Oversea-Chinese Banking Corporation

Good morning, everyone. So anyway, thank you for joining us this morning to OCBC's second quarter and first half results briefing. On our panel this morning, we have Helen Wong, our Group CEO, Darren Tan, our Group CFO, Mr Tan Teck Long, our Head of Global Wholesale Sorry, wholesale banking. And then we have Mr. Kenneth Lai, which is our head of Global Treasury. And of course, Sunny Quek, who is our head of Consumer Financial Services Singapore. We will have Darren going through the slides with us. If you don't have it, you can do the QR code, but I'm sure you guys all have a copy of it. And after that, we will take a Q&A. All right, to you, Darren.

All right, thank you, Chi-Ching. Okay, good morning. Thank you for joining us physically and virtually as well. I'll start with slide 4 in terms of our results, covering the first half of 2022. So as you can see on the slide itself, first half of 2022, net profit was a new high of S$2.84 billion. This is an increase of 7% as compared to the year before. Total income was 1% higher year-on-year. Net interest income grew 10% from rising interest rate as well as the continuous growth in our balance sheet. but this was offset by a 10% decline in non-interest income as compared to the high base a year ago. The interest margin improved six basis points to 1.63% for the half year. Customer loans and deposit grew by 8% and 10% respectively. Expenses were higher by 7% as we continue to invest in talent and digital capabilities. With a comparatively better economy environment, less allowances constituting seven basis points of credit costs were also set aside The NPR ratio consequently will also lower at 1.3%. Capital remains strong at 14.9%. The board had approved an interim dividend of $0.28 per share, $0.03 or 12% higher as compared to the 2021 interim dividend. On slide 5, you will notice that the diversified earnings from our three business pillars continue to deliver robust performance. Net profit for our banking operations for the quarter rose 29% from a year ago. and 6% from the previous quarter. Wealth management income was also higher for the quarter across both banking and insurance. The group's wealth management AUM was fairly stable quarter on quarter, and this is despite lower market valuation. Our insurance business continued to register healthy business growth. Net profit contribution to the group for the quarter was $237 million, an increase of 23% from last year and 30% as compared to the previous quarter. On slide 6, you'll notice that essentially our operations remain well diversified, both across businesses and geographies, and these diversifications coupled with our strong capital position had enabled us to generate resilient performances through the various economic cycles. Now moving on to slide 9, in terms of the detail of our group performance, the group first half 2022 net profit of $2.84 billion was 7% higher year-on-year. mainly driven by an increase in net interest income and lower allowances. This more than offset a decline in non-interest income and a modest rise in operating expenses. Now on slide 10, you will notice that for the second quarter, net profit rose 20% year-on-year to $1.48 billion, mainly from higher interest income and lower allowances. And if you were to compare it versus the previous quarter, net profit was also higher by 9% from higher interest income. More details will be covered from slide 14 onwards. Now if I can... Go on to the net interest income. You'll notice that net interest income rose to a new high of $1.7 billion. That's on slide 14. And this is 16% higher year-on-year and 13% higher quarter-on-quarter. This growth in interest rate and interest income was against the backdrop of a higher sort of interest rate high for this year. And our net interest margin consequently expanded strongly by 13 basis points year-on-year and 16 basis points quarter-on-quarter. Now in terms of non-interest income for the second quarter, it was $1.18 billion, and this is up 6% as compared to the year before, and also sort of above the previous quarter. Higher trading income and life insurance profit more than offset the lower fee and investment income. But obviously if you compare against last year, the comparative would be lower. Now in terms of slide 16, You will notice that for fee income for the second quarter 2022 was softer at $477 million. Investment sentiments, as we know, remain subdued. So our financial markets-dependent fee income, such as wealth management, brokerage and investment banking, were weaker compared to the previous year as well as the last quarter. On the other hand, loan and trade-related fee income rose for the quarter on higher economic activities. Credit card fee also increased with a broader resumption in terms of consumption activities. I'll move on to slide 18. Operating expenses for the second quarter rose modestly by 10% year-on-year and 4% quarter-on-quarter. The year-on-year increase was largely attributable to higher staff costs from salary increments