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' Second Quarter and First Half 2020 Financial Results Briefing. This morning, we announced first half 2020 net profit of $2.1 billion, 26% lower than a year ago as we conservatively set aside more allowances to fortify our balance sheet. Operating performance was strong with profit before allowances rising 12% to a record.
To take us through the numbers, we have with us our CEO, Piyush Gupta; and our CFO, Chng Sok Hui. So without further ado, Sok Hui, please.
Thanks, Edna. Good morning, everyone. Thank you for joining us today for our results briefing. First half 2020 was a story of two halves. The first quarter carried over the strong momentum of 2019's record performance that ended with the onset of the global pandemic. The second quarter saw a far more challenging business environment and sharply lower global interest rates. Compared to a year ago, net interest income rose 1% to $4.79 billion. Loans grew 5%, but the positive impact was countered by sharply lower net interest margin in the second quarter. Fee income rose 1% to $1.51 billion, as a 14% increase in first quarter was offset by an 11% decline in the second quarter. Investment gains increased threefold from the same period a year ago.
As a result, total income grew 7% to a record $7.75 billion. Expenses were stable and a positive jaw of 7 percentage points lowered the cost-income ratio from 42% to 39%. Profit before allowances was 12% higher at a record $4.71 billion.
The strong performance enabled us to conservatively set aside $1.26 billion of general allowances in anticipation of a more challenging environment in the quarters ahead. This boosted general provision resulted by 50% to $3.80 billion, 24% above MAS minimum requirement. Higher general allowances also contributed to a 25% increase in total allowance reserves to $6.72 billion. This lifted allowance coverage above 100% to 106%. After taking collateral into account, allowance coverage was 2x. Excluding a significant exposure in the first quarter, underlying NPA formation was stable. The NPL rate at 1.5% was unchanged from its level in 2019. Specific allowances almost doubled to $672 million or 30 basis points of loans, with all of the increase due to a significant exposure.
Liquidity was ample. Deposits grew 9% over the first half from $54 billion of current and savings account inflows. The liquidity coverage ratio and net stable funding ratios were 134% and 121%, respectively, comfortably above regulatory requirements.
The core CET-1 ratio was 13.7%, also well above regulatory requirements and even above the group's target operating range of between 12.5% and 13.5%. The Board declared a second quarter dividend of $0.18 per share, in line with MAS guidance.
Net interest income grew 1% or $46 million to $4.79 billion. Loans grew 5%, led by a non-trade corporate loan. This was offset by a 16 basis point decline in net interest margin to 1.74%, with most of the decline occurring in the second quarter.
Fee income grew 1% or $16 million to $1.51 billion. Increases in wealth management and loan-related fees as well as brokerage commissions were offset by a decline in card fees. Second quarter fee income was lower in the preceding quarter as business activities slowed from lockdowns across the region. Other noninterest income rose 42% or $430 million to $1.45 billion as profits were realized on fixed income portfolios, which had appreciated with lower interest rates. Trading income fell 6% to $752 million as a decline in the first quarter due to wider credit spreads was moderated by an increase in the second quarter. Treasury customer income was higher in both quarters. Expenses were stable from the same period a year ago, and profit before allowances increased 12% to $4.71 billion.
Total allowances of $1.94 billion were taken in the first half, a fivefold increase from the same period a year ago. General allowances increased by $1.31 billion, while specific allowances were $303 million higher due to the significant exposure in the first quarter. Net profit declined 26% from a year ago to $2.41 billion.
First half net interest income increased 1% from a year ago to $4.79 billion. Loan growth of 5% and deposit growth of 13% were offset by a 16 basis point tightening of net interest margin to 1.74%. Net interest income fell from $2.48 billion in the first quarter to $2.30 billion in the second quarter, when most of the net interest margin decline occurred. First quarter net interest margin was little changed from previous quarter at 1.86%, before falling to 1.62% in the second quarter. The decline was triggered by sharp cuts in global interest rates as central banks responded to the pandemic. A considerably more flush balance sheet with excess deposits deployed into low-risk liquid assets also contributed to the decline in net interest margin by at least 6 basis points.
In constant currency terms, loans grew 3% or $12 billion in the first half to $381 billion. Non-trade corporate loans expanded $20 billion, led by drawdowns in Singapore and Hong Kong. The expansion was moderated by a $5 billion decline in trade loans in the first quarter and a $3 billion decline in consumer loans from lower wealth management borrowing.
