter. Moving on to slide 8, our banking operations net profit was 41% higher at S$3.93 billion, mainly from an increase in non-interest income and lower allowances, while Great Eastern net profit contribution also rose 17% to $932 million. I'll move on to slide 10. Net interest income for the full year was lower year-on-year at $5.86 billion as a result of the seven basis point compression in net interest margin. For the fourth quarter, we were able to maintain net interest margin at 1.52%, from our continued efforts to refine our funding compositions and costs. Moving on to slide 11, in terms of non-interest income, for the full year, it was $4.74 billion, an increase of 14%. As compared to the previous year, wealth management-related fee income as well as stronger insurance income accounted for the bulk of the growth. Moving on to slide 12, consequently, total wealth management income for the full year rose 11%, to $3.92 billion, and now constituted more than a third of the group's income. The group's total wealth management AUM, as an under-management, which comprised wealth management segments like premier and private banking, delivered consistent growth over the past five quarters to $258 billion Singapore dollars. Moving on to slide 13. For the full year, fee income rose 12% year-on-year to a record $2.25 billion, Our strong wealth management franchise, as shown in the previous slide, continues to be the biggest driver of our fee income, with wealth management fees surpassing $1 billion for the first time, although the pace of growth has slowed in the fourth quarter on the back of a more subdued financial market. Slide 14, you will notice that our trading income of $763 million for the full year was below that of $863 million in the previous year, as a result of lower non-customer-related flow in trading income. Moving on to slide 15 on our operating expenses. Operating expenses rose 7% to $4.76 billion. The increase in expenses for financial year 2021 were largely due to staff-related costs arising from higher headcount to support our growth in wealth management business, continued investment in technology, and also lower government job support grants that we received in the previous year. Adjusting for the grants, the year-on-year increase in expenses would have been lower at 4%. Moving on to slide 16, for the year, we have provided lower total allowances of $873 million given the improvement in economic outlook. However, additional allowances of $317 million were set aside for the fourth quarter. These allowances for impaired assets was at $387 million and it arose from loans to a few project financing deals that were affected by supply chain disruption in Greater China and in international market. The write-back in allowances for non-impaired assets of $70 million were largely from movements to impaired categorisation. Moving on to slide 17, total cumulative allowances were lower at $3.9 billion for the quarter as we wrote off more impaired assets, mainly in the oil and gas offshore support vessel space. This reduction was more than the additional allowances for the impaired asset that we set aside for the quarter. While we prudently classified more secured loans as non-performing, the lower loss history of such loans necessitated a lower amount of allowances to be provided. Consequently, the covered ratio for our non-performing assets was lower at 90%. Moving on to slide 19, the quarter-on-quarter increase in the new non-performing assets was because of the difficulties faced, as I mentioned earlier, in a few project financing loans that had delay arising from the supply chain problems that they faced. Now, this was offset by increase in recoveries, upgrades and write-offs that were mainly from the oil and gas offshore support vessel space and transportation sectors. Moving on to slide 20, our loan growth grew 8% to $290 billion from $267 billion a year ago, driven by growth in Singapore, Greater China and our international network. By industry, the increase was led by growth to building and construction sector, as well as professionals and individuals. Moving on to slide 21, our loan portfolio remained well diversified, with building and construction housing sector as the largest segment at 28% and 21% of total loan respectively. The Group continued to expand its green and sustainable finance portfolio, increasing 66% year-on-year to $23.3 billion and now accounted for 8% of our loan book. Total relief loans amounted to 1% of total loans, down from 2% in the previous quarter. Moving on to slide 22, liquidity remained ample. We had grown our customer deposit by 9% for the year to $342 billion. CASA deposit saw a stronger growth year-on-year at 14% to $217 billion, resulting in a higher CASA ratio of 63.3%. On the final slide, slide 23, The board has proposed a final dividend of $0.28. There's a 12% increase from the interim dividend of $0.25. This will bring the total dividend for the year to $0.53 per share, back to financial year 2019 level, and represented a payout ratio of 49% against our group net profit. The script dividend scheme will not be applicable. Now I'll pass the floor to Helen. Thank you.

