Oversea-Chinese Banking Corporation

Good morning, everyone. Welcome to OCBC's fourth quarter and full year 2022 results briefing. On our panel this morning, we have our Group CEO, Ms. Helen Wong. We have our CFO, Ms. Goh Chin-Yi, Mr. Tan Teng-Long, our Group Global Wholesale Banking Chief, our Global Treasury Chief, Mr. Kenneth Lai, and Mr. Sunny Quek, which is our Head of Consumer Banking. So for a start, Chin-Yi will take us through the slides, and thereafter, we will take questions.

Good morning everyone. Thank you for joining us in our full year 2022 results presentation. We are pleased to report a record full year profit for 2022 and we will be increasing the return to shareholders by raising our dividend. I will now share more details of our results. Please turn to slide 4. For full year 2022, we achieved a record net profit for both the group and our banking operations. Group net profit rose 18% to a new high of S$5.75 billion. Driven by strong banking operations performance, net profit from our banking operations increased 30% from a year ago to S$5.1 billion. The group's return on equity improved by 1.5 percentage points to 11.1% and earnings per share was 18% higher at S$1.27. Total income was strong. increased 10% year on year to $11.7 billion. Net interest income rose 31% to a new high, which more than offset the 16% decline in our non-interest income. The record net interest income was driven by loan growth and a 37 basis points expansion in net interest margin to 1.91%. as we benefited from rising interest rates and well-positioned balance sheet. Our cost-to-income ratio improved by 2 percentage points to 43% as a result of well-disciplined expense management. With our proactive risk management, total allowances declined year-on-year and were below 2018 pre-pandemic level. Credit costs were lower at 16 basis points of loans compared to 29 basis points a year ago. Asset quality was resilient. NPL ratio declined 0.3 percentage points to 1.2%, while our NPA coverage ratio increased to 114%. Capital remained strong, with CET1 ratio of 15.2%. With our robust results and strong capital, the board has raised our final dividend by 43%, or $0.12 to $0.40 per share. This brings our full-year 2022 dividend to $0.68, up 28% from 2021, with payout ratio of 53%. Moving on to the performance of key businesses on slide 5. Banking operations achieved record net profit for 2022 and exceeded the $5 billion mark for the first time. The strong performance was driven by record net interest income, underpinned by loan growth and a 37 basis point expansion in net interest margin. Expenses were also well managed. Cost to income ratio improved more than 4 percentage points. Wealth management business remained resilient. Group wealth management income continued to contribute to a third of the group's total income. Wealth management income from core banking operations was 8% higher as we continued to grow our wealth franchise across private banking, Premier Private Client and Premier Banking segments Our AUM were higher year-on-year from sustained inflows of net new money In particular, net new money fresh funds in private banking were at record high in the last five years For insurance, the underlying business remained strong Operating profit was 7% higher year-on-year total weighted new sales stayed above S$1.9 billion, while new business embedded value and margin were higher year-on-year on more favourable product mix. Our balance sheet remained solid. Given our strong capital, funding and liquidity position, there is ample room for us to capture growth opportunities and drive strong shareholder returns while having sufficient buffer to weather challenges. I'll now move on to more details of our performance on slide nine. For 2022, we achieved record profit for both the group and banking operations. Operating profit growth from banking operations was stronger as compared to the group, as the group operating profit included a significant unrealised valuation losses on insurance contract liabilities in the fourth quarter of this year. Consequently, fourth quarter operating profit from banking operations grew by 6% while the group registered a 10% drop. Group net profit was at the record $5.75 billion, an increase of 18% from the previous year. The strong growth was driven by a 31% increase in net interest income and lower allowances, which more than offset the decline in non-interest income. Expenses were well managed and rose 5% year-on-year, largely from higher staff costs. Moving on to the next slide. For the fourth quarter, net profit was 34% higher than a year ago. The profit growth was driven by record net interest income, propelled by a 79 basis points expansion in our net interest margin. Net profit was, however, lower quarter on quarter. Net interest income rose 14% as our NIM continued to expand. The increase was, however, offset by a sharp decline in insurance income in the fourth quarter as a result of unrealised valuation losses on insurance contract liabilities that I mentioned earlier. Moving to Site 13 on net interest income. Net interest income for both full year and fourth quarter rose, hit new highs as loans continued to grow and net interest margin expanded for consecutive quarters. FY 2022, net interest income crossed the $7 billion mark for the first time to $7.69 billion, an increase of 31% from the previous year. This was driven by asset growth and margin expansion across our key markets, including Singapore, Malaysia, Indonesia, China and Hong Kong, as asset yields continue to rise faster than the increase in funding course. Full-year NIM was strong at 1.91%, above our previous guidance of 1.8% to 1.9%. And for the fourth quarter, NIM was 2.31%, up 79 basis points from last year and 25 basis points from the third quarter. Our exit NIM in the fourth quarter was 2.35%. Next page. Full year 2022 net interest income was $3.99 billion, down 16% from a year ago. The year-on-year decrease was led by lower fee income and investment losses as a result of our bond portfolio rebalancing to address changing market conditions. Insurance income was lower, mainly due to the sharp decline in the fourth quarter as a result of the unrealised valuation losses on insurance contract liabilities. We have more details to explain these