Non-trade corporate loan growth was split evenly between the first and second quarters. Virtually all of the decline in trade loans and 2/3 of the decline in consumer loans occurred in the first quarter. Non-trade corporate loan growth is expected to normalize to previous period levels in the second half. $2 billion of first half loan growth was associated with Singapore's credit relief programs, where the government provided a 90% risk share.
In constant currency terms, deposits grew 9% or $36 billion in the first half to $447 billion. During this period, current accounts and savings accounts, or CASA for short, increased $54 billion. Consumer banking and wealth management contributed 3/5 of the CASA increase. This improved the proportion of CASA balances by 7 percentage points over the half year to 66% of the overall deposit base. The loan to the profit ratio fell 5 percentage points to 84% as deposit growth outstripped loan growth. The liquidity coverage ratio of 134% and a net stable funding ratio of 121% were both comfortably above the respective regulatory requirements of 100%.
Fee income. First half gross fee income was stable at $1.75 billion. The steady performance belied a strong first quarter that grew 13% from a year ago, only to be offset by considerably weaker second quarter that saw a 12% contraction as regional lockdowns curtail activity. First half wealth management fees grew 9% to $707 million as record investment product sales in the first quarter were moderated by lower bancassurance sales. Loan-related fees increased 10% to $226 million due to a higher number of transactions in the first quarter. Brokerage fees increased 25% to $74 million from higher equity market volumes during the first half. Card fees fell 21% to $304 million as transactions slowed with lower consumer spending in the second quarter. Investment banking fees declined 19% to $63 million due to weaker market conditions. Transaction service fees was stable at $374 million. Fee income streams have seen strong rebound from April lows, which Piyush will cover in the CEO update.
Expenses. First half expenses were stable from a year ago at $3.04 billion. Compared to a year ago, staff costs rose 2% to $1.75 billion as higher base salary costs from an increased headcount were moderated by lower bonus accruals and to a smaller extent, government grants. Non-staff costs were 3% lower as general expenses, such as for travel and advertising, declined. The positive jaw of 7 percentage points reduced the cost-income ratio by 3 percentage points to 39%.
Consumer Banking and Wealth Management. First half Consumer Banking and Wealth Management income declined 3% from a year ago to $3.08 billion. Income from investment products increased 13% to $968 million. This was more than offset by sharply lower net interest margin that reduced loans and deposits income by 8% to $1.73 billion. At the same time, income from cards declined 13% to $349 million as transactions slowed when lockdowns were introduced across the region. Retail customer segment income declined 5% to $1.53 billion, mainly from lower rates, while wealth management customer segment income was stable at $1.55 billion. Assets under management increased 7% to $251 billion from $234 billion a year ago. We maintained our domestic market share for savings deposits and housing loans at 52% and 31%, respectively.
Institutional Banking. First half Institutional Banking income declined 1% from a year ago to $3.01 billion. Cash management income fell 27% to $733 million. The impact of lower interest rates more than offset a 20% increase in GTS deposits to $158 billion. Loan-related income rose 12% to $1.49 billion from strong non-trade corporate loan growth. Treasury customer income rose 24% to $382 million from higher customer hedging activity.
Treasury and markets. The combined treasury markets and customer income increased strongly by $384 million or 34% from a year ago to $1.52 billion. Treasury market's first half income increased 44% from a year ago to $714 million due to a strong trading performance across interest rates, FX and equity asset classes, which was partially offset by wider credit spreads. Second quarter treasury markets income of $503 million was a record high, more than double the quarterly average of $233 million in 2019. Treasury customer income increased 26% to $809 million, the most actively traded products were related to interest rates for corporate clients and FX and equity for wealth management clients.
Hong Kong. In constant currency terms, Hong Kong's first half net profit fell 24% from a year ago to $602 million. Total income declined 9% to $1.38 billion, primarily from lower interest rates. Profit before allowances was 11% lower at $869 million. Total allowances increased sixfold due to higher general provisions.
Net interest income declined 13% to $897 million. Loans grew 8%, mainly from large corporates. This was offset by a 36 basis point fall in net interest margin to 1.74%, with the first quarter at 1.96% (sic) [ 1.86% ] and the second quarter at 1.52% (sic) [ 1.62% ]. The sharp decline in the second quarter was due to the full period impact of lower interest rates. Fee income declined 4% as higher wealth management investment sales were offset by declines in trade finance, cash management and bancassurance. Other noninterest income increased 8% from gains and investment securities. Expenses declined 7% to $513 million, and the cost-income ratio was 1 percentage point higher at 37%. Profit before allowances declined 11% to $869 million. Total allowances rose to $157 million, including $124 million of general allowances conservatively taken for risk arising from pandemic. Specific allowances were 27% lower at $33 million.
