DBS Group Holdings Ltd
SGX:D05
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DBS Group Holdings Ltd
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Good morning, and a very warm welcome to DBS' First Quarter 2021 Financial Results Briefing. This morning, we announced that our first quarter 2021 net profit doubled from the previous quarter and rose 72% from a year ago to $2.01 billion. This marks the first time that quarterly earnings have crossed the $2 billion mark.
So some housekeeping before we begin. There will be 2 sets of slides accompanying the briefing today. Both the CFO and CEO presentation can be assessed from the DBS Investor Relations page. To take us through the numbers, we have with us our CEO, Piyush Gupta; and our CFO, Chng Sok Hui. I'll hand the time now to Sok Hui.
Thank you. Good morning, everyone. We start with Slide 2. We delivered a record performance as quarterly net profit crossed $2 billion for the first time in our history, doubling from the quarter before and increasing 72% from a year ago. Business momentum was strong and broad-based. Loans grew 3% from the previous quarter, boosting net interest income 2% on a day-adjusted basis.
Net interest income -- net interest margin was stable. Fee income rose 15% from a year ago to a record with wealth management fees and transaction service fees at new highs. Treasury markets and treasury customer income were also at record levels. The broad-based business momentum mitigated the impact of lower interest rates. Expenses rose 2% from a year ago to $1.59 billion due to the inclusion of Lakshmi Vilas Bank.
Asset quality was healthy with nonperforming asset formation and specific allowances at pre-pandemic levels. The stabilizing asset quality resulted in a general allowance write-back of $119 million. Nonperforming assets were 2% lower than the previous quarter. The NPL rate was 1.5% and specific provisions were 21 basis points of loans.
General allowance results remained prudent at $4.13 billion. There was a $1 billion or 31% above MAS minimum requirements and $1.3 billion above the amount eligible for consideration as Tier 2 capital. Total allowance coverage was 109% or 203% after taking collateral into account. Liquidity remained ample as deposits rose 2% due to current and savings account inflows. This was similar to recent quarters with CASA rising to account for 74% of deposits. The liquidity coverage ratio and net stable funding ratio were 136% and 127%, respectively.
Capital was healthy with a CET1 ratio at 14.3%, well above the group's target operating range. The leverage ratio of 6.7% was more than twice the regulatory requirement of 3%. The Board declared a first quarter dividend of $0.18 per share, in line with MAS' guidance for banks to moderate dividends.
Slide 3. Net profit rose 72% from a year ago to $2.01 billion, the first time in our history quarterly earnings crossed the $2 billion mark. Total income was 4% lower at $3.85 billion as strong business momentum was more than offset by the impact of lower interest rates. Had net interest margin been stable, total income would have risen 9%.
Net interest income fell 15% or $375 million to $2.11 billion. The decline was due to a 37 basis point fall in net interest margin to 1.49% from global interest rate cuts in the first quarter of last year.
Fees rose 15% or $121 million to a new high of $953 million. Record fees from wealth management and transaction services as well as higher investment banking fees more than offset declines in loan-related fees and card fees.
Other income increased 12% or $82 million to $794 million. Trading income doubled as Treasury Markets noninterest income and treasury customer income rose to new highs. Investment gains fell from a high base. Expenses were 2% or $31 million higher at $1.59 billion due to the integration of Lakshmi Vilas Bank. Stabilizing asset quality resulted in a general allowance write-back of $119 million compared to the $703 million that was set aside a year ago. Specific provisions were $183 million lower at $400 million.
Slide 4. Net interest income was $2.11 billion, 2% higher than the previous quarter after adjusting for the shorter day count. The increase was due to constant currency loan growth of 3%. Net interest margin was unchanged at 1.49% after 3 successive quarters of decline as lower repricing slowed. Compared to a year ago, net interest income fell 15%. The impact of a 37 basis point decline in net interest margin due to global interest rate cuts was moderated by loan growth of 7%. We have guided for 2021 full year net interest margin to be between 1.45% and 1.50%.
Slide 5. Gross loans increased 3% or $12 billion over the quarter to $393 billion. Growth accelerated and broadened compared to previous quarters. Non-trade corporate loans rose 2%, similar to the quarterly run rate in 2020. The growth of broad-based across the region and across a range of industries. Freight loans grew 6% as market demand improved and commodity prices rose. This reversed the decline in most quarters of 2020.
Housing loans were 1% higher as strong momentum continued. This was the second successive quarter of growth following declines in second and third quarter of 2020. The growth was the result of strong bookings in the second half of last year, which continued into the current quarter. Wealth Management loans were also higher from healthy investor risk appetite and strong market sentiment. Compared to a year ago, loans grew 7%, led by non-trade corporate loans.