unrealised valuation losses on insurance contract liabilities in slide eight, which I'll be happy to cover in Q&A later if need be. Moving to next slide, fee income for the full year was $1.85 billion, 18% lower than the previous year. Higher loan and trade fees were offset by softer wealth management and brokerage fees amid global risk of investment sentiments. Nevertheless, our AUM expanded year on year to $255 billion, driven by continued net new money inflows. We will continue to focus on growing our AUM to better position ourselves to capture growth when market conditions improve. full-year trading income rose 9% year-on-year to $834 million. Customer flow income, which made up the bulk of our trading income, was resilient at $696 million. Non-customer flow income was higher, in part due to gains from hedging activities. On operating expenses, Our cost management ensured that expenses are well controlled. Full-year operating expenses increased 5% from a year ago. This was mainly due to higher staff and IT-related expenses. As we continue our investments in talents and technology to support our strategic priorities to drive growth, as income growth more than outpaced the increase in expenses, cost-to-income ratio improved to 43%. For the fourth quarter, expenses increased slightly by 1% year-on-year and 2% quarter-and-quarter. Turning on to allowances, for the full year, Total allowances were $584 million or 16 basis points of loans as credit conditions improved this year, lower compared to $873 million or 29 basis points a year ago. Specific provisions were substantially lower at $216 million or 4 basis points of loans. Taking a prudent, forward-looking view of uncertainties ahead, we have progressively been raising general provisions over the quarter to $368 million in full year 2022, from a combination of updates to our macroeconomic variables and additional management overlays. NPA coverage ratio increased to 114% as at end December 2022, as non-performing assets declined quarter and quarter, while total cumulative allowances were relatively unchanged at around $4 billion. Moving on to portfolio quality. Our portfolio quality was resilient. We continue to exercise prudent and proactive risk management and maintain a resilient portfolio quality. MPAs fell 20% year-on-year to $3.49 billion and were 5% below the previous quarter. MPAs continued to trend lower over consecutive quarters, led by declines in ASEAN. However, our Greater China MPLs were higher quarter and quarter and year on year. This was largely attributable to two corporate names, of which one of them were downgraded already in the third quarter. The account that was downgraded in the fourth quarter was a corporate relationship in Hong Kong, that is fully secured with LTV of more than 60%. Both downgrades were idiosyncratic in nature and there is no structural stress observed in our Greater China exposures. Overall, our NPR ratio improved by 0.3 percentage points from a year ago to 1.2% and was stable from a quarter ago. New non- performing asset formation for 2022 was lower than the prior year across the corporate and consumer book given improved credit conditions. Recoveries and upgrades for the year were higher, largely driven by both consumer and corporate segments in Malaysia and Indonesia following the orderly cessation of the loan relief programme. Our loan portfolio continued to be well diversified across geography and industry. Loans grew 4.5% year on year in constant currency terms to $295 billion, led by increased lending to customers in Singapore and our international network in Australia, the United States and United Kingdom. Our sustainable financing loans expanded 27% year-on-year to $30 billion and now accounted for 10% of our group loans. On deposits, customer deposits grew 2% from a year ago to $9. to $350 billion, driven by an increase in fixed deposits. The rise in FTEs were from both fresh fund placements and migration from our CASA balances as customers shifted their funds to higher-yielding deposits in a rising interest rate environment. As a result, our CASA ratio was lower at 51.8%, We continue to actively manage funding in line with balance sheet requirements while defending our interest margins. The Group's liquidity position remains sound with loans-to-deposit ratio at 83.3%. On capital, the Group's capital position remains strong. as at 31st December, CET1 ratio increased 0.8 percentage points, quarter and quarter to 15.2%. The increase was mainly due to profit accretion and lower risk-weighted assets. RWA declined from a quarter ago to $232 billion contributing to a 0.4 percentage point increase in our CET1 ratio. The lower RWA was mainly driven by a $5 billion decline in credit RWA and $2 billion drop in market RWA. Credit RWA was lower largely due to a $1.5 billion savings from our RWA optimization initiatives and currency translation effects. For the last five years from 2017 to 2022, as part of our strategic efforts to increase efficiency of our capital, we have generated significant RWA savings through methodology refinements. Moving forward in 2023, we potentially have savings from RWEA optimisation and capital optimisation as well. While this efficiency will help to support our current levels of CET1, we target a CET1 ratio in the region of about 14% for the medium term, from a combination of asset growth and increase in shareholders' returns. To recap, I mentioned at the start that to reward our shareholders, we have increased our dividend. Our final dividend has been raised by 43% to $0.40. With this, our full-year dividend would be 28%, higher at $0.68 per share as compared to a year ago. This brings our dividend payout ratio to 53%, the highest level since 2008. Going forward, we target to deliver a 50% payout ratio. The target payout ratio and the substantial increase in final dividend provide a clear intent on dividend payment. This demonstrates our confidence in generating quality earnings growth, which is supported by a strong capital position. And with our ongoing efforts and initiatives to optimise our RWA and capital allocations, we would be able to achieve greater capital efficiency to support and deliver increasing shareholders' return. With this, I end my presentation and will now pass the floor over to Helen.