Nonperforming assets. Nonperforming assets rose 10% to $6.35 billion in the first half as new NPA formation was moderated by write-offs and recoveries. Most of the new NPA occurred in the first quarter, which included a significant oil trader exposure. New NPA formation in the second quarter was $115 million, below the run rate in 2019. The NPL rate at the end of first half was 1.5%, below the 1.6% in March and unchanged from the previous half.
First half specific allowances nearly doubled to $672 million or 30 basis points of loans. The increase was due to the significant exposure in the first quarter.
General allowance. General allowance results rose 50% from a year ago to $3.80 billion as the balance sheet was conservatively fortified against risk arising from the pandemic. The general provision reserves are $1 billion higher than the amount eligible as Tier 2 capital. This surplus is just available to absorb credit losses without impacting Tier 1 or Tier 2 levels should the business environment deteriorate. The general provision reserve also exceed the regulator's minimum requirement by 24%. Allowance coverage was at 106%. When collateral valued at $2.97 billion was considered, allowance coverage was 2x of unsecured NPA.
Capital. Capital continued to be healthy. The common equity Tier-1 ratio declined from 14.1% in December 2019 to 13.7% as risk-weighted assets increased from loan growth, credit exposures on derivatives and market risk. The CET-1 ratio was above the group's target operating range as well as regulatory requirements. A leverage ratio of 6.8% was more than twice the regulatory requirement of 3%.
The Board declared a dividend of $0.18 per share for the second quarter. This is in line with MAS's guidance issued on 29th of July for local banks to moderate dividend for the 2020 financial year. The scrip dividend scheme will be applicable to the second quarter dividend. Scrip dividends will be issued at the average of the closing prices of 14 and 17th of August 2020. Based on yesterday's closing share price, the annualized dividend yield is 3.6%.
In summary, the performance we reported amidst severe macroeconomic headwinds in the first half attest to the resilience of our franchise. Our strong operating earnings allowed us to conservatively take general allowances of $1.26 billion to fortify the balance sheet. This raised general allowance reserves to $3.80 billion, 24% above the MAS minimum requirement. Our capital and liquidity also remain strong. We are well positioned to continue supporting customers and the community through the difficult months ahead of us.
Thank you for your attention, and I'll now pass you over to Piyush.
All right. Thank you, Sok Hui. As usual, I'm going to make a few comments, a little bit on the environment and the business outlook and maybe a couple of comments on credit.
Let me start by saying, first, this was a tough quarter. And a tough quarter principally because the full impact of the interest rate cuts flowed through our entire book. So at this point in time, I think the interest rate cuts are costing us about $80 million a month. I think they'd probably go up to $100 million by next year. And that's obviously quite substantial. It's a big drag on income.
This is compounded by the fact that April and May, there is a basic lockdown in most of the countries in which we operate. And therefore, economic activity, certainly consumer activity, slowed down. So the interest rate, we had some upsides, but that cost us a chunk of money. The noninterest income from economic activity cost us a chunk of money. So altogether, the second quarter, the top line came in about $300 million below the first quarter. And that's not an easy environment to operate in.
Now we were fortunate because we did have some compensating items that were helpful. One, the balance sheet grew nicely. We were fortunate we raised deposits very significantly. In fact, our total CASA deposits in the second quarter went up some $37 billion, $38 billion, which allowed us to actually let a large part of the fixed deposits we raised in the first quarter, we were -- let us run those off. So net-net, the total deposit growth for the quarter is about $5 billion or $6 billion. But because we were able to let some $30 billion of FDs run off our books.
The loan growth was also good. We had about $10 billion of non-trade loan growth, fairly diversified in Singapore and Hong Kong. Some of it is the government schemes, but a lot of it was deal activity. Some of it interestingly was in things like TMT, where the digitization of the world is obviously helping our businesses. So the balance sheet growth was helpful.
The second big thing that helped us in the quarter was trading. We had a knockout trading quarter. Sok Hui pointed out, our normal quarter, we expect to be about $225 million of trading income. This quarter was north of $500 million. And so overall, trading was very strong. That was helpful.
And third, all of the pre-positioning we've done for our balance sheet over the years, that's kicking in quite nicely. We have indicated that even in our first quarter trading results. So we've been able to actually realize a lot of investment security gains as rates have been coming down, and we're appropriately positioned from an investment standpoint.