Slide 6. Deposits increased to $478 billion over the quarter, up 2% in constant currency terms. As in recent quarters, the growth was due to current and savings account, which enabled higher cost fixed deposits to be let go. CASA grew 4% or $14 billion to comprise 74% of customer deposits, a 1 percentage point improvement from the previous quarter and a 16 percentage point improvement from a year ago. Fixed deposits fell 3% or $4 billion, continuing the previous quarter's decline trend. Faster than growth -- faster loan growth and deposit growth resulted in the loan deposit ratio rising 1 percentage point to 81% after 2 successive quarters of decline. Liquidity was ample with covered -- liquidity coverage ratio at 136% and a net stable funding ratio at 127%.
Slide 7. From this quarter, fees, which is a small component of total fee income, has been reclassified into transaction services and Wealth Management to better reflect the business operating model. Gross fees rose 13% from the previous record a year ago to a new high of $1.09 billion. Record Wealth Management and transaction service fees as well as higher investment banking fees more than offset declines in cut fees and loan related fees.
Wealth Management fees rose 24% to a record $519 million. Strong investor sentiment amidst the low interest rate environment drove demand across a wide range of investment products. Bancassurance fees were also higher, reversing declines throughout 2020. A further $168 million of Wealth Management income is captured under trading income as these are structured in-house. Transaction service fees increased 10% to a new high of $230 million as trade finance, cash management and institutional brokerage fees grew. Investment banking fees increased 36% to $49 million from higher equity and fixed income capital market activity. Cut fees were only 2% lower at $169 million as consumer spending continued to recover towards prepandemic levels, and digital transactions accelerated. These partially made up for travel spending, which remained low. Gross fees increased 25% from the previous quarter. The growth was also broad-based with cut fees the exception due to seasonal factors.
Slide 8. Expenses. Expenses were stable from the previous quarter and 2% higher than a year ago at $1.59 billion due to the integration with Lakshmi Vilas Bank. Excluding LV Bank, cost was stable as higher bonus accruals in line with a better financial performance were offset by lower non-staff costs. Expenses were unchanged from the previous quarter. The cost-to-income ratio was 41%.
Slide 9. Asset quality was healthy as delinquencies for both corporate and consumer segments continued to be low despite the tapering of loan moratorium. New nonperforming asset formation was at half the quarterly average for 2020 and in line with prepandemic levels. NPL formation was more than offset by write-offs and recoveries. As a result, nonperforming assets declined 2% from the previous quarter to $6.59 billion. The NPL rate was 1.5%, slightly lower than the previous quarter.
Slide 10. The stabilizing asset quality resulted in lower specific provisions. Specific allowances for credit exposures fell to $199 million or 21 basis points of loans compared with 31 basis points for full year 2020 and in line with prepandemic levels.
Slide 11. General allowances reserves declined 4% from the previous quarter due to write back resulting from improvements in portfolio quality. General allowance results remained prudent at $4.13 billion, which were $1 billion or 31% above MAS minimum requirements. We also exceeded the amount eligible for Tier 2 capital by $1.3 billion, which acts as a buffer for the total capital adequacy ratio. Allowance coverage was at 109%. And collateral was considered allowance coverage was at 203%.
Slide 12. Capital continued to be healthy. The common equity Tier 1 ratio rose 0.4 percentage points from the previous quarter to 14.3%. Profit accretion and a methodology refinement for market risk-weighted assets were partially offset by increase in credit risk-weighted assets. The CET1 ratio was above the group's target operating range of between [Technical Difficulty] and 13.5%. The leverage ratio of 6.7% was more than twice the regulatory minimum -- regulatory requirement of 3%.
Slide 13. The Board declared a dividend of $0.18 per share for the first quarter. This was in line with MAS guidance for local banks to moderate dividend for 4 quarters, starting from the second quarter of 2020. The scrip dividend scheme will be applicable to the first quarter dividend. Scrip dividend to be issued at the average of the closing prices of the 10th and 11th of May 2021. Based on yesterday's closing share price and assuming the dividends are held at $0.18 per quarter, the annualized dividend yield is 2.4%.
Slide 14. In summary, the first quarter was extraordinary, with all businesses recording strong growth. Loan growth accelerated. CASA growth was sustained while fee income and treasury income, both reached new highs. We remain disciplined on costs, which were stable from a year ago, excluding Lakshmi Vilas Bank. Asset quality stabilized, resulting in a general allowance write-back. The global economic rebound is strengthening, and we are bullish about prospects for the coming year.
Our franchise has been enhanced by new growth platforms. This quarter, we announced stakes in Shenzhen Rural Commercial Bank and in Partior to develop blockchain-based cross-border clearing and settlement technology. These follow the amalgamation of Lakshmi Vilas Bank, our announcement of the China securities joint venture and the launch of the digital exchange announced in the last quarter. We are well placed to continue supporting customers and delivering shareholder returns as the economic recovery takes hold. Thank you for your attention, and I'll now pass you to Piyush.