and growth in talent across our business and support function. To some extent, we continued to invest in technology, while business promotion expenses also rose in tandem with the higher business activity. Now, given strong income growth, you will notice that our cost-to-income ratio consequently improved to 43.5% for the quarter. In terms of allowances, on slide 19, total allowances for the quarter was $72 million and this amounted to a credit cost of 8 basis points. The allowances set aside for this quarter comprises mainly ECR 1 and 2 allowances for non-impaired assets of $66 million after adjusting for macroeconomic variable updates. In terms of cumulative allowances, it remained relatively unchanged at $3.9 billion with the decline in the non-performing asset that I will cover later, our coverage ratio for our MPA increased to 99% for this quarter. And on slide 21, you will notice that our loan book remained healthy with NPR ratio trending lower to 1.3%. MPA was 4.2%. $4.0 billion, $3.969, essentially, a decline of 8% from the previous quarter, driven essentially by higher recoveries and upgrades for the quarter. And it was noticed on slide 22, new MPA formation for the quarter was relatively low, $182 million, lower compared versus last year and last quarter. Recoveries and upgrades were higher at $419 million across both the corporate and consumer segments. and this includes recoveries from the MPLs that were previously recorded in the oil and gas space. Moving on to slide 23, our loans grew 8% to $298 billion from $275 billion a year ago, led by growth in our core market of Singapore, Indonesia, Greater China and also from our international network such as the US and the UK. By industry, the year-on-year increase was driven by loans to the building and construction sector and also by the general commerce sector. and also include consumer lending, in this case mortgages. Our loan portfolio remained well diversified with building and construction and housing sector remaining as the largest segment at 29% and 21% of total loans respectively. Moving on to slide 24, customer deposit grew 10% from a year ago to $349 billion with CASA ratio at about 61%. For the quarter, we had witnessed some shift of CASA balances to higher yielding fixed deposit However, liquidity remained ample with LDR of 84.4% and we continue to be in a strong position to support further business growth. Moving on to slide 25, our capital position remains strong with common equity tier 1 ratio of 14.9%. The decline in the common equity tier 1 ratio for the quarter came from the payment of our full year 2021 dividend, higher operating RWA requirement as imposed by our regulator, and also a decline in terms of the fair value reserves of our debt securities as a result of the high interest rate. So in total, the board had proposed an interim dividend of $0.28 per share, and this represented a payout ratio of 44% against our core group net profit for the first half of 2022. Now with this, I will pass the floor to Helen. Thank you.

Thank you, Darren, and good morning, everyone. It's always a pleasure to be seeing everyone physically. And good morning also to those who join us online. As stated by Darren, I think our first half results is good with a net profit at a new high. So despite the challenging environment, the performance across our three business pillars, namely banking, insurance, and wealth management, reflected the strength of our resilient franchise. This is demonstrated by our second quarter's performance, which continued to build on our first quarter results. So just to recap some of the things that Darren reported. So we achieved double-digit NII growth. We have a strong rise in NIM, which crossed 1.7%, as well-positioned balance sheets benefited from rising rates. We have a wealth management income up and grew net new money flows despite cautious investment sentiments. This is across our premier and private banking segments. We have new insurance sales which looks really healthy in the second quarter. We sustained positive momentum in our loan and deposit growth. and indeed asset quality remains healthy. We achieved a single digit credit course for the first half and MPA ratio also declined to 1.3%. We also maintained a strong capital-based funding and equity positions. We declared an interim dividend of 28 cents which is a rise from the first half of a year ago and this is in line with our dividend policy going on sustainable and progressive. So I have shared two slides which I'll just talk a little bit more in details. I think the growth in Asia should remain positive. We expect continued economic growth, but perhaps at a slower pace in the second half of the year. Singapore, particularly, resilient. We see economic activities rebound, and it is very important to us because Singapore is our home base. We see the regional ASEAN markets on a steadier recovery plan this year. Higher commodity prices also benefit Malaysia and Indonesia, the other two core markets. of ours in ASEAN. The employment picture broadly