Oversea-Chinese Banking Corporation

Good morning everyone. Welcome to OCBC's results briefing for our first quarter. So we have, I know this is audio, you can't see us, but we have our Group CEO Helen as well as our Group CFO Darren with us. We will have Darren take us through the slides on our results and Helen will be giving some of her remarks before we take Q&A. Darren.

Okay, morning everybody. today. So I'll start with slide four on our first quarter 2022 financial statements. So you will notice that for the first quarter of 2022, we reported a net profit of $1.36 billion Singapore dollars. This is an increase of 39% from the previous quarter. And if you were to compare versus the strong first quarter of last year, net profit was 10% lower. Total income was 4% higher for the quarter, driven by a combination of an interest income higher trading income as well as life insurance profit. Allowances for the quarter were significantly lower with the improvement in economic outlook and with the strong quarterly performance, our analysed ROE rose 3.1 percentage point to 10.6%. I'll move on to slide five. You will notice that essentially our three business pillars continue to hold up. Our banking operations net profit rose 50% from a quarter ago and 4% from the previous year to $1.17 billion. Customer loans and deposits continued to grow, backed by a strong network. And the group's wealth management under management were lower as a result of the negative market valuations, while our insurance business continued to maintain healthy sales growth. Moving on to slide six, the strength of our diversified franchise, as you can see in the chart here, continue to provide us multiple income stream and across the various business lines as well as job increase. On slide seven, our balance sheet fundamentals remain strong. LDL ratio was 83.3%. And if you look at the under liquidity and funding measures, net stable funding ratio remains high at 118% and liquidity coverage ratio remains high at 151%. And in fact, if you look at the composition of our deposit and funding, the bulk of it, 81%, still come from our customer deposit base. So the strong funding, liquidity and capital positions put us in a comfortable position to continue to support our customers and pursue our long-term growth. On slide nine, The group's first quarter net profit, as I mentioned earlier, was $1.36 billion, 10% lower as compared to first quarter last year. The combination of higher net interest income, lower allowances were more than offset by the lower non-interest income and higher expenses for this quarter as compared to the first quarter last year. On the other hand, if you look at first quarter of this year, net profit rose 39% as compared to the previous quarter, and this is from a combination of higher non-interest income a decline in operating expenses and also allowances for the quarter. On slide 10, as I mentioned, again, the net profit of $1.36 billion was 10% lower year-on-year and 39% higher vis-a-vis the quarter before. And on slide 11, you will notice that specifically on our banking operations, net profit grew 4% from a year ago and 50% from the previous quarter to $1.17 billion. The quarter-on-quarter increase was mainly driven by essentially a 70% rise in operating profit and also a significant drop in terms of our allowances for the quarter. Moving on to slide 13, the interest margin for the first quarter expanded three basis points to 1.55% after staying relatively flat at 1.52% for the past two quarters as a result of the loan yield increases that outpace the deposit cost itself. with improved net interest margin and together with the 1% asset growth, net interest income grew 1% from the previous quarter and from the last quarter to $1.50 billion. Now moving on to slide 14, non-interest income for the first quarter was $1.14 billion, 23% lower year-on-year and 8% higher than the previous quarter. The prior year's non-interest income was supported by strong customer and investment activities whereas against the previous quarter, the increase in non-interest income was driven mainly from higher trading and insurance income. Now, if we move on to slide 15, fee income for the first quarter of 2022 was more subdued at $522 million. As explained in the previous slide, we had a strong first quarter last year. As compared to the previous quarter itself, in this year, our financial market related fee drivers like wealth management, brokerage were higher. but this will actually offset by lower credit card loan and trade related fee. Now moving on to site 16 in terms of trading income, the quarter itself we reported 225 million. This was from a combination of higher customer as well as non-customer flows. Now moving on to site 17 on our operating expenses. Operating expenses remain well managed and declined 7% quarter on quarter to 1.20 billion. The quarter-on-quarter fall in expenses were largely attributed to the lower one-off operational charges made in the previous quarter, if you were to compare them on a quarter-on-quarter basis. Now, moving on to allowances, slide 18. Given the improving economic environment, our credit expectation has improved. Consequently, a total allowance of $44 million was set aside for this quarter, and this constituted about a six basis point in terms of credit costs. and in terms of total cumulative allowances on slide 19, the coverage ratio for our MPA was largely unchanged at 91%. And on slide 20, you will notice that our room book remains sound with MPL ratio lower at 1.4%. And slide 21, continuing on the asset quality that we have, you will notice that in terms of new non-performing assets formation, was also significantly lower as compared to the previous quarter at $296 million. Now again, moving on to customer loans on slide 22. Customer loan grew 1% from a quarter ago to $294 billion, led by growth in Singapore and other international markets. Our loans continue to be well diversified across geography and industry. Building and construction housing loans remain the largest segment at 29%, 21% of total loan respective. Moving on to site 23, customer deposit rose 2% from a quarter ago to $348 billion and mainly led by higher fixed deposit for this quarter. However, the liquidity remained ample and you can see that the CASA represented 62.7% of our total customer deposit. And moving on to the last slide, site 24, our common equity to one ratio remains strong at 15.2%. slightly lower than 15.5% in the previous quarter, mainly as a result of higher credit risk with assets associated with loan growth and also a decline in terms of fair value reserve arising from a fall in devaluation of debt securities in our banking group. With this, I will pass the floor to Helen.