So on the back of all these, the good news is that our second quarter was flat to last year. We didn't see a big deterioration. Overall, however, as you can see, between the first and second quarter, we've got a 7% increase in income.
Now as you look out, I've said -- sorry, can you go back to the previous slide, please? The operating [ trend ] is in line with first quarter guidance. I think we saw a 7% increase in the first half in top line. We will give that up pretty much in the second half, and that's mostly interest rates. The impact of interest rates, like I said, $80 million a month, means we will give that up. But net-net, I think the top line should come in close to flattish to last year, which is consistent with the guidance we gave earlier. So that is some cause for some comfort.
Our noninterest income, et cetera, should be okay. I'm going to talk about that a little bit more. Sorry, can you please keep going back to the previous slide? On the NIM, I wanted to point out, because we've got so much excess deposit in this quarter, we are sitting currently with some $20 billion of excess CASA cheap deposits, which we are putting to work with laying off with the Central Bank. Again, Sok Hui alluded to this. We make about 50 basis points on this. So this obviously depresses NIM. In fact, the impact on NIM for us is about 6 basis points because of this trade. But the reality is a good trade because it's accretive to income and because the placements of the Central Bank are pretty much 0 risk-weighted assets, it's also accretive to ROE.
So our overall NIM is actually being challenged by about 5, 6 basis points on the back of that. We expect NIM to continue to deteriorate. Principally, because if you look at the second quarter, April rates were higher than June rates. So on an average, third quarter rates will be lower. As a consequence, we do expect that deterioration of NIM into the second half of the year. We think full year NIM is likely to come at around 1.6%. But like I pointed out, this -- we have to recognize the fact that this includes a deliberate choice to continue to do this low NIM, but ROE-accretive business that we are doing right now.
Slide. All right. So like I said, the other challenge, apart from the rates, was the fee income side. April was really rough. Cards were down because there was no activity happening anywhere. Wealth management fees really fell off because, I think, a lot of people exited the market, banker fees across the board. Now the good news is across all categories, we are beginning to see some degree of rebound. Cards and bancassurance by June have come back. In April and May, they were at about 30%, 35% below pre COVID levels. By June, they're now down to about 15%, 20% below pre COVID levels. They're still below pre COVID levels as we speak.
On the other hand, the wealth management fee rebounded even more strongly. And so by June, frankly, in July, we're right up to pre COVID levels. So that's somewhat encouraging, that activity on that front has been coming back.
The other positive I pointed out is strategy markets. The market conditions continue to be conducive for treasury market activities. We've been doing a lot of business both on the trading side, but also on the customer flow and customer activity slide. And this momentum actually looks like it's continuing into the third quarter at this point in time.
Finally, I talked about the balance sheet management activities we've done. We do still have unrealized mark-to-market gains in our investment securities portfolio that do provide us some cushion for lower NIM. There's, of course, the choice, how much we'd like to drip in into the future and how much we choose to realize, and that's almost sometimes a tactical call.
So that's on the business side. Net-net, when you put all of that together, like I said, we expect that we should be able to come in plus/minus flattish on last year from a top line perspective. On the expense side, we've been quite prudent in managing expenses. Again, Sok Hui pointed out to the fact that we have been thoughtful about our non-staff expenses. Obviously, travel, nobody could travel, but every other category of line item, we've been very careful of.
We've also been thoughtful about compensation. It's quite clear with the environment as well as with all the other cuts we are doing, we will be cutting back on compensation, variable comp. So we've reflected that in the numbers, so lower bonus accruals. And at the margin, we may benefit a little bit by the government grants as well. Though net of leave accruals and so on, that wasn't a very big amount.
We continue to review our cost structure. As we go into the rest of the year though, the cost-income ratio will be challenged, not because of cost. I think we hold costs stable. It's just because income will be much lower in the second half of the year. But net-net, we do think we'll be able to hold cost-income ratio for the year flat to last year at about 43%. We obviously continue to review our cost structures as we go forward for a challenging environment. But it is also important to point out that we are cognizant of our responsibility as a responsible corporate citizen in this difficult environment. And therefore, we really don't have any intent to cut jobs through the course of this year. It is something that we will look at as we restructure our business out into the future.