Thanks, Sok Hui. So let me get to my presentation. As Jean (sic) [ Karen ] said, you can find it also on our investor site. And if we start off with Page 2, I'm not going to go through all of this, Sok Hui just said it. But it was a bit of a golden quarter for us. And just a couple of snippets. The loan growth is really broad-based. The noncorporate -- I mean the corporate lending has been consistent now for a couple of quarters, that was good. But for the first time in several quarters, trade kicked in. And that's partly reflecting the improved commodity prices, but partly overall imports and exports in our client base at least was strong. So that was helpful.
Housing loans continued to be strong. Bookings for the first quarter were also strong, almost at a record level. So I see that continued to be an area of good momentum. And Wealth Management lending also continued to grow quite nicely, accompanying all of the activity in the market. So broad-based loan growth.
The other thing that I call out is the activity in investment banking. Last year, DCM, fixed income was generally consistently strong, but ECM was very weak for us. First quarter, actually both DCM and ECM kicked in. And actually, our pipelines on both are looking very good. So the fee income was -- investment banking was quite broad-based.
And in treasury, I just want to call out that while trading obviously was a fantastic quarter for us as for many other banks, but the customer business in treasury was also very strong. We're up 12% or in the consumer space, 15% in the corporate space. And so there's a lot of activity all around. And frankly, this -- I'll talk about in next slide. In this slide, not only an improvement in market conditions, but actually, I think some improvement structurally in the nature of our businesses overall.
So without spending more time in looking back, it generally was a very strong quarter from all accounts on the business side. I think what's more relevant is the next slide, Slide 3. As I see the situation right now, I think the prospects for the macro economy are actually looking reasonably good. We saw the U.S. data yesterday, 6.4% first quarter annualized. We saw China year-on-year at 18%. Most of our country, we're seeing strong growth. Even India, notwithstanding the second stage of the pandemic, I think will come through quite strong. I think India will give up 2, 3 percentage points relative to our forecast 2 months ago. But we are forecasting 12, and I think maybe we'll come in closer to 9 and 12. But that will still be a nice bounce back from last year's negative 7.
So we're seeing generally sustained growth, and we're seeing it across sectors. In fact, we don't have any sector buyer side, but from what we can see, this is quite broad-based. Our loan growth reflects that. Last year, it was concentrated in TMT and real estate. This year it's extended to multiple sectors. So feeling relatively good.
I said last year, our loan growth is therefore likely to be mid-single digits, 4%, 5%. We grew 4% now for 2 years in a row. But just based on the momentum in the first quarter and the pipeline we're seeing, we think we could get to the higher single-digit -- single digits instead of mid-single digits.
Fee income, I think, will continue to be robust as guided earlier for double digits. I think we will do 15% first quarter. I think we should be able to continue doing double digits. Wealth Management obviously moves a little bit up and down based on what the markets are doing. Nevertheless, underlying -- there are some structural improvements in our wealth offering.
One, we've -- pushing the democratizing west idea, which is offering wealth management products into the retirement planning base. And that's continued to do quite well. At the end of the first quarter, we had about $800 million in AUM from our retail digital portfolio and our regular savings plan. That's almost 15%, 20% of the wealth product income today. So that's quite steady.
We're also seeing upside from the digital take-up of wealth products. In the first quarter, whether it was equity or unit trust, the people using digital platform to take with us -- grew substantially higher than the off-line. So I think that's all the structure. I think that will stay.
And finally, we've continued to change and bring some more annuity product streams like our discretionary portfolio as well as our barbell account, et cetera. So we call these core products. And the core products have doubled in the course of the last 12 months. So that gives us a slightly better degree of resiliency in the wealth management fee income. But having said that, all of this still -- can get overturned as the market turns out. But net-net, I'm relatively optimistic about this.
The other area where we see structural improvement is in treasury markets on the customer side. Obviously, we are helped by the market. The markets have been generally kind. But on the customer piece of the income, again, the 3 areas that our efforts over the last year or so are paying dividend. And that's also to do with transformation and digitization. One is in the distribution setup. I've indicated before that we've been distributing our treasury products into our customer base more and more electronically, and in fact, more and more embedded whether into our payments products, into our APIs, into various other forms. So that's helping. We're getting good volume growth from there.
The second is use of data. We've been increasingly being able to use analytics and data mining to target customers better. So I think that's helping. And finally, we also have been doing a lot more of algo, AI-driven algo and trading both the sentiment and for trading or positioning our own book. Structurally, in the past we said that our T&M business is good for about $225 million a quarter. I think the structural changes in the business will be probably closer to $250 million a quarter now. And of course, the first quarter was exceptional. It was double that. But I do think there's some structural changes in treasury, which are helping as well.
The outlook on expenses, Lakshmi Vilas is obviously just an add-on, it's just about a couple of percentage points of growth. But ex Lakshmi Vilas, we will see some pickup in expenses, partly to support the much stronger business activity that we got predicted. Partly, I think we're going to see some more wage pressure. So our bonuses will have to go up and some wage adjustments are likely to be made. But net-net, we think our cost instead, therefore, will probably be 3 to 4 percentage points up over the 2019 level, which is what we were using as a benchmark and basemark.
