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.