Switching quickly to credit. So we, at this stage, are not seeing anything that would cause us to change our guidance that we gave at the end of the first quarter. I said then that we expect total credit costs to be somewhere between $3 billion and $5 billion. And at this point in time, we are holding to that estimate. Second quarter, we didn't see a deterioration, by and large. The NPL rate is still at 1.5%. We didn't see any major NPLs. Our specific provisions in the second quarter didn't increase materially either.
Overall, the portfolio in the large corporate is not showing significant deterioration. It's actually -- we're not seeing it in SME either. Though SME, I think, is only a function of moratory and that will come through. We did see increase in delinquencies in the consumer book across our 4 countries. As I pointed out before, our unsecured consumer book is not very large, but we saw increase in delinquencies in Singapore, Hong Kong, Taiwan, Indonesia. In Singapore and Hong Kong, interestingly, by June, it leveled off. Our delinquency are still some 25%, 30% worse than they were pre COVID, but we're not seeing them continue deteriorating. Taiwan, in June, they were still deteriorating a bit. Indonesia, the outlook has been more challenged, partly because of the social distancing measures in Indonesia. We've just not been able to ramp up our normal collection activities adequately. So that might improve as we go into the next few months. But overall, when you put that together, not seeing anything in the outlook which causes us to rethink the assessments we made 3 months ago.
The good thing again, Sok Hui pointed out, we are still trying to be cautious and prudent. And so we bumped up general allowances again this quarter. And so we've been able to take our overall GP results up to $3.8 billion. Overall, we've been able to take allowances up just a tad under $2 billion in the first half of the year, which, if you reflect on it, if we figure that our losses could be somewhere between 3 and 5, a substantial portion of that allowance we've already taken in the first half of the year. We'll continue to see how we can build up that allowance in the quarters to come to just be prudential.
Finally, a quick comment on all the relief measures that's worth deflecting. So we today have about $12.5 billion of our SME loan portfolio on moratorium. It's mostly in Singapore and Hong Kong, but equally split. And these tend to be all secured loans, and the securities gold is property security, the LTVs on that property, our security are low. This portfolio is also only -- the moratorium only extends to principal. So all of them are servicing interest. If they don't service interest, they would have gone into the delinquency and so on. And so far, it looks to be okay.
On consumer side, what is on moratorium is about $5.5 billion. Most of that $5.4 billion, $5.5 billion is Singapore mortgage portfolio. Again, as we said before, 86% of all our mortgage loans are owner-occupied. The LTVs on these loans are well below regulatory minimums. The average LTV is about 55%. So again, the reason I'm pointing all that out is while these are on moratorium and we are watching them very cautiously and carefully because they're well collateralized, LTVs are low, we don't expect that this will all suddenly go into NPL at the end of the year.
Now nevertheless, what is happening is the industry, along with the Central Bank, is actually working together on a pathway to make sure we minimize cliff effects as and when the moratoriums have run out. And so that is something that we watch and make sure we exit this and have a plan to exit this in a careful kind of manner.
So I guess that's about my comments on both the business outlook and the credit outlook. And at this stage, we're happy to take questions.
Okay. Aaron, we can take questions from the media. Yes, could you let us know whether there are any questions, please? To the media, we would request -- sorry. And to the media, we will request that before you ask your question, to please state, of course, your name and which publication you represent. Thanks, Aaron. Please go ahead.
[Operator Instructions] Chanya from Bloomberg.
I have a few questions. The first one, what would your second quarter NPL have been in absence of the moratorium? Second, you mentioned high CASA deposits. Could you share any color about what are your currency deposit during the first half, which we have seen increases in the whole banking system? Has that been increasing at DBS? Could you share what the factors are? And the third question is about your workforce. What's the percentage of your employees working at DBS office? What is your thought about workspace going forward post COVID-19?
All right. Thanks for those questions, Chanya. The first question, frankly, I don't know, is the short answer. And it would have to be a guess, which is saying if there wasn't a moratorium, who would really still be able to service their loans and what would go into NPLs and default. Actually, NPL rate would be -- would not change very much because it takes 90 days of delinquency to go into NPL and so today has gone through the quarter. But the reality is nobody really knows how much is the moratorium masking at this point in time. And which is why I say we're watching it very closely because you only get a good sense of that when the moratoriums wind up. One of the reasons why we're building up substantial general provision cushions is exactly because nobody really knows what is going to be the extent of the damage once the programs are run out.
I have to say, though, that in our conversation and talking to our clients, most of them are fairly resilient. We've seen very few companies shut down for good or close down business. It might be coming in the second half of the year. We're not seeing a lot of business closures just yet. On the other hand, like I said, it's difficult to say who would have been able to perform or not perform.