Thank you, Ching-Yi. Good morning to everyone and my pleasure to welcome everyone back to our building on our top floor. So good to see everyone sitting all together. As shared by Ching-Yi, we achieved a record net profit for 2022. And I think before I start to go through my presentation, I hope you like the cover we used this time. And if you see, what is that? It's actually the OCBC Mangrove Park in Ulaanbaatar. Last year, we sponsored this very important project to help fight climate change and indeed to celebrate our 90th anniversary. So it was unveiled in the fourth quarter last year. I think let me be brief, but we said so much about a record year and I just want to say that the performance was very much attributed to foundations that we have put in place in the previous few years and as we steered through the pandemic. So I'd like to take some time to go through some of the highlights or the factors that contribute to the performance. So as said, profit was higher than that of, is record high, and of course is higher than the pre-pandemic high of 2019. I'm pleased to report that we have, as a team together, made the key financial targets that we set for ourselves. So RLE, loan growth, led interest margin and credit costs and also in general a much higher profit. All these were made possible by the momentum generated by our well-balanced portfolio. So again, we always say that our franchise is banking, which performed exceptionally well this year, insurance and also wealth. We also refreshed our corporate strategy in 2021. I unveiled something that I think we'll refresh that on the page later on. But last year, we were very focused on executing the strategy, so we will be sharing some of the highlights according to how we execute our strategy. and indeed the strong earnings momentum that we have start to seen and the strong capital position allow us to review our dividend policy and as Ching-Yi said, we'll target to achieve a payout ratio of 50% going forward. All right, so what we're talking about, what we have achieved and indeed banking operations delivered record earnings. We position ourselves in particular on our balance sheet and to capture the upswing in interest rate. And we met our loan growth. I think that is in constant currency basis. And we also reshaped our deposit base and how we maintain CASA and also how we open new operating accounts faster than before, having achieved a good improvement in digitalization. So across our wealth management franchise, we continue to see sustained inflow of net new money and disrespect that the market has been a bit challenging last year. And you see Bank of Singapore AUM falling, but indeed we have net new inflows of money for both Bank of Singapore and also for our high net worth customers in our CFS network. The portfolio quality of course remains sound as we continue to exercise proactive risk management. Our credit course as reported were at 16 basis points which is below the original guidance of 20 to 25 basis points as we set out in the beginning of last year. So if I turn the page Talking about refreshing is the same execution of the corporate strategy we unveiled in late part of 2021. But this is a recap to show you the eight pillars that we have laid out for our strategy. And just to highlight some of them. The first one I really want to talk about sustainability agenda. You know I'm very passionate and this is so important for everyone. It's not just about climate, it's the whole ESG agenda and indeed how a company and as a bank, as a banking group, how we remain to be sustainable. as we grow our business. So some highlights in the year 2022, we committed to net zero by 2050. We are one of the four ASEAN banks to join net zero banking alliance, and that is pledging our commitment. And we already achieved carbon neutrality for banking operational emissions in 2022. And we also further commit 25 million Sing dollars of investment to reduce our carbon footprint across our network. We will continue to support our customer to transition into no carbon well. So we grew our sustainable financing commitment. I think Jingyi mentioned the outstanding on the book, but our commitment is actually 44 billion, which is quite close to our 50 billion target by 2025 then. potential be some revision on this number and as we continue to push the agenda. I think important thing is it's not just supporting the large corporates. We want to support the SMEs. So we extend our SME sustainable finance framework to our other markets outside of Singapore as well. We want to continue to support the community. That is very important. I list out a few things there. For example, we continue to support vulnerable individuals and we will be reaching one million by this year since we set out the target five years ago. For accelerating growth through digital transformation, some interesting numbers here, I won't go through one by one, but it's indeed over the last few years we have mixed and vacant progress in our digital transformation. and accelerated digital adoption by our customers. So we're talking about specifically in Singapore, almost all of our customers' financial transactions are now conducted digitally. It's important to keep such changes in technology to ensure our digital platforms enable us to meet the evolving needs of our customers. and this is not just for retail customers, consumers, but again, this is for the SME and also for the large corporates as well. We wrote out some innovative solutions and products this year as well, and it's on the right-hand side of the slide, but I think it's interesting. For example, you can top up your CPF through an ATM. I think this is quite innovative. Okay, switching and turning on to slide seven is one of the very key strategy of ours is seizing the opportunity and unlocking value from Asia's growth. We call ourselves a leading Asian bank and indeed we want to continue to deepen our presence in the region across our key business pillars. So enhancing our capabilities, which is of the utmost importance, and broaden our suite of products and services. So on top of our support of our customers on the sustainability front, we also expand our wealth management franchise to capture growing Asian wealth flows. So these position us well to serve the wealth and investment needs across the spectrum in the region. from ultra-high-net-worth customers to the mass-affluent segment as well. And that's why we have also uplifted our wealth management platform just for across-the-board servicing our customers. The trade and investment flow intra-Asia continue to be important and as we see a certain uplift in 2022 and the reopening of China's borders should continue to help the crypto-China ASEAN flow as we continue to strengthen our network and our presence including building a stronger what we call China Business Office team across the ASEAN countries and indeed strengthen our product offering in our transaction banking unit. It's not just in Singapore, but in Hong Kong, serving the whole of China. And also we are improving our debt capital market capabilities and also in general our treasury products capabilities. So what is the core theme in our strategies? It is a one group approach. When we say we are leading bank in Asia, it's important that we join the dots and making sure that we are acting in unison. Our success is driven by aligning ourselves internally to serve customers as a single relationship across markets. I won't bore you with some of the internal things that we have done, but indeed this is harnessing a unique combination of a strong geographical network and a very well established franchise. And we want to again continue to establish and widen the scope of group-wide offices to enhance knowledge sharing and drive one group. integrated approach. So we also refresh our management team. You must have followed some of the announcement and news in 2022. We refresh the team from within our own internal management pool, and also we have a few important external hires. and this is again with in a way also a younger team by now and I hope that you would also notice we have a more diversified team. For our management team, two out of five are females. So I hope that together we are diversifying with different values and the same values, I'm sorry, the same values but different insights, but we join up together to manage our business. So for quality capital generation and shareholder returns, I don't need to repeat the dividend this year, but indeed we do target 50% dividend payout ratio because we are confident to deliver continued growth by continued execution of our corporate strategy. Even in the next year, we could still face some uncertainty. So that leads to my last page. And then looking into 2023, we're still confident of the resilience of our key markets and the strength of our diversified a business franchise to deliver growth. Just to set a few targets, I listed out three here. Net interest margin in the region of 2.1% compared to the 2020 to 1.91%. We're talking about a single digit loan growth, but that should be quality growth as we continue to watch our credit course. And we are estimating a credit course in the region of 15 to 20 basis points. I think you would definitely ask me ROE. So I want to say that we are targeting to deliver an ROE of more than 12%. And indeed, as I repeat again, to hopefully to deliver 50% dividend payout ratio. And this year is 53% because we indeed have a very good year and we do want to share the profits with our shareholder. So I'll end here and we're open to questions.