is firm in our markets with a tight labor market. And indeed, we see recovery in travel and domestic demand falling, lifting of restrictions and border re-openings. This is particularly so in Singapore, as we actually see more visitors passing through either doing business here or reach out to the other parts of the world. China government will continue to boost infrastructure spending and stepping up prudent monetary policy to support growth. So we also look forward to further normalization of movement curbs. Having said that, of course, we stay cautious on near-term headwinds in our operating environment. cannot miss out the Russian-Ukraine war, worsening strings in the global supply chain, and this also heats up inflationary pressures with negative consequences on the overall global economy. Monetary tightening induced recession risk also rising in key developed markets. Recession, though, is not on the cards for Singapore in this juncture. If credit cycle turns in part from rising interest rates and slowing economic growth this may put pressure on debt servicing abilities of businesses and consumers So we remain also watchful of any public health concern from any new COVID-19 variants Turning the slide on a bit of a looking forward I think we're positive on our full year 2022 outlook We would continue to see NII upside with rate hikes and also repricing of our loan book. I may also see some shift from CASA to fixed deposits. Good chance full year LIM will end above 1.7%. Higher NII should also offset the weaker capital markets dependent fees like wealth management as consumers are more risk off expected continuing into the second half of the year. We are advancing on our strategic priority of growing wealth management business and also excited on where it is heading long term. So just take an example, private banking expanded regional coverage through the opening of Bank of Singapore or BOS Wealth Management Malaysia. So Malaysia is the first market after Singapore to have comprehensive onshore presence for our private bank business. Loans grew 3% year-to-date. We are on track for mid-single-digit growth for the full year. Of course, maintaining discipline on the discretionary spending, we're deepening our talent pool and also our technology capabilities to drive business growth and meet customer needs at each stage of the journey with us. I do want to spend a little bit more time on talking about how we proactively monitor our loan portfolio and meanwhile our asset quality remains resilient. So indeed we are closely watching ongoing market concerns on China's property sector. Our total onshore China loans comprise only about 2% of our total loan book. The portfolio is of good quality. Approximately one-third of these are real estate loans, and mainly to large conglomerates, corporates, and SOEs, including very strong network customers continuing to do their business in China. We do stress tests on our credit portfolio across a broad variety of macroeconomic factors, such as a prolonged Russian-Ukraine dragging down award, tracking down global economic recovery with further resurgence of the pandemic. Other factors also include the sharper than expected tightening of monetary policies by central banks, real estate defaults, significant declines in GDP growth, property market prices and global market valuations, et cetera, and also sharper rise in interest rates, unemployment and commodity prices. So with all these factors put into our stress test, happy to report that we do not see structural concerns so far, and we're comfortable with our quality of the book. Credit costs expected to be on the low end of our guidance. Potentially, if current market conditions prevails, could have some improvement further. NPA ratio coverage is also nearly at 100%. We also like to report that we further intensify our sustainability efforts. USG continues to be a very big factor on how we actually drive our business as it's one of our growth pillars in our strategy. We're making good progress towards our goal of 50 billion Sing dollars on book by 2025. Our sustainable financing commitments grew to 37 billion as of June this year. We committed to achieve carbon neutrality in our operational emissions in 2022 This is on track We announced in May that we will also invest more than 25 million Sing dollars in decarbonisational efforts in Singapore, Malaysia and Greater China Our sponsorship We are sponsoring innovative sustainability-related solutions in the region We launched our inaugurate OCBC Sustainability Innovation Challenge in June. Just to conclude, just want to announce that we will mark our 90th anniversary in October this year in OCBC. So we're proud of our heritage. and the value OCBC has created for our stakeholders over the last nine decades. We're going to celebrate this milestone by giving back to our community through environmental conservation projects and also employee volunteering. So thank you very much. I think we'll now move on to take any questions you may have. So over to you, Collins.