Your second question was on foreign currency deposits. Maybe Sok Hui, do you have the data on what is the growth in foreign currency versus Sing dollar?
So the constant currency growth year-to-date about $36 billion. Large part of that is actually Singapore dollars. So we also saw increases in the U.S. dollar, offset by some declines in Hong Kong dollar currency.
Well, the general rule, we are seeing increases in foreign currency deposits as well. And the short answer, and there's a huge amount of excess liquidity floating around the world. There is a ton of money which has been printed, and every large investor and [ large affair ] is deposit surplus. In the first quarter, we were preparing for the March crisis when there's sudden squeeze in liquidity. We were able to raise some $15 billion, $20 billion of fixed deposits very speedily and rapidly. In the second quarter, because it's been benefited from this large CASA inflow and huge amounts of dollar deposits coming in from our regular cash management and treasury clients, we've been able to let a large part of the fixed deposit run off. And so overall, the general easy liquidity conditions are actually quite conducive to deposit growth around the world, including in Singapore.
Your third question was in terms of the workforce. At this point in time, about 30% of our workforce works in office across our entire system. And if you look at outlook on office premises and space, we're still actually are working through what is our logical construct for life after COVID. I'm personally not in the camp that says we're going to shut down all our offices and all the large buildings. My view is while there will be a greater degree of flexibility, I do think there's a lot of merit in having people still come in to fill those spaces and work. And frankly, at the end of 3, 4 months, we're seeing that from our employees as well. A lot of people are beginning to suffer fatigue and are actually quite desirous and anxious about being able to return back to the office space.
So I think from a premises and occupancy standpoint, there might be some marginal efficiency benefits over time, but I'm not sure they're going to be dramatic or hugely significant.
But Piyush, when will you see full force -- I mean, 100% of employees returning to DBS offices?
Well, frankly, right now, the guidance from the authorities is that anybody who can work from home should work from home. And we are continuing to be guided by that. As you can see in banking, other than a handful of functions, almost everybody can theoretically keep working from home for an extended period of time. So I think the answer to that is really what happens on the health side, on the pandemic side. As and when the authorities and regulators are more comfortable with letting people all come and work from office, we will obviously reconsider that. I think there's value to people coming back in. But to a large extent, we are being guided by the national policy agenda.
Aaron, we can take the next question.
Our next question is from [ Chris ] from Euromoney.
My question is around digital utility and how that's been affected by COVID. We've heard a number of emerging markets, notably the Philippines, express how the lockdown has forced a great many people into the use of digital channels. Something they see as entirely positive simply because people have had no other choice but to turn digital to get things done. I'm wondering, particularly in your Digibank markets of India and Indonesia, but also more broadly, what have you seen about uptake of digital channels from new customers? And do you expect that to stick when we return to a more normal business environment?
So [ Chris ], in general, we're consistent with what you observed in the Philippines. Digital activity has gone up dramatically across all of our markets. And that includes the capacity to set up new accounts as well as do payments, do bills, et cetera, et cetera. So depending on the product line and the country, digital activity is up 30%, 40% across the board.
The interesting thing is that this is now also being embraced by people who were recalcitrant in the first instance, especially elderly people. So a lot of people above the age 60 -- our 60 to 80 group, for example, we've seen a 3x or 4x increase in digital activity. So people are obviously being able to take to it quite well.
One of the things that we have also done in this period is we've stitched up what we call our last mile digitization. We've obviously been doing a lot of digital work over the years. But when you get the situation where you have to cater for 100% from home, you realize that you're 90% done, and then there's these open gaps that you never thought about because either transaction volume was low or you didn't put it on the front burner. We use this opportunity to try and plug all those gaps as well. So even transactions which could not be done digitally before can now all be done digitally. And that includes trade finance, it includes account mandates and so on. So that's obviously helping in the process as well.
Now your question of how much of it sticks. I think some of it will stick, but how much is unclear. If you go back to the experience in India when demonetization happened in 2016, for the period of time when no currency was available, everybody didn't have a choice but to use digital. Once that ended, some of that went back to cash. All of it did, some of it did. So my own expectation is that once things are easier, some of the conversion to digital will come back to more regular channels. But my own expectation, again, is that, that will be at the margin. A large part of it is the convenience is there, the capacity to [ deviate these ], a lot of people will then wind up continuing to do that.
Am I able to ask one more?
Yes, [ Chris ]. Please go ahead.