Hello, Akesh from UBS.

Hi, morning. Thank you for the presentation. This is Akash from UBS. I'm here. The first question I have is on the net interest margin. So you had the strongest uplift in net interest margin in the fourth quarter. compared to the peers. But the guidance for the full year is around 2.1%, which looks very conservative. It kind of suggests that the NIM might decline by 15, 20 basis points for the year. So what are you seeing which is different from the peers? Just to give you context for the peers, they're expecting the full year NIM to remain at the Q4 level. So for you, it's like 20 basis points below, right? So how do we explain that? That's the first question.

Thank you for that. I think the market has a rather common view. on how interest rate is moving, and we share that view. That means interest rate will continue to rise, but it will plateau off, and potentially could come down in the second half of the year. When we say potential, right? So when we look at our book, you probably would also notice that funding cost is also rising, because as interest rate continue to go up, all banks in the way financial institutions also share some of the interest rate rising with their depositors. So we do see that deposit and normally your loans will be repriced faster than your deposit. So we do see competition in deposits and in fixed deposits as well. So if you look at trends of bank potentially you may see a continued reduction in the percentage of CASA when more customers actually look on to getting onto time deposits for steel for a while further. So I think it is because of these reasons we feel that the overall, the full year LIM will still be higher, definitely higher than the 2022 full year LIM by, we estimate, say, around the 2.1 region, meaning at least 20 basis points higher. But I think I don't want to paint too rosy a picture as we go ahead into the rest of the year.

Okay, got it, thank you. Second, on the capital side, I think your revision of the payout policy is definitely a good step. It makes it more aligned with one of your peers, and it's much clearer than before. But I think the fact is still that you still have a lot of excess capital, and I think there's still a question, like what are you gonna do with that? So is this payout policy revision a first step towards more to come? Should we start expecting a special dividend and maybe a higher payout for a couple of years when you have very strong earnings? Or is that not a fair expectation?

Thank you. I think you're right. This is a first step as we continue to review our capital position. But we want to give a clear direction forward. That's why we said that we change our dividend policy to target to or aim to reach 50%. I don't rule out like this year we pay 53% because we have a good year. But it's important, as you said, we continue to look at how we manage our capital position and how to support our growth. We have a three-year strategy as we unveil, but we're expecting faster growth organically, but we never rule out looking at inorganic opportunities. As the market reopens, we are looking at opportunities.

Could you also tell us what is the day one uplift to capital from Basel for implementation next year? So your peers are in the 80-200 basis point range. What is a similar number for you?

Jimmy? Yeah, the expected uplift from Basel IV is around 2 percentage points, but that is transitional. As you understand, the Basel IV, there's a transitional phase-in approach.

Okay, thank you. Just last question I have is on the net new money inflow into Bank of Singapore. She said it was positive for the year. Could you give us numbers? What was it for the whole year and what was it for the Q4?

Can I give a full number because I don't want to neglect our consumer business as well. Maybe I'll ask Sunny to take that question.

Our net new money for the bank as a whole was about 25 billion for the whole of last year.

for the whole of last year in Q4 alone. Is that possible to share?

That's what we prefer to just keep it the whole year. Thank you.

Sorry. I think Neil, did you raise your hand up earlier? All right. Okay. Harsh, over to you.

Hi, thanks. Harsh Modi from JP Morgan. A few questions. I just wanted to understand a bit of numbers better. First on margins, what's the exit NIM in December? How much higher or lower is it versus fourth quarter?

Exit NIM is 2.34% in December.

And as we look at, let's say, first quarter, and the trends in first and second quarter. What is changing more meaningfully? Is it more cost of fund, which is moving up, which is likely, but also on the acetyl side, are you now getting to a point where you're saying that you may want to lock in these rates extend the duration. Is that what's behind your guidance of slightly lower margins in course of the year?

Okay, you know, we don't predict what happened or cannot just share exactly what happened in January, February. But I think indeed there's a trend, as I said earlier on, that the funding costs are getting up a bit more. and you know our funding base is 80% deposits as well, which we positioned very well to capture the rising. We continue to look at how we manage our funding costs, but I think I'll invite Ken to talk maybe a little bit about duration investments.

Yeah, so I think we're at the late stage of the interest rate cycle. So while our funding costs have predominantly gone up quite a bit last year on an overall blended basis, obviously the deposit cost increase isn't as much as the wholesale funding cost on a blended basis has gone up. But at this late stage of this interest rate cycle, I think maybe the upside for the overall cost of funds shouldn't be that much more. So it's also the The focus really is to see how we can actually lock in some of our asset yields.

And that logic, Helen, that you can describe on the securities, is it similar for the loan book as well? So are you also starting to roll out more longer-term fixed rate kind of products to lock in higher rates for longer or not yet?

That should be the strategy, right? But you also have to read the demand of the market. If the market believe, our consumer believe that interest rate is about to plateau, that's perhaps exactly the wrong time when they lock in fixed rate. So it's a balancing act. You want to do it, but you need to be able to find the right product that customers want to accept. Of course, on the investment side, we also can plan to lock in at this level. As Ken said, we do see interest rate cycle coming perhaps to an end quite soon.