Thank you, Darren, and good morning, everyone. I'm pleased to be here today to talk to you about our financial results for the last quarter and for the past year. But looking back, I think for the last two years, we've been managing through the uncertainties brought about by COVID-19, and the pandemic has always asked us to look at how we actively serve our customers and support the community and also keeping our own people safe. So I'm referring you now to the slides and with the year in review on slide three. So during the year, we improve our financial returns, advance our sustainability agenda, and also accelerated our digital transformation. Darren already mentioned that our profitability is back to 2019 levels. we would have communicated during the mid of the COVID-19 in 2020 that we may expect to take two years to come back to the profitability level of 2019. So I'm pleased to report a strong set of results for 2021 that already bring us back to 2021 net profit just shy of that year's record earnings. We also restore our full year dividend to 2019 levels with a payout ratio of 49%. On sustainability, it's a big topic. I think this is the subject that is most discussed between us and our clients and government authorities and regulators. We continue to make good progress in our sustainability agenda. We secure more than $34 billion in lending commitments for sustainable financing, and we set a more ambitious target to double the original target to reach $50 billion by 2025. On the digital adoption, we increased digital penetration and will continue to bring immediacy, accessibility and simplicity for our customers. Looking at the future, I think we have to say we expect economic recovery momentum to carry on. Asia is expected to be among the fastest growth region. This would drive growth trajectory for OCBC. We see potential increase in interest rates to provide a graduate interest income uplift. Guidance for 2022 on three things. We expect LIM to be between 1.5% to 1.55%, but with a potential upside as interest rate, if interest rate is uplift faster. We expect loan growth to be in mid to high single digit, and we want to provide a credit cost guidance, maintain within 20 to 25 basis points with a view that recovery is to continue in 2022. but I would say that I am forecasting that it will be on the lower side of this range. Of course, we want to remain watchful for potential headwinds and do hope that Omicron is the final disruptive phase of this pandemic and COVID-19 evolves into a livable endemic. Other issues to navigate include inflation, geopolitical tensions, supply chain disruption, rising energy prices, etc. I'd like to share on the following slide the SMS phishing scam. I think we've talked to the media in the past how it happened, but we just want to provide a bit more details. This is how we have been addressing the phishing scams over in particular over the months of December leading to January. The scam was first detected on the 8th of December with three cases. During those period of time, this is much lower than the normal average of 18 daily cases of other scams, particularly job scams. The number was thus not significant. The cases increased from the 15th of December in similar trend as other scam, The surge to double-digit came on the 23rd December and grew aggressively until the 30th of December and which is during that period we have seen a 40% surge in customer calls to our contact center. The attack was unprecedented and is well orchestrated and highly coordinated. We canceled training, we canceled leave of staff, and we called for nine staff to cope with the course. And of course, we took immediate steps to raise public awareness during the period in December, and we intensified the efforts of communications from mid-December. We also actively blocked and took down phishing sites. At one point of time, it is more than 200 sites that we identified. We expected additional security measures such as the cooling off period for 2FA activation. We lower daily payment limits and we step up monitoring for transactions and we flex those multiple transactions for same beneficiary for monitoring and tracing. This helped to stem the cases from the 31st of December and there are no new cases in early January onwards. We decided on having goodwill payout actually very early when we look at this scam because the circumstances are very different from other scams and the amount provided for the payout is under the expenses in the fourth quarter 2021. And of course we implemented MAS and ABS securities measures announced on the 19th of January and that is applicable to the whole industry. Just this month, we rolled out the emergency kill switch, which offer customers a choice and option to stop the risk of being scammed and stop the account being used for further payments. And we continue to work with the industry, MAS and other government agencies to put in place more safeguards on a coordinated basis. I'd like to now switch to our slide nine, where I would like to talk about a three-year refresh corporate strategy to drive growth and to reinforce our strengths. I'm pleased on the progress so far. This doesn't start today. We have been actively looking at our strategy. I think in previous discussions, I talked about the global trends and in particular the trends in Asia. and that Asia now trades more within Asia. And that together with our focus on our core markets and our strength in China and ASEAN, we've been identifying a lot of opportunities. So the strategy comes from that direction. And we are looking at four growth pillars