We go to Slide 4. The outlook on the asset quality is also looking very encouraging. As Sok Hui pointed out, our overall portfolio in the first quarter surprised on the outside. Our delinquencies are staying really low. If you look at the various moratoriums, the housing, low moratorium in Singapore, Out of the $5-odd billion, most of that has now come back to regular, just I think there's some 300-odd customers at $0.5 billion, which has got extended moratorium, but the delinquency in that are negligible.
If you look at the SME book in Singapore, again, we started with about $5 billion in moratorium. That was down to about $1 billion at the year-end. Another $700 million came off moratorium at the end of the first quarter. And we only have 4 weeks of data, but in the 4 weeks, we're not seeing any significant pickup in delinquencies in that $700 million. So what's left in moratorium is now about $400 million, which will come off in the end of June. But so far, I'm encouraged. We're not seeing the pickup in delinquencies, and cost of credit in these don't coming off moratoriums in the SME space in Singapore.
If you look at the other piece in Singapore, we obviously have another $5 billion-odd of the government supportive programs, the ESG loans. And again, our risk on that is only 10%. The government bears 90% of the risk. That with the future, and that still remains to be seen. Half of those customers are paying principal and interest, half of them is only paying interest. We don't know in the second half of the year what the delinquencies on that portfolio will look like. But like I said, it's 90% government backed.
Finally, in the moratoriums, we had the biggest moratorium chunk was in Hong Kong, where originally we had about $6.5 billion. At year-end, it was down to about $3 billion and change. Now it's down to about $2.8 billion. Of that, a chunk of that is large corporates, I'm reasonably okay with that. But about a couple of billion of that is SME. There, the outlook is going to be unclear for a longer period of time because the Hong Kong authorities have extended the moratorium now into -- well into 2022. And therefore, that part of the book, we just have to keep an eye out and watch.
But nevertheless, when you put all of that together, it's quite clear that the delinquencies in all of these portfolios are not coming at any way to the levels that we thought they might. And so there might be some upside on that.
Second, the new NPA formation is very low. Like I said, across the board, I'm seeing pickup in economic activity across sectors. And so we're not seeing a deterioration in our NPA. And so that's actually quite good. As you've noticed that from an allowances standpoint, we saw a significant reversal in our general provisions. Now our general provision, which is $4-odd billion, comprised 2 things. A chunk of it -- the largest chunk of it comes from our model. And then there is another smaller component, which was what we call the management overlay that was for things that we thought the model wouldn't pick up, like the moratorium, et cetera.
The reversals in the first quarter have all come from the model. So we've actually not had to dip into the extra money, extra results we kept aside. We just continue to see what happens to the moratorium before we touch that. But the improvement in the modeling results just show that overall, the portfolio is improving. The improvement came from both. It came from an upgrade of names, so some names which we thought were going to be weak have actually improved. They came from a repayment of some monies. I think many companies have been able to raise money in the bond market, so some of our exposures got paid down and paid back.
In the consumer space, they came from an improvement in the flow rate. So overall, the loss in GP just reflects an improvement in the portfolio quality. And as we see, looking ahead, I mean I've said, full year allowance is likely to be below $1 billion. We've guided about $1 billion earlier. I think I'm pretty confident it will be below that. How much below that is still difficult to say. But like I said, overall, it's looking relatively promising.
All right. I want to shift to second theme, not just the outlook and results. But somewhere in the early part of the pandemic in the summer, we decided that there might be an opportunity for us to do a few things to help us emerge stronger from the pandemic, see if we could use the pandemic to reposition the bank and gain some opportunities for the future. And we've actually got a dozen different things that we're trying to do. But broadly speaking, they fall into these 3 categories.
One, we figured this is an opportunity to look for some inorganic expansion. We said before that we're always open to bolt-on deals if we think they make sense. Second, we figured that there is an opportunity for us to build some new lines of business. And this is principally leveraging our technology capabilities. It's been quite interesting to me over the last year or 2 how many people are willing to coming to us and asking us to leverage the technology capabilities we've built in the last 5, 6 years. And we see that there's an opportunity to try and monetize some of this. More generally, I'm convinced that a big opportunity is to be part of the new digital infrastructures that are going to come into play as the world progresses down this digital trend.
And I sometimes think, people often joke about this. We think about gold rush. The people who made the most money in the gold rush were not the gold miners. They were the people that sold the picks and the shovels. I think there's an opportunity really for somebody with good technology capabilities to provide the infrastructure and the picks and the shovels of the new world. And that's what we're trying to do as we think about the new businesses that we can leverage and build.
And third, obviously, we figured that, again, given our digital strength, there were some businesses that we could step on and accelerate.