Right. Okay. One other point I find quite interesting listening to the results today is that both banks are -- banks with considerable and growing regional presences. And when we talk about a base case of normalization from the pandemic coming whenever it comes, it's easy to visualize that domestically. You're going to see activity growing in domestic economies. But what seems enormously distant is any time resuming when we get on planes, whether for business or for travel. So I'm interested in your view as a regionally active bank, how much does it matter in terms of your numbers that people are not physically getting on planes and traveling at the moment?
So I think, [ Chris ], it matters in two ways. First, it does matter in things like credit cards. If you look at typically in our credit card spend, the travel component of the card business was as much as 15%. That's disappeared. So we've got to make up that from domestic spend and e-commerce as opposed to travel. So that obviously has an impact.
By the way, linked to that is also -- I should mention, maybe [three] -- is it impacts the psychology. I think if people feel they can't travel, it impacts people's psychology, et cetera. But the second issue really is that I think travel impacts certain sectors of the economy disproportionately. So airlines is obvious, but also hotels, tourism, even F&B, et cetera.
So from a credit standpoint and a portfolio management standpoint, I think the fact the borders are not open, that causes those sectors to be incrementally fragile. So it's less consequential from a top line standpoint, frankly, because it's some pockets of business. It is potentially more consequential from a credit loss standpoint.
Aaron, are there any other questions?
[Operator Instructions] A follow-up question, Chanya from Bloomberg.
You'll be say that it's CET-1 ratio could come down, but would be CapEx spend by -- in 2021? What is your expectation on your CET-1? And would like to get some color about your wealth management AUM. I saw that the increase, but could you give some color about the second quarter? Whether the increase came from transaction related? Or how much have you seen in terms of net new money?
Maybe Sok Hui will take the CET-1 question, Chanya.
So I think the drivers of CET-1 are likely to be the credit cost as well as risk-weighted asset migration. So those are not easy to sort of estimate ahead. But I think if the sort of situation pans out in 2021 and is not prolong, you don't see a sort of resurgence of the pandemic, we could actually then peak in 2021. But it's very much dependent on whether the situation stabilize.
So our projection, Chanya, is based on the reason we're taking all of -- as we take our general provisions, we're keeping an eye on our CET-1 levels as well. So that we can make sure that we are at least within our operating range. If you remember, our operating range is about 12.5% to 13.5%. And at this point in time, with our outlook on credit, we think we should be able to hold that operating range.
On the other question of AUMs, AUMs went up and they went up for both reasons. Obviously, from first quarter to second quarter, there's an increase in market values. But we also benefited from net new money in both quarters. Altogether, our total net new money in the first half of the year has been about $4.5 billion or $5 billion, in that range. And by the way, that was equally -- that was equal between the 2 quarters. Both quarters, we got about the same, about $2.5-odd billion each quarter.
So you -- I mean, the fact that travel restrictions are in place in most countries, that hasn't affected your ability to onboard new customers.
We actually continue to onboard new customers as well, partly because our digital capabilities allow us to do onboarding. We can also -- many governments are giving you capacity to do remote KYC, et cetera. So we continue to do that. But some of the net new money doesn't necessarily come from new customers. It just comes from new money brought in to us by existing customers as well.
[Operator Instructions] Our next question, Goola Warden from The Edge.
Can I just ask a sort of a micro question? Do the $3.5 billion in total allowances over the 2 years, what does this work out to be in terms of credit costs over 2 years? And will this be largely from the moratorium and relief loans or from other areas? Then there's another question for Piyush. Could you look forward and identify any new mega trends post COVID? Those are the two.
So Goola, on a basis point level over 2 years, again, we've given guidance that this works out to somewhere around 120 basis points over a 2-year period. And so it's obviously much higher than what we've had in the last couple of years. But it is well aligned to the kind of cost we saw in the previous crisis, if you will. I spoke a little bit about that in the first quarter trading update and why I thought that, that is a reasonable likelihood a number.
On your second question, on megatrends. Of course, there are several trends. Quite clearly, the trends from a macroeconomic standpoint and most principal for us is interest rate. It just seems to me with the amount of money being printed and fiscal stimulus, you are going to see a low for much, much longer interest rate environment, with consequential impact on a lot of things, including, obviously, banking. I think you will also see the follow spillover impact of that on things like taxes and taxation policies, et cetera, into the future. There's going to be a lot of megatrends around geopolitics. I think that China, U.S. issues have got exacerbated by COVID.