Right. So on your guidance of 2.1, that assumes that we get rate cuts in second half of 23. Is that fair?

I think we were saying that we estimate there will be some more catch-up on the funding side, but there's not a lot of upside on the loan side. So I think that is how we see it. And we are not really projecting a rapid drop of interest rate, no, but we are projecting a plateau, and when you are lending you can't reprice your lending too much better, and you cannot have a lot of customers putting into fixed rate borrowing, then as your deposit actually adds up, then your cost of funding adds up, then that's why we say that that is how we estimate the LIM for 2023.

Right. Just a final question on margins. So let's say if we end up getting terminal rate of 100 basis point higher than what has been currently priced in, then does your NIM guidance has upside risk or not really?

Potentially, yes. And you do know that through the years we discuss our quarterly results, we may give new estimate if we do see that the trend turns. So last year, I remember, I think we did look at NIM from the early start of the year, we talk about 2023 having a lower than, sorry. Yeah, I think we did adjust it when we see that the market is changing. And you do know that every hundred basis points would generate quite a substantial improve in the net interest income for us. I think we are talking about roughly about 740 million for every hundred basis point uplift on average.

And the final couple of questions on capital. The 50% plus minus payout ratio, is there any linkage to absolute dividend per share as well? So should we expect a minimum of 40 cents per semester subject to 50% payout, or there is no linkage on absolute basis?

I don't think we should necessarily look at absolute payout, but when we say we change this, of course, we understand the investors that may ask, would your dividend drop when you have a bad year? I think we want to say that demonstrate our confidence in building the business to continue to grow, so that we hope that if we maintain 50% dividend payout, it's still on the upward trend, right? But it doesn't rule out, as we look at the market, the demand of the investors, the shareholders, and it's not like looking just at one year when you decide your dividend. You look out into your capital, right? In the next two or three years, at least. So when the council was asking me, hey, is this a turn of how you actually reward your shareholder? In a way, yes, we look at our capital position. We want to give a much clearer signal that we aim to achieve that. But we always, when we decide the quantum of dividend that we pay out, of course, we will look at our capital position as well.

Thanks.

New?

from CISA. Thanks for the presentation, Tim. I did have a couple of follow-ups to what Aakash was mentioning. The first is on CT1. Ginny, you mentioned medium-term target of 14%. How do you actually get there? I mean, in a much lower interest rate environment, you all have been above that level. So at a 50% payout ratio, I don't see it over the next two, three years at least. It'd still be well above that level. So is there a timeline to achieve that CT1 number?

Yeah, as you can see, we are 15.2, you know, bringing down to 14%. We are expecting asset growth in terms of RWA. And also we did mention another factor, which is increasing returns to shareholders. with our more clearer dividend policy of returning at least 50%, that will be a way of moving towards a more optimal sort of CET1 going forward.

And the second question I had was More to do with how should I look at costs over this year and next year? I mean, your 5% year-on-year growth was actually fairly conservative compared to your peers. Do you see cost pressures coming in further through the course of this year? Should we look at a similar number? I mean, the cost to income is fine, but that's largely a function of the denominator. The income has been growing much faster. So what sort of cost growth would you be expecting this year?

We are expecting a higher cost this year as we continue to invest. It's not just business as usual. As we grow our business, we also are putting in resources and continue to invest in digitalization. And we also would be investing in our capability. When I talk about sustainability, you think about it, how to help our customer transition to lower carbon emission, and how do we reshape our portfolio and indeed how do we increase talent and band strength. And as we said that we want to capture the Asian growth, that means you need more people who can work cross border and indeed we are building up our talent base as well.

One last question on your credit costs guidance. Is that a reflection of seeing continued improvement in the asset book and more recoveries? Because if I look on quarterly trend, it moves around quite a bit. There are some quarters which are higher,

I don't think it's based on recovery. If you look at our book, our MPI ratio has improved quite a lot. And indeed, we look at our provision, we also look at, you know, we raised because of economic outlook, we raised some more provision on the non-impaired provision. So it's not like we feel that we look at our asset quality, we feel our asset quality is good, quite similar to 2022. That's why you look at the range is quite similar to 2022 as well.

One small detail, how much overlay did you add, GP discretionary overlay did you add in 4Q?

4Q actually is very small. It's basically MEVs that we, how we look at the economy that we have adjusted the non-impaired provision. Thank you.

Okay, we have one question from Chania from Bloomberg. She's online. Chania, go ahead. Yes. Hi, Helen.

Congratulations on the numbers.

Hi.

Yeah, my question, could you comment on capital returns? I mean, the dividend is clear, but in terms of share buybacks, what's the program for this year? And could you share the number in 2022? Also, could you share a bit more about your plans on wealth management expansion onshore on mainland China, please? Thank you.

Okay, share buy-buy, we only do it for our own use, I mean, for employee programs. So, your second question, I might have missed the first few words. You're saying that talent for mainland China, is that?

No, I asked because you can elaborate a bit more about your plans on expansion in wealth management onshore China. And just to follow up, what's the outlook for 2023 wealth management? Do you see better fees or more trading from your clients? Thank you.

Thank you. We did start our wealth management business in Mainland China. We're building a private banking team. I think the potential is good. But remember, if we do that in Mainland China, that means we're also looking at looking after these customers as they go overseas as well. So you have to think about it as we have coverage inside China, but we are also working as a team together as we look at wealth moving across Asia. I think that's an important point. So we will continue to invest in that business. As to wealth performance this year, I think if interest rate cycle is coming to an end and we have more confidence in the markets, I think it's illustrated actually in the last couple of months, then we see upward potential. for our wealth management fees. We're thinking that non-interest income should have a more rapid growth in terms of percentage than net interest income.