Now on this slide, I've listed some of the things that we've already announced. There's some that we haven't. I'm going to -- I have a slide each in the first 5, but let me just quickly touch on retail versus supply chain because I don't have a slide on those. Retail, that I spoke about earlier. This is a Robin Hood phenomenon to my mind. Given the mass takeup of wealth products in the market, if you have the right digital platforms and the right digital product suite, I think you can do well. We've doubled down on this. And as I said before, today, 15% to 20% of our wealth products are already going into this base. So I'm actually quite pleased with that. We are going to continue to push on that.
On supply chain, I've talked about before, people are digitizing the supply chain. The fact that we have all of these API protocols and we have a very efficient ability to plug into whether they're anchor-driven supply chains or industry supply chains or platform level supply chains, that's proving to be very beneficial. It's helping us drive significant volume in our cash and trade businesses and our flow activity. I think some of that is also reflected in the big CASA growth we're getting from the corporate side.
So I'm not going to talk about those 2, but let me take the rest very quickly. So the first, as you know, we did Lakshmi Vilas. I'm pleased that the integration of Lakshmi Vilas on Page 6 is going quite well. At this point in time, we stabilized the business. The deposits traffic went up. CASA was up 14% for the quarter. We've done this by rationalizing deposit costs. So we've dropped the overall cost per deposit by 40 basis points. And that's already beginning to drive some improvement in the economics. We've started picking up the asset base. Again, gold loans are up 4% for the quarter. And we've revised and changed the underlying journey and system for the SME and medium and small term loans. We've centralized the credit process for that. So we've overlaid the DBS credit thinking around that SME area. We're being a little bit more careful in that, particularly given the new pandemic pickup in India. So we go slightly slow.
But overall, the key business metrics are looking good, and they're consistent with what we looked at in the fourth quarter when we decided it was a deal worth pursuing. There were concerns earlier about the possibility of asset quality in Lakshmi Vilas actually. Even the asset quality is looking relatively good. It's consistent with what we thought we would see.
The legacy, as you might remember, we brought out $212 million of net NPA onto our books when we did the deal. That's actually sunk a little bit because we were able to get some recovery. We're also getting some recoveries on previously written-off loans. We've been able to actually focus very hard and do that, so there's been a little bit of upside.
Some of the portfolio we knew was weak and we expected to go into NPL has indeed gone into NPL. But the additional SP we needed on that were not large, and we were able to reverse them from the general provisions that we had taken in anticipation when we did the deal.
So net-net Lakshmi Vilas is tracking. It's tracking relatively well. We're not seeing too much stress on any dimension right now. I think it will still take us the next few quarters to start actually making the acquisition sweat. But we have a full team in there working quite assiduously to try and make that happen.
If I go to the next slide, the Shenzhen Rural Commercial Bank. This, we just announced recently. It's a smaller stake. I mean it's a 13% stake, but it's obviously a much larger bank. The interesting thing about Shenzhen Real Commercial Bank, if you look at the bullets, one, it is a complete private bank. It's been operating since 2005. It's only in Shenzhen. It got a license with a rural commercial bank. But if anybody has been to Shenzhen in recent years, you know there's not too much rural going on in Shenzhen. And therefore, the bulk of the business is like any other bank's business. It's got a very good retail base. It's got a very good solid SME base. It's got a slightly upmarket wealth base. It is professionally managed, and it is widely held.
If you look at the shareholder base of the bank, it's some 32,000 individuals and a significant number of SMEs. The largest C shareholders each one about 5% of the bank and then employees own a chunk of the bank. So at 13%, we're going to be the single largest shareholder of the bank. And that gives us a degree of influence in that bank and the activity.
As you can see from the numbers on the right, the bank's performance has actually been very good. Its net profit after taxes had a CAGR of 11% in the last 5 years. Its NPL ratios are quite tight. Its ROE is good, has been 17%, 18% ROE over the last 5 years. And its capital adequacy is actually quite strong. So altogether, it's actually a nice, neat little bank.
If you look at the next page, I'd point to the 3 fundamental things, I think the bank and this deal does for us. Number one, it's clearly an attractive economic investment. So if nothing has happened, it just seems to me that having a 13% stake in a franchise that is well-managed, delivering high ROE is actually quite attractive. And the way the capital treatment works for us is we do equity accounting. So we take 13% of the income and state added to our income. That's about $100 million, $110 million to our bottom line.
Whereas from the asset side, we really do risk-weighted asset accounting on our investments. So our $1 billion of investment actually translates to RWA of about $3.5 billion, which is about $350 million, $400 million of equity. So on a usage of equity, this is like a 25% return on allocated equity, if you will. So it's actually quite an attractive economic investment in and of itself.
Also, as the bank grows, it is, at some stage, the intention is it will IPO. So hopefully, there is some upside over there.