Thank you, Darren. Good morning to all. Let me be brief. I think Darren has already gone through our first quarter financial results. I just want to highlight that I think it is a balanced performance across our three business pillars and this has continued to allow us to deliver resilient earnings in the current operating environment. We also continue to maintain a strong capital base, funding and equity positions. Our overall loan portfolio remains sound. I think you would have quite a lot of interest in how we actually look at 2022 Our views is Asia's growth remains resilient. There is indeed further opening of travel borders and also relaxation of COVID measures in Singapore. So we're seeing a lot more activities in F&B, retail, aviation, tourism-related sector. So there could be some upside for these sectors this year. Malaysia and Indonesia are two other core markets. have been starting to show stronger growth. Of course, this is supported by the reopening and also by higher commodity prices and revival in domestic demand. Of course, we continue to see near-term outlook clouded with headwinds. We talked about global inflationary pressures expected to continue to trend up alongside the rising energy and commodity prices. we see rapid rise in inflation. The Fed Reserve is expected to accelerate tightening of monitoring policy and raise interest rates in a more rapid fashion. So this should further deter consumption and investment growth. So I think on the investment side, the first quarter results have really demonstrated that, amid also the volatility of the financial markets. China lockdown in certain cities have indeed affected output and caused some disruption to the supply chain in the global economy. But I am of the view that China is managing this and we're seeing signs of opening up in the next couple of months. An important piece is, of course, on our portfolio, our loan portfolio. We continue to closely and proactively monitor that. I would say we are resilient. We have a resilient credit quality in our boat. Exposures to Russia and Ukraine are minimal. Our business, of course, as you are aware, predominantly in Asia. And our international branches overseas serve mainly our network customers. For China, even with some of the lockdown in southern cities, there is no disruption in our provision of banking services, as most of our colleagues continue to work effectively at home. Of course, we remain watchful and continue to proactively manage the risks arising from this volatility. At the AGM last week, I talked about the group's refresh corporate strategy we talk about pursuing our strategy to excel for sustainable growth. So amid the volatility, hopefully that is shorter term than longer term, I think we are well supported by our strong capital base, our healthy funding and equity positions, and our continuous investment in digital technology and talent. So we hope to be able to capture the opportunities arising from the transforming and fast-growing Asian markets. So I'll stop here. We're open for questions. Thank you.

Any questions from media? We have someone from Prisca. Prisca, you're up. Prisca is from Straits Times.

Hi, thanks for the presentation. Just wondering if OCBC has any plans to raise the interest rates on its savings accounts, given that rates are generally rising right now?