Sorry, just to make sure I got it correctly, you say that the growth in wealth management fee this year will be faster in percentage term than growth in interest income?

Yes, in percentage terms. That's how we look at the book.

Thank you, Helen.

Thank you, Chanya. We have Nick from Credit Suisse.

Hi, Nicholas from Credit Suisse. Thanks for taking my question. Just two from me. Firstly, follow up on the credit costs, the management overlay. You know, how do you think about whether it's sufficient at this point in time and or whether there's a need to build that up going forward? The second question is, I think, Jin Yu, you mentioned on the RWA, there's room for further optimization in 2023. So I just want to understand, you know, where this is coming from and how much.

I think the first question is quite simple. The answer is yes. I think we have adequate management overlay. Chin Yew passed to you on the second.

Okay, yeah. On RWA optimisation in 2023, that will be coming from our single premium wholesale funding, financing portfolio. Quantum wise is around four or five billion reduction in RWA.

Thank you.

Okay, maybe I move to the people on the call. Maybe we start with Nick Lord from Morgan Stanley. Hi, can you hear me?

Yep. Yep. Okay. Thanks very much for taking the question. A couple of questions from me. First of all, just on strategy, I mean, I noticed the reference to, I mean, I think you said there you see yourself as an Asian bank. Is there any change in terms of core country strategy? I mean, obviously, historically, you've referred to yourself as a Singapore, Malaysian, Hong Kong and Indonesian focused bank. So just interested in that. Second question is on two questions on credit quality. First is, I just wonder if you could share with us what it is particularly in the global economic outlook that's led you to increase the MEV. and secondly if you could just clarify what sector the Hong Kong non-performing loan was in and then finally on IFRS 17 adoption is there going to be or can you quantify the impact on the contribution from Great Eastern as a result of the IFRS 17 introduction?

Thank you. I take the first one, meaning geographical presence. Our core markets, as you have already named, is Singapore, Malaysia, Indonesia, Hong Kong. But in Hong Kong, we don't look at Hong Kong narrowly, we're saying good to China. That presence in mainland China is very important, linking up with Hong Kong as one team, because we are seeing flow. across British China to ASEAN. We have strengthened our presence very much and not just in the geography. I mean, geography meaning do we have people sitting in, for example, Vietnam and Thailand who are able to receive some of the investments as even multinationals continue to do the China plus one strategy, right? So I think that is why we say that we need to improve in the presence. But again, the products, which is very important. When you say that when investments flows across Asia, then are we able to serve them as one bank so that we can handle very simply the money from China, let's say from China, going into Indonesia, right? And how do we help them to manage that payment and transfer and hedging? in the ethics and also in the interest rate. So when we say we want to better our presence, it is the capabilities as well. in the various countries where we have a presence. I don't rule out expanding or improving some more. We have smaller office in Vietnam and in Thailand. But as we continue to see the flow, don't rule out improving or increasing the resources there. But we're quite happy with what we have. But the important thing is to strengthen the capabilities to do the business together. I think that's the first part. I think the second is About MEVs, would Chin-Yu, would you like to take that?

Okay, in fourth queue, we look at the MEV and then the economic forecast for various countries, and that's when we decided that, you know, we would have some increase in terms of ECR 1 and 2, that's the general provision for our portfolio.

Okay, so it was general, but nothing specific. And it was related to the countries that you're, okay.

Yeah, but indeed, if you look at some of the projection, right, on the GDP growth, some countries did have the GDP growth revive downwards around fourth quarter. So I think our view is reflecting that as well. I think there's a question of IFRS 17, Ginny.

On IFRS 17, you asked about the impact and contribution to OCBC. We are not at this stage able to provide that impact at the moment because our GEH, we are still working on the quantification of the impact. It will take effect from first Q 2023, that's when the impact will be more certain then when we release our results.

I think in general IFRS, if you look at it, the way we account for the insurance business could potentially bring more stability to the profits lines. So I think I can share that as a general comment on that. So hopefully some of the volatility because of how you value the insurance contracts can be smoothed out once we put in that IFRS 17.

Given the maturity of the book, would it be a negative impact?

I would believe it is a moving out impact because in a way you know the some of our maturity of our contracts are up to 20 years and then but you in a way when you discount it right and using if indeed for the fourth quarter we have inverted yield curve so that's how you see the volatility right as we account for that insurance contract liabilities. So I think it's more about moving out as we adopt the new accounting standard. But more details need to be reviewed as we continue on the work.

And sorry, the last question was on the Hong Kong MPL, just if you could tell us which sector it was in.

Oh, okay. That is a specific real estate customer, but it is highly secure. And I think Jing Yi mentioned that it is above, no, it is around LTV of 60%.

And that's an offshore China real estate in Hong Kong?

Hello, sorry. I just want to supplement, right? I guess where your question is coming from is also whether it relates to anything systematic. Our credit quality is actually very robust. The Hong Kong case is not relating to China real estate or the bigger teams which people talk about. I just want to be very affirmative about that. It's due to the unique consensus relating to that particular mid-cap group.

Okay, thank you. That's perfect.

Okay, Gula from The Edge. Hello, yes, thanks, Hen. That was a very good set of results, but just a question on Great Eastern again. Sorry about that. Is there any impact, I'm wondering, on the new Basel IV? regulations because they start transitioning from the middle end of the second half of this year. So just wanted to know if there's any impact on that. Maybe the RWA, there isn't. Okay. And also would you, a lot of corporates are giving dividends in specie. I'm just wondering whether you would ever consider something like that for Great Eastern, given that, you know, the liquidity is very low. So that's one question. And the second one is just generally over China. you had a Greater Bay Area strategy. I just wonder how that is going to move on now that China's reopened. And we've always talked about the flow business coming from China out into ASEAN, but is there any going the other way? And would you be prepared to offer loans, et cetera, on that? And also, just one last question. Do you give out the amount of management overlay that you have? I thought there was a, the other banks have given indications. I just wondered whether you could, you know, give an idea of whether it's a billion to two billion or below a billion. I mean, just, is it below a billion or above a billion? And below two billion?