But the second big upside we have is the opportunity to help build both Shenzhen Rural franchise as well as our franchise. Shenzhen Rural is the size which is now beginning to want to go international for many of its customers. As customers are looking for services in international trade, they're looking for services in international FX. Some of the customers are getting to stage where they want to do IPOs, increase their capabilities. And the bank was very keen to try and start digitizing. That's one of the reasons why the find as an attractive partner. We bring digital capabilities, and we build -- bring international capabilities, international presence and some capital markets capability.
The flip is true. As we are trying to build out GBA and make it an increasingly important part of our franchise, for us, the supply chain and going down the supply chain is very important. And Shenzhen Rural Commercial Bank's customer base gives us a really good opportunity to go deep into the first, second and third tiers of the supply chain of our large anchor customers. So I do think from a business synergy standpoint, it is a win-win on both sides. And I think it will be value accretive both to Shenzhen Rural as well as to DBS.
And finally, the third big upside, of course, as we all know, the Chinese regulations have changed. And they're now open to foreigners owning even 100% of a local bank. As this bank continues to grow, it is going to continue to need capital. I already mentioned at some stage, it will probably IPO. But as it continues to need capital, I do believe that we have the opportunity to continue to increase our position in those banks, given the regulations and the need for capital the bank has. So altogether, I think it's a very good platform for us. It just improves our -- it's accretive from day 1, and that's a great place to be.
If I move to the next slide, the new businesses, as I said, we're focusing on how do you build out digital infrastructure, which allow us to improve our position in the new economy, the digital exchanges we announced the last time. The first quarter has been steady. As you know, our digital exchange capabilities are much like Coinbase. And Coinbase of course, listed at levels you all know. Difference is that Coinbase is mark to market and retail, and we have been very judicious.
We are approaching this as a wealth proposition for accredited investors and for professional institutional counterparties to start with. Despite this and despite the careful way in which we're expanding the business, the first quarter numbers have actually been quite encouraging. We have about $80 million of assets under custody today. We've got 120 wealth customers. With the pipeline of customers with hundreds more, we're just being careful about who we add on. We've got $80 million under custody. The total trading volume has gone up by 10x. We're doing about $30 million, $40 million of trading. We are going to do the first security token offerings, we hope, in this quarter. So far, it was only the crypto trading capability, but the STO is going to start.
We're also going to expand the timings of the exchange from Asian working hours to 24/7. And so I'm actually quite optimistic that the coming quarters, and certainly, the second half of the year, will see us start getting a lot more traction with this business.
We go to Slide 10. This we announced just last week, we set up a technology company together with JPMorgan and Temasek to focus on trying to see we can create a platform to change the way cross-border payments and settlements work. As you all know, the problem with cross-border payments and settlements has always been a T+2 problem. Your message to the beneficiary goes in real-time, but the settlement goes through hub and spoke. It goes through the sender's correspondent bank and then goes to the receiver's correspondent bank and then finally goes to the end beneficiary.
Today, with leveraging blockchain, you can actually change that whole paradigm. You can actually convert your money into -- effectively fiat money, digitize money. And you can send it across so the settlement happens as soon as the original message reaches. You could also program this. And because we can program this, the actual settlement can be programmed to happen if conditions 1, 2, 3, 4 happen. So that's very powerful. It changes the latency of the process, but it also changes the capacity to program the way instructions get done.
Our plan, along with JPMorgan and Temasek is to make this an open platform. So it's not a closed platform. While we are launching the tech companies, underlying operating hubs will be many. In the first instance, between Sing dollar and U.S. dollar converting into fiat money. But we are actively looking to bring in banks so that other currencies, euro, sterling, renminbi, et cetera, all become part of the system. And if we can do that, then that will give us essentially the ability to be an important part of an infrastructure that could actually be game-changing for the way payments happen.
So if you look at the upside to us, and obviously, being part of a financial infrastructure is helpful, and there might be some value in the infrastructure over time. It certainly helps us with our own customer value proposition. We think we can go to our client and provide them a completely different way of doing not just money transfers, but also doing other things. The DVP, the delivery versus payment, the payment versus payment, the FX market, the security market, we think all of these can be reimagined with this construct.
And finally, the third thing it gives us is what I referred to before, we have been able to take some of our technology that we have built and actually license this to the new company. So it does give us a new revenue stream from software or technology services, if you will.
Like I said, if you watch the space, we continue to look for other opportunities to do similar activity where we can effectively use software as a service to build a new set of revenue streams for ourselves.
Finally, the last one I want to talk about was the security joint venture. We announced it in September, we got approval in September. As you can see from the right-hand side, we have 51% ownership. The other 25% is by SOE, which is controlled by Shanghai SASAC; 24% is by SOEs controlled by the Shanghai Huangpu District. But we do have an option to purchase back from the SOEs in 3 years. The approval was in September. The legal incorporation happened on -- in due course in January. All of on-site inspections by the regulators are completed in March. We've been able to put in all the infrastructure, the technologies in place. We've hired the team and the people. We have about 100 headcount in space at this point in time. We're just waiting on the business license to be issued to us from the regulators post the inspection, and we expect to get that anytime in the next few weeks.