Thank you for that question. In general, in the rising interest rate environment, the interest rate provided on deposits will gradually rise in tandem.

Sorry, just one follow-up question. Is there a timeframe the bank is looking at restoring the rates on its savings account?

So I think we'll do that according to our business plan. I think today is not the forum to go into details of specific business operations.

Thank you.

Next up is Gula. Gula is from The Edge. Kulam, are you muted?

So yeah, hi, hi, Qingqing, I'm here, okay. Yes, thanks for the presentation and thanks also for the extra information on the volume and rate analysis on your net interest income. Can I just ask, could you give us an update on your outlook for the credit costs, you know, loan growth and any change in the impact of rising interest rates on your loan portfolio because you mentioned that in the last quarter. And also because of all these headwinds, you know, the inflation and the geopolitical tensions. Will there be any change in your ECLs 1 and 2 because of the changes in your economic model?

Okay, let me try to take the questions one by one. If I miss out anything, do remind me when I finish. On credit costs, we have reported a low first quarter credit cost. We've been giving out guidance on the 20 to 25 basis points for the year. We're not changing that at the moment. Of course, as we say, we do see headwinds, and so we'll want to continue to be prudently managing our portfolio. Of course, I also said that it is, in our view, we're quite resilient on that. But as we said, there's uncertainty in the outlook, so we're not changing that guidance at this point of time. On loan growth, first quarter, it's 1%. If we take out foreign exchange, impact is about 2%, I think similar to the industry. And of course, we have provided a loan growth target of guidance of mid to single digit. It all depends on whether demand on loans will slow down as events unfold around the world, and how actually inflation may impact certain investment decisions by our customers, and also whether people will just prefer to keep more cash in uncertainty markets. So I think if the demand in loan growth slow down, we probably would expect to see more this year reaching a single, sorry, mid-single digit on the loan growth. You're talking about headwinds and how it impacts ECL 1 and 2. Of course, we have our model to evaluate ECL and we continue to follow that. So the first quarter results actually does demonstrate how we actually look at ECL. 1 and 2. But again, of course, depending on how the market is moving, the model we adopt will reflect how it is going to be like.

Could you update us on how, you said that interest rate increases have an impact on your net interest income because they increased your net interest income. Is there any change in the figures you gave us in the first quarter for the FY2021?

I think you are talking about what we published in our annual report on the 100 basis points increase. I think there is no change in that.

Can I ask one more question about your debt securities? You said there was an impact. Darren mentioned there was an impact on the capital. Is there a mark to market? Is it because of rising interest rates, the debt securities have to be marked to market lower and that affects your capital? Can I just check on that?

Yes, sure. Typically, we have to... hold what we call high-quality liquid assets as part of the liquidity and regulatory requirement. You know, earlier I mentioned the like of LCR, NSFR. All this would mean that, you know, in particular for LCR, you need a high-quality asset that you can liquidate in the event of a liquidity crisis. And these securities tend to be government high-quality, you know, sort of high-rated securities that we own. And this, as I a hole for liquidity reserve and regulatory reason. So when interest rate rises, you know, this will have mark-to-market revaluation. And that was what I was referring to in terms of the mark-to-market sort of revaluation that has kind of resulted in a decline in our common equity tier one.

First off, and there was some impact, because there was some loan growth, so there was some impact on your RWA as well, was there?

Correct. So if you think about it, when you grow loans, this credit exposure, so there'll be an increase in terms of credit RWA.

I just wanted to get some color on the wealth management activities and obviously the results today are coming from a much higher

based last year when you had the record profits. But Helen, if you're able to sort of give some color on what are the prospects for the wealth management business? How do you see this moving forward given the way the markets have weakened and other global banks have also warned of weaker performances in the wealth management business? Thanks.