Okay, I think start with, I think interesting question on GE, but if once we go into technical, I just want to point out that our CFO of GE is here. So maybe if you have interest, maybe after this session, you can go into more technical with him. So Ronnie is here at the back, he just show his hand. Okay, so I think I'll leave the GE questions to Ronnie to handle later. on the China Greater Bay Area Strategy. It is there. We've been continuing running it. We're very focused on it. We did not give out specifically improve in numbers, but it's a continued, last year's a double-digit growth in Greater Bay, cross-border Greater Bay business. So if you want more details, again, you can catch, take long. He can talk a bit more about that later on. And we do see China reopening. It's a bit faster than everybody expected, so that is positive. As we see, actually back in Hong Kong, I do see more people around and activities, economic activities improve already. As to the flow, yes, there is always northbound flow. It's not just southbound, right? And in a way, if you look at our book in China, in mainland China, actually substantially our network customers going north. So we're supporting our customers from Hong Kong, from Singapore, this part of the world, as they expand the business in mainland China. So the last one is about amount of management overlay. I pass that to Chin-Yi, but normally we don't disclose an amount. If you say whether it is a billion or two, I think it's probably more close to the one billion mark.

Ann Schuman, Reuters.

Alan, thanks. This is from Reuters. So previously, you've talked about how the capital is good enough for you to enter a quick phase of growth. You've said that repeatedly, and again, you talk about that. What other business groups or what are the What would interest you right now? I mean, the markets have changed a lot also given the equity markets valuations over the past year and also opening up of economies. Can you share some color of what has changed over the last two years in terms of your interest to acquire other companies? What are the types of businesses? And is there sort of, would these be small size acquisitions or, I mean, it's been a long time since OCBC has done a major acquisition compared to the rivals. Thanks.

Thank you for that question. When you say it's quite a long time, I think after Wing Hung, we did acquire Angie for the private banking business. And we always hold on to the fact that we are We're firm with our strategy. We like the countries where we have a presence. We want to continue to rapidly expand our organic business. Sometimes we didn't really mention the other overseas branches. They are an important part of us and I think Ching-Yi in her presentation did talk about we expanded quite a bit of our lending in our big centres in UK, US and also in Australia. But again, if we are looking at acquiring business, we always have the interest to look, and there's not short of opportunities, and we are looking. But of course, it has to suit us, and whether that is eventually a good acquisition, again, eventually up to looking at whether there's combined synergy. So if you look at it that way, it has to be, are potentially in our core markets, potentially in our... Indeed, we have a diversified franchise. So when you say look at what business, then it's again banking, insurance, wealth. So I think that's quite a broad spectrum for us to look at. I won't rule out small acquisition like portfolio, which is potentially easier to absorb. But if we feel that a certain market has a very good opportunity, that offer a lot of synergy value and broaden our leadership in that market, I definitely will look at.

Sorry, Anand from Bofa.

Thank you. Anand here from B of A. Helen, you mentioned a couple of times organic growth opportunities, capture a bit more of that. But when we look out, the environment is quite uncertain. There are a lot of overlapping factors as well. how much visibility you have in terms of demand from corporate SME retail segments and what can you do or what are you doing to gain market share even in a slow growth environment especially in the SME retail segment if you can give us a bit more color that will be useful I will take long on that but if you look at the last three years it's been very quite strange it may not be the right word

that the pandemic has certainly impact, have a lot of impact on the economy and on how we serve our customer. So when we say we need to be nimble, it is very much, if you look at loan growth, we say that we want to grow fast, but it's not just on loan. You need the opportunity, you watch our asset quality, right? So I think three years in a row we managed to deliver mid-single-digit. I think the first year was actually high single-digit as well. But other than that, it is very much the rest of the products that you can offer to your customers. I'll ask Tec Long to, as I said, Tec Long to talk about it. But when the economic environment is uncertain, what you try to do is you should also look at your liability side, right? So if you say we reshape our balance sheet, we capture you through digitalization. There was my page on transformation digitalization. How easy now is for customers to open an account with us and how we have indeed managed to gain more SME accounts and also gained through the improvement of gaining SME account in number, we also rolled out digitally SME loans where we can approve a loan really quickly. I think there was also a piece of data there. And also for the bigger customers, how we managed to capture mandates for Singapore in particular with the government-related entities. where we would be able to increase our float. And then, of course, as interest rate move up, our float income as well. So I think going forward, we continue to be nimble as we watch out for credits or lending, but against everything that goes with the lending and overall service that we'll be able to offer to our customers. And that's why we emphasise the one group approach. you cannot say that I want to build up a bigger loan book in Hong Kong without thinking about what we can get from these Hong Kong companies when they expand the business in Mainland China. So Thich Nhat Hanh, would you want to add some colour?

In terms of business momentum, I feel pretty cautiously optimistic about it. I think our loan book last year, for example, actually grew at a pretty decent rate in the wholesale bank business. There are a couple of tailwings despite the uncertainty. We see continued interest in investing in ASEAN and we want to capture that. That's where our strength is. Then the next tailwing which people can focus on is actually the China relaxation of COVID. and that will benefit both China, I mean mainland China as well as the Hong Kong market. So I expect economic activity to take upwards, especially in Hong Kong. If you look at the weakness in the marketplace, the ICT sector has seen a weakness in the economic activity. but ASEAN is unique in the sense it's attracting investments in this sector. So it kind of gives you the silver lining to the overall trend. For SMEs, we have to look at sectoral team. I think in general, if you look at the SMEs, a lot of them are in the services sector. So they'll ride the COVID tailwind a lot better than what we think about global industries. For SME Hong Kong, I'm very optimistic. because there's a lot of reliance on the cross-border activity between China and Hong Kong. So this is how I look at the business momentum.