We're quite optimistic about this business because obviously the 2-way flows in and out of China expanding. Already even without this entity, our focus on the institutional investor space and the custody space in China has been paying us rich dividend. But we think with this entity, we'll be able to accelerate that business and activity to a different level.
So let me stop that. It gives you a good sense, both for our view on the core business as well as some of the things we're trying to do so that we can reposition the bank to emerge fundamentally differentiated and much stronger from this crisis in the coming years.
Okay. We'll now take questions. Thank you, Piyush. Ana, over to you.
[Operator Instructions] Your first question is from Rebecca, who's from S&P Global Market Intelligence.
I got 2 questions. First, I was wondering, do you think the allowance write-back is too early? And do you expect more write-backs this year? And the second question is, how do you view your NII panning out for the rest of the year as the rates stay low? Do you expect NIM to stabilize at current level? Or do you expect a further rise or fall?
Thanks for the question, Rebecca. On the allowance write-back, I was actually careful to point out that we have 2 categories for allowances. One which are driven by models, and the models reflect effectively what is happening in the market. There is another component about $1 billion of it pointed out, which we created as a separate management overlay for things like the moratorium and other uncertainties.
The second category, I said, we are not touching because we think it might be too premature to start writing them back before we know what is happening. The model-driven outcomes, we can't control. The model-driven outcome just reflect what is happening to the underlying portfolio. If there's an upgrade of accounts, so companies start performing better, which happened. So chunk of the reversal is because these companies have improved their performance. If the exposure of some NIMs reduced, that's happened because some of the weaker NIMs have paid us back. Then the model just churns out a number and the number is what the number is. I mean the auditors won't let you actually change that number very much.
But the broader question is what is the outlook on allowances. I do think that the overall prospects for the portfolio are looking better than I thought even 3 months ago. Moratoriums are looking better. The sectors are looking better. We are not seeing weaknesses in any particular sector. Our consumer floor rates are looking better. So I would not be surprised if we actually wind up seeing reverses this year, which I had not anticipated 3 months ago.
Your second question on NII. NII guidance, our NIM guidance, we haven't changed. We said earlier that we think we'll be somewhere between 145 and 150 basis points in NIM. We think that's likely to be the case. There's still a couple of headwinds on NIM. One is the rates are still coming off. HIBOR came down to 9 basis points, LIBOR came down to record lows. So that is still a little bit of a challenge. So while the Sing dollar rates have been holding, the Hong Kong and the U.S. dollar LIBOR rates have been creeping down. The second challenge is, obviously, we still have a residual portion of our fixed rate portfolio, which has still got to reprice. And that reprice will continue to trickle in through the course of this year. So that is a second headwind.
There is a little bit of upside, and the upside obviously comes from the fact that the longer end of the yield curve is picking up. And so we have the opportunity to put on some duration. We're very cautious because I'm concerned that you might actually see some massive inflation steepness at the very long end. So I'm reluctant to go to the 10-year level. And in the belly of the curve, there is some pickup, but not a lot more. But when you put all of that together, I think our guidance of 145 to 150 NIM, I think it's still relatively safe.
Your next question is [indiscernible] from [indiscernible]
Piyush, I have 3 questions. The first one, are you interested in Citibank consumer assets in Asia? Do they have any appeal to DBS? And second question, given the recent [indiscernible] fallout in China, is DBS reducing exposure to Chinese SOEs? Third question, please could you comment on the property market in Singapore, do you see a need for cool-down measures?
Sorry, do you see any?
Cool-down measures. Cooling measures.
Cool-down measures. Cooling measures.
So, Tanya, on the first one, I have to tell you is no. I spent 27 years with Citi. And so right in the mid-80s when we launched our consumer business, I've been very interested in Citi's consumer business and assets. But if your question has to do with DBS, that's a different question. But joking aside, we will -- as we said before, we are always open to looking at assets that could be incremental to our franchise. And certainly, in countries where we do have a franchise, we will take a look at those assets. I think the process hasn't started. That will start in due course. We know that when we did the ANZ deal, that was actually quite beneficial to us. It gave us scale. It was very accretive. So yes, in due time, we will take a look at them. I also want to hasten to add, though, that I've said this several times before, we are very disciplined. So the economics must make sense. You must make sure that we have the capacity to be able to do it and so on and so forth. And so if it winds up to be a [indiscernible] of bidding frenzy, then you might not see us in the middle of that.
On the Chinese SOEs, we've actually been quite circumspect with our Chinese SOE management now for several years. We stopped actually relying on state support in our credit assessment 5, 6 years ago. We think of the Chinese SOEs on a stand-alone basis. We apply all our standard credit assessment and judgment in dealing with them. And therefore, at this point in time, we've not had any reason to tighten up or reduce exposures to any Chinese SOEs precipitating. We've obviously, in different sectors, we've been quite thoughtful about managing our exposure, but that has been now for the last 2, 3 years. So there's nothing precipitated at this point in time.