And so I do think that's something that you have to continue to watch out for. There will be some consequential moves in supply chains, et cetera, though far more glacial, I think, than a lot of people think. There are megatrends around social politics. I think the questions of income inequity and social issues are going to be at the forefront of every country and every political debate. So what does that mean for a role of companies, what kind of contribution in party paying communities and society. I think that will be a megatrend.
And then there's the big megatrend, I think [ Chris' ] earlier question. I think consumption and production systems will just digitize even more rapidly than they have. Depending on who you read, 3, 5, 8 or 10 years' worth of digitization has happened in 3 months. And a lot of that will stick. So the way people will consume will stick, and therefore, the online/offline percentage ratios will change the way people produce and where you need to work from, et cetera, all that will change. So structurally, there will be some fairly significant changes in the way business is done as you go forward. Now all of these are substantial megatrends that you see are causing change.
I haven't really talked a bit about the industry and sector-specific changes. I think the health care industry, the education industry, the whole agenda around sustainability and building back better, I think that's another big megatrend that's going to come on the back of the crisis. So I think a lot of changes are going to happen over the next few years.
And where -- and can DBS -- would DBS benefit from any of these changes? And maybe the last, consumption production rather than the social issue?
I think we will. Frankly, I think we will benefit from many of the things because I think we're well positioned. Certainly on what I talked about, the digitization of everything, I do think we are well positioned to benefit from that. And we're already seeing that. We didn't talk about it, but by and large, over the 3-, 4-month period, not only are our volumes up in absolute terms, our market shares are up for everything. And that just speaks to the fact that we've been ahead of the game in terms of the digital conveniences that we have. So I think that's a positive.
I do think it creates an opportunity for many new income-generating business schemes. We're actively working on several other things we could do with the digital space as economies and sectors are morphing to a new way of working. I think our big drive on sustainability is helpful. We've been working on it now for the last 2, 3 years. I think there's going to be a big, big business opportunity around sustainability as well, whether it's in things like carbon trading on the one hand, or just digitally tracking provenance of supply chains on the other. All of these, I think, are bound to create a lot of business opportunity. And we will need, frankly, a lot of these business opportunities to make up for the interest rate headwinds that we're going to have to battle with on the other side.
Our last question, Shuman (sic) [ Anshuman Daga ] from Reuters.
I want to check with you. You mentioned that Q2 performance was largely in line with what you all expected when -- what you talked about in Q1. But there are a lot of unknowns out there in terms of second wave of infections, economic performance. So how is DBS able to cope for that? And can you give some color about the industries which are worse hit like airlines and SMEs and other sectors? How do you see the performance panning out and the exposure to the -- DBS' exposure to these sectors?
So we didn't get into that this time because we covered it extensively in our first quarter update. But if you remember, I gave a detailed think of our exposure to the more vulnerable sectors, which included airlines, it include auto, et cetera. So I think we do have our hands around the vulnerable sectors quite well. In the airline sector, for example, our exposures are finite, and in most cases, the governments and the government bailout plans have kicked in, which has been somewhat helpful to us. Similarly, other industries, we've gone industry by industry. Part of it is in our watch list, and therefore, the general reserves are building up, we'll cater to some of that as well.
On the general outlook, our sense is that all of the stop start will mean that demand will be constrained for the balance of the year relative to normal times. It would seem to me that global GDPs reflect that, and global GDPs are not going to go back to previous levels. At the same time, it's also clear that you go through a trough and economic activity starts coming back. If you look at economic activity in China, frankly, large parts of North Asia, china is back to 80%, 90% of where it was before. And if you exclude the export sector, it's almost at 100% of where it was before. Similarly, Taiwan. And Hong Kong has seen a little bit of a setback in July, but overall, the economic activity is coming back quite nicely.
It seems to me that partly from fatigue, partly from imperative, countries and governments need to start reopening economies and the lives versus livelihood issue. So you are beginning to see that the economic activity engine, economic engine, does kick in after 3, 4, 6 months, and that's what we're seeing. It'd be slower than before, but I do think it'll kick in. The main issue is going to be what [ Chris ] said. I think cross-border will continue to be challenged. I don't think travel is going to open up any time this year. And therefore, the industries related to that will be challenged. But like I said, those are each specific industries that we've thought through and got our arms around.
Okay. Thank you, Piyush. I'm afraid that's all the time that we have this morning. So thank you, everyone, for tuning in. And the next briefing is the analyst briefing, and that will start in 10 minutes' time, about 11:40. Thank you.
Thank you.
Thank you.