Sure. Thanks, Teck Long. Just a bit more on the SME side. How are they handling the rising funding costs? On top of it, macro is still not great when we think about what could happen in the next 12 months. And what are the conversations you are having with your SME customers? How are they approaching this environment?

I think I do acknowledge that the SMEs need to adjust to a higher cost environment, both interest rate, wage cost. I think they will feel the full impact this year. The underlying tone from our conversation at SME is not as bearish as what people think. It's always difficult to run an SME business. I think that's always been an underlying tone. But what we do see is them adjusting their business model to absorb the higher cost, and then they are also passing on the cost to their customers. Now, the pace of passing on to the customers varies, but I don't think we are looking at a credit quality situation as opposed to maybe a little bit slower in terms of their business volume.

Sure, thank you.

Hush, JP Morgan.

A couple of follow-up questions on Greater China. One is, HIBOR has collapsed year-to-date meaningfully. How is it impacting your business? To what extent is it net positive because cost of fund is going down or net negative because of the prime hyper spread? Any views there? I'll take the second one after this.

I think we're watching. It's early days to say that, oh, how do you measure that? Is this really like the end of interest rate rising? and what if there's another two or three action by Fed on interest rate. A lot of times it's about short-term liquidity in the marketplace as well. When you have a threshold of liquidity, your highball could collapse quite a bit. But the strategy for Hong Kong does not change. It is what we call a train hub, together acting with Singapore. These are the two financial centres which we have a strong presence in. So again, it is how we look at acquiring more customers in Hong Kong, be they the Chinese customers who continue to strengthen their presence in Hong Kong. And when China open up, as we all know, you have customers traveling into Hong Kong. to continue to look at the business. And you have Hong Kong customers going to China, but they may actually require banking service in Hong Kong. So I don't know whether Ken has something to add on the Hong Kong market, on the market side, for the last month or so.

Like what you pointed out, obviously there was a point in time when the highball spreads between one and threes were actually very wide. But I think if you look at the Hong Kong customer profile, most of the loans are actually repriced on one month. So from that part, in terms of the borrowing costs from them at the one month point in time, it hasn't really affected them. Now with spreads starting to normalize, coming off a bit, if anything, it would make the situation a lot better in terms of the and growth on loans and things like that.

Thanks. And the second one is on Bank of Ningbo. It has increasingly become a very important driver of your bottom line. NPL ratio of 0.75%. sustainable do you think that number is? And how do we get comfort on sustained growth of profits at Bank of Ningbo? And how much can do you have an influence in the operations and outlook for Bank of Ningbo? Thank you.

truly recognize the fact it is becoming a very important, and it has always been a very important investment of ours. If you look at the business, when you talk about NPLs and growth of the bank, you have to look at their business model. They're very strong in their province, which is Zhejiang. They have over the years expanded into the key cities in China, but they don't over, if you look at how they have expanded, they don't just go across the whole country. So they want to continue to support where they can grow the business, but they also want to support their customers in the top four cities in China, for example. and if you look at where they have expanded into, it's not just lending, they are into wealth management as well. They are also into develop quite a lot of digital a proposition to the SME customers as well. And so I think deposits is also rising funding. They build their book as they also build on their deposit base. So we are quite happy with them and we have very constant working together, meaning there is a lot of customers and business referral. Other than investing in the bank, we also invested into the wealth management business of Bank of Ningbo as well. So with that, with the constant dialogue, I wouldn't say you control them because there's no way for us to control them, but we do constantly point out risk factors and points, and we do share our views on the markets and how we expand business in a very good manner.

Akesh from UBS.

I just had one quick follow-up. I wanted to gauge your engagement with the family offices that have opened in Singapore in the last year. Could you give us a rough number of the family offices that you've engaged with or some percentage?

I think there is a strong growth in family numbers. I'm not sure, Thich Nhat Hanh, you'll want to mention a number, but I think it is in the hundreds. I think it's in the hundreds.

That's good enough, thank you.

Hi, thank you for the great presentation. So just two quite simple questions, I think. Firstly, could you elaborate on why wealth management fees have dropped despite higher net inflow? And secondly, chat GPT is all the rage now, so wondering if you could share whether the OCBC bank plans on using that. Thank you very much.

I call Sunny to just comment a bit on wealth management fees for fourth quarter.

Yeah, okay. Last year was a volatile investment landscape, so customers generally are cautious and they stay a little bit on the sideline. And also with the high interest rates, we do see a little bit of less financing on the customer side. But however, with the huge net new money they have, I think that positioned us and set the stage for customers to deploy as sentiment improved. And we can see in the first two months of this year.

Your second question is a fun question. No answer to that yet. Of course, anything new we will look at. I think that's something you can discuss with Ching Ching about.

Okay, thank you very much.

Any more questions from media friends or analysts? If not, we can wrap up this morning's briefing.

Again, I want to thank everybody coming. I think it's a good year. As management, we are quite happy we deliver results. But again, looking forward, I think it's important how we continue to execute our strategy. And we welcome continuous dialogue with all of you. And we are very happy that you continue to follow us. and so thank you very much for coming and have this session with us.

Okay, thank you everyone. This comes to the end of our briefing session. Thank you.