Yeah, thank you. I think a very good question. I think we do have a page indicating the wealth management position and of course this quarter if you look at the performance as I said market volatility would impact investment sentiment so we do see our customers in a way sitting on the sideline for a while and so that has dampened the wealth management fees and activities Coming into April, we see a bit better momentum. I think people starting to see the market will see that the job potential tension may continue. So there's some customers are coming back into the market, but I wouldn't paint a rosy picture. It is still volatile. So we expect our customers to perhaps definitely not as active as last year but the crucial part is of course maintaining the AUM and customers monies are still with us although AUM has dropped partly because of valuation and partly because some customers also deleverage in an uncertain environment you will deleverage but hopefully the activities that we start to see in April will continue But I definitely say that this is one of the headwinds that we're talking about for this year.

Thank you. Okay, thanks Anshulman. Big Gate from the Business Times.

Good morning. Can you hear me? Yes. Yes. Good morning, Helen. Can I get an update on, because housing loans make up a sizable portion of your portfolio, can I get an update, because a quarter has passed, how have polling measures affected, if at all, on your housing loans business. And also the second question is unrelated to this is, are there any further updates on the scam incident? Thank you.

Thank you for the two questions. We do see a domestic mortgage gradually impact by the cooling measures, but we see our pipeline as satisfactory but we will continue to be watchful on the demand. Public prices have stabilized, so we will continue to see demand, but that could be impacted by the cooling measures, as I said earlier. On the scam case, we have closed that. I think what we've done in the first quarter, primary in January leading into February, we made the decision to make a one-off goodwill payment to the customers affected. We talked about a number and that has not changed much, but we have completed with dealing with all the customers and we have made quite some changes to improve our fraud prevention on the surveillance and we have As you are aware, we now have a hotline and a dedicated team to help customers if there's any other scam that may surface. And in addition, we have launched a kill switch that customers find useful. And I think we will continue to be vigilant and also improve further on how we continue to prevent fraud.

Would you be able to quantify the gradual impact on the domestic mortgage

Are you referring to how the cooling measures as you're looking for a number of your mortgage base to either drop or increase is it? I don't think we're able to provide that sort of forecast.

What about what has happened in the quarter? Not forecast, what about what has happened in the quarter?

This is Collins here. On a quarter-on-quarter basis, on our books, we did see a very small increase in our housing loans. These are the housing loans that were drawn down. You know, in terms of what Helen mentioned, in terms of the housing loan inventory, I think we continue to see, you know, net additions to an inventory. And basically these are, you know, like new bookings or new purchases of uncompleted properties. So I think over time, you know, these will be gradually dispersed over the next few years. And so this should also provide the base in which, you know, our housing loans should continue to grow.

Okay, thanks for speaking. Faris from Bloomberg.

Hi, just one quick question. Helen, can I just get you to clarify what you mean earlier by signs of China opening up? And do you think that China's continued insistence on a COVID policy will continue to weigh down on your Chinese operations going into the next few quarters?

Okay, thank you. I think China is always talking about dynamic control of the COVID situation of the pandemic. So as we see the control being effective, so we're keeping a very close dialogue with our operations in, for example, Shanghai. So there is some expectation that there will be some relaxation on the way the lockdown is actually conducted. So hopefully, such a control is effective and the cases are brought down. Our exposure in mainland China, our operations, is not a very big operation. Our loan book onshore is about 2% of our total loan book. And a lot of the China business we support, are indeed for Chinese companies going out. So we serve them in the rest of the world in our network and in particular in ASEAN. So I think the impact of this directly on the business is small. But of course, we'll continue to be vigilant in looking at how the economy is impacted by this in China. But we are indeed continue to see economic growth. in China.

Okay, Faris, any other questions that you have?

No, that's good. Thank you.

All right. Okay, great. Thanks. Next up is Zhaobao Yuexiang.

Hello. Yeah, I just want to have a quick question. It's regarding for the dividend policy. I just want to check, is it obviously declare any dividend for this quarter?

Thank you for that. We don't declare a quarter dividend. We will continue to maintain our policy of doing an interim and also a final dividend.

Thank you.