and another four pillars to reinforce our strengths. So on Asian wealth, which is the first pillar we talk about, we will strengthen our hub capabilities across Singapore, Hong Kong and Dubai and London to continue the growth. We want to extend our global wealth platform. This is across all customer segments from Bank of Singapore to OCBC Premier customers. That was built and started to run across all segments in 2021. We are accelerating the building up of relationship bankers to capture growth, and we want to deepen cooperation of financial institutions, particularly in China and in regional banks such as Ping An Bank. The second pillar talks about trade and investment flow, and we will grow Chinese cross-border business, deepening coverage of technology, trade and logistics, and surface value chains in China-ASEAN corridor. We continue to build Greater China Division and enhance capacity. We just increased personnel in the China business desk in Malaysia, as an example. Then the China Business Office is not just in Singapore and Malaysia. We also have built it up with coverage on the whole ASEAN countries that we have a presence. We continue our partnership with Bank of Ningbo. I mentioned FIs. That includes Bank of Ningbo, obviously, the investee we are in. and also Bank of Shanghai, China Guangfa Bank, China City Bank, and Ping An Bank, where we have already signed up a relationship and cooperating agreements. On the first pillar, we talk about the new economy. We will deepen penetration in the high-growth industries. We develop new target segments for renewables, and also we explore opportunities in rapidly evolving world of digital assets and currency. Things that we look actively would be tokenization and also how we offer trading for our customers in digital assets. The fourth pillar is a very important one on sustainability. We unveiled a five-year climate strategy last year, and with this newly developed climate strategy, these are five pillars there that is led by the members of the management committee of the bank. We doubled our target of sustainable financing to $50 billion by 2025. It was previously 25 by 2025. We now doubled it to $50 billion. And we also target to achieve carbon neutrality for OCBC's banking operational emissions this year in 2022. When we say we have four pillars to grow our business, we also want to reinforce our strength to excel. So we want to talk about the one group approach where we deepen the management talent pool through Last year, we continued to deepen our management pool. We appointed a group chief operating officer. We appointed the head of Global Wholesale Bank, who will join us in the coming months, and the head of CryptoChina. We formed the CryptoChina division by integrating the operations of OCBC Hong Kong branch and Wing Hung Bank. And the CryptoChina divisions will cover operations in Hong Kong, Macau, China and also Taiwan. We rolled up our matrix accountability and we find our operating model across the group. We also scale up collaborative product capabilities and distribution across group to capture synergies. We have also talked about speeding up transformation and digitalization and that started also accelerated actually since the end of 2020. So last year we see quite a bit of investments to jack up expenses, but in preparation for increased digital penetration of our customer segments and deliver a superior customer experience. If you go back to my first page of presentation, we did show some numbers regarding the digital efforts so far and how we bank online with our customer to have strict through processing on loan application and also on account opening. We continue to execute our transformation agenda. We have appointed a chief transformation officer, and we want to also strengthen our risk and controls and modernize our bank for a digital world. On people, I talk about organizational structure change of renew appointments, but we also will look at continue to groom our talent higher, we think, and trained. So we intend to transform also our HR processes to attract and retain the best talent so that we are ready for the future growth. Last but not least, the last pillar, it is about capital and risk management. This is to allow us to deliver sustainable growth through franchise expansion with robust capital base and also prudent risk management. I do want to mention we have set some targets for ourselves on this three-year plan. We are targeting both our banking income and banking profits to grow more than 10% CAGR. We're targeting loans to growth more than 10% CAGR. We'll manage our liquidity accordingly. CASA has been growing satisfactorily, but we'll manage our funding with a wide range of liquidity to support this growth. We also will tightly manage expenses in line with the revenue growth. And last but not least, I think it's a little bit early to talk about an ROE, but we do expect that the Group CET1 will fall slowly over the three years in supporting this organic growth. and the RWA growth in that sense. And there are also moving parts, of course, because our interest rate is everybody's guess. It has been changed rapidly. And as I also mentioned, the headwinds that is still around that we need to manage. But we will also look at inorganic growth where the opportunity arise. That will be on business that supplement our strategy, as I lay out just now, and also to in particular on the four pillars, the growth pillars that I mentioned. So I would like to stop my presentation on this slide and thank you very much. We will now move on to take questions as you may have.