And finally, a question on the Singapore property market and measure, frankly, your guess is as good as mine. I don't really have a good sense for what the authorities might think and do. It is a fact that housing and bookings have been at record levels. And I do think some of it reflects people's view that you might see some cooling measures. And so people are trying to get ahead of that. But I don't have any further insight other than that.
[Operator Instructions]
Okay. Are there -- if there are no further questions, okay, we have one from Vivien from Business Times.
Vivien, please go ahead.
This is regarding the Shenzhen Bank acquisition. I'm wondering what this means for your Greater Bay Area philosophy and if you could share more details on DBS markets and kind of [indiscernible] any particular reason. And my second question would be on updates on the bank's review of physical office base requirements in that it intends to reduce its physical footprint.
We've previously announced that the GBA is a big part of our agenda and strategy. We're not that dissimilar to several other banks who also see that as a big opportunity. For us, leveraging our Hong Kong franchise as well as our presence in China has been beneficial. We've been focused on this now for 2, 3 years, and it's actually giving us very good traction. Our growth rates are there, are substantially higher than the growth rates in the rest of China or the rest of Hong Kong. And we're doing that by really focusing on both the new economy sectors, but principally leveraging the supply chain connectivities as you go down. Eventually, as the Wealth Connect opens up, we'll obviously look at that as well.
But from that standpoint, the Shenzhen Rural partnership will be very beneficial because of the bank, some 250,000 SMEs up and down of the entire system and which gives us the ability to go deep in the supply chain. Leveraging our digital tools and capabilities and working in partnership with them, providing those digital capabilities into that customer base, I think, will be extremely helpful.
Like I said before, I think we can also provide them a lot of other international services for their customers. So I think that this 13% ownership and partnership can actually be quite a game changer for us in terms of expanding our franchise in GBA.
Your second question on property space, we said earlier that when [indiscernible] announced our thinking about the future of work, that we're giving them our employees the flexibility of working from home up to 40% of the time, 2 days a week or ordinal week or something like that. And as we do that over the next 5, 6 years, when these leases come up, we anticipate seeing a reduction in our overall requirement by about 20%. So we won't see full 40%. We'll see about 20% because we're reshaping the offices to promote more celebration, more participation, more collaboration. But we will see some reduction. And so we already announced giving up some space in Hong Kong, some space in Singapore as part of that thinking in that plan.
Thank you, Vivien. Our next question is from The Edge.
Piyush and Sok Hui, congratulations on your very good results. So can you hear me?
Yes.
Okay. So I have, I think, 3 questions. The first one is you said -- I think you said you had $4 billion in GP. And so what is the portion of your management overlay versus what you can write back from your MEV model? That's the first question. That's for this year, for 2021. And the second question is, does your CET1 include the acquisition of the Shenzhen Rural Bank? And the third question is, can you give an update on the progress of Digibank in India and Indonesia? And has the new Singapore digital bank provided any competition to you yet?
So I direct Sok Hui take the first 2 questions on the breakup, the launches and the CET, and then I'll make some comments on the Digibank.
Yes. So your first question on the management overlay, so it's about $1.3 billion. But we also told you that we are $1 billion above the MAS requirements. So unless we are prepared to kind of take a hit on the CET1 ratio, you should assume that maybe we would sort of cap it at about $1 billion. As the pace will depend on sort of the progress as Piyush has mentioned, I see consumer banking, the more local, local sort of situation would free up sort of the GP first in the locations, in consumer banking followed by SMEs and the moratorium staple of. And therefore, the larger corporate will have to sort of monitor sort of the social and economic situation as the Board just opened.
Your second question is on the...
CET. Post Shenzhen Rural.
CET1. The Shenzhen, at the time when we announced it, we said there will be a 0.2 percentage point impact. It's roughly 0.16 percentage points, [indiscernible]
And Gula, your third question on Digibank in India and Indonesia. In India, in both countries, by the way, we've been going slow on the asset side of the balance sheet. A large part of our trust from last year was to use the DigiBank to do more unsecured lending. But the environment has not been conducive to do that. And so we've deliberately slowed down the asset side of the balance sheet, particularly in India. On the liability side, the consumer side is continuing to do well. It continues to slightly better in Indonesia than in India interestingly. Partly, it is to do with the last mile interfaces and the fact that the COVID comes in the way of that. But nevertheless, we're seeing steady progress. It's not earth-shattering basically. We're seeing steady progress.
In Singapore, as you know, nobody has actually launched any Digibank yet. I don't think it will happen until 2022. So no, we're not seeing any impact at this time.
Thank you. Thank you, Piyush. I'm afraid that's all we have time for today. Thank you, everyone, for tuning in. The next briefing is the analyst briefing, and that will start at 11:30. Thank you.
Thank you.