DBS Group Holdings Ltd
SGX:D05
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
26.9685
43.02
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SGD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
DBS Group Holdings Ltd
You don't have any saved screeners yet
Okay. Good morning, everyone, and thank you for joining DBS' third quarter earnings call. This morning, we announced 3Q net profit rose 32% from a year ago to a record $2.24 billion, and return on equity was a new high of 16.3%.
Today, we have with us our CFO, Chng Sok Hui; and our CEO, Piyush Gupta, who will take us through the numbers. You can also follow along with them using the presentation slides that are available on our website.
Without further ado, Sok Hui?
Thanks, Edna, and good morning, everyone. We start with slide 2, on the highlights. We achieved a record performance in the third quarter. Net profit rose 23% from the previous quarter to $2.24 billion, and return on equity reached 16.3%, both at new highs. Total income rose 20% to a record $4.54 billion as net interest margin recovered to pre-pandemic and business momentum was sustained. Net interest margin climbed 32 basis points to 1.90%, accelerating from the increases in the previous 2 quarters, amid faster rate hikes.
Loan momentum was healthy, as non-trade corporate and housing loans grew faster than in the first 2 quarters. Fee income was maintained, as increases in card and loan related fees compensated for lower wealth management fees.
On the back of the strong top line performance, the cost-to-income ratio improved 4 percentage points to 40%. For the 9 months, net profit rose 8% to $5.85 billion, also a new high. Total income rose 10% to $12.1 billion as a higher net interest margin and loan growth more than offset lower fee income. Expenses grew 7%, resulting in profit before allowances rising 12% to $6.96 billion. Asset quality continued to be resilient. Non-performing assets fell 5% from the previous quarter, and the NPL ratio improved to 1.2%. Specific allowances were minimal for the quarter and 8 basis points for the 9 months. General allowances of $153 million was set aside. Capital and liquidity remain strong and well above regulatory requirements. The Board declared a third quarter dividend of $0.36 per share, bringing the dividend for the 9 months to $1.08 per share.
Slide 3; compared with the previous quarter, total income rose 20% to a record $4.54 billion. Net interest income was 23% or $566 million higher, as a result of a 32 basis point expansion in net interest margin and healthy loan momentum. Fee income was stable, while other noninterest income rose 32% or $183 million from higher treasury markets noninterest income, treasury customer income and investment gains. Expenses were 10% or $167 million higher. The positive jaw resulted in a 27% increase in profits before allowances to $2.72 billion.
Specific allowance charge for the quarter was $25 million or 2 basis points of loans compared with 8 basis points in the previous quarter. Total allowances were higher, as $153 million of general allowances were set aside during the quarter, compared to a $23 million write-back in the previous quarter. Additional general allowances were set aside as a prudent measure. General allowance overlays of $350 million were added, even as baseline general allowances were reduced by $200 million due to portfolio improvements.
Slide 4; 9 months total income rose 10% from a year ago to a record $12.1 billion, driven by higher net interest income. Net interest income increased 22% or $1.36 billion to $7.66 billion from a 20 basis point expansion in net interest margin and loan growth of 6%. Fee income fell 10% or $279 million to $2.43 billion, as Global Wealth Management and Investment banking fees, more than offset growth in other activities. Other noninterest income was little changed at $1.99 billion. Expenses rose 7% or $329 million to $5.13 billion, led by higher staff costs. General allowances of $18 million were taken compared with a $413 million write back a year ago from portfolio improvements. Specific allowances fell to 8 basis points of loans from 14 basis points a year ago.
Slide 5; net interest income of $3.2 billion was 23% higher than the previous quarter. The Group's net interest margin represented by the black line, rose 32 basis points during the third quarter to 1.90%. The increase was faster than the 3 basis points in the first quarter and the 12 basis points in the second quarter, as the impact of rate increases was more fully felt. The commercial book NIM, which excludes treasury markets represented by the red line, increased by 45 basis points during the quarter to 2.30%. This reflects the higher funding cost for the treasury markets book, as seen in the change in NII for treasury markets on the chart. Taking into account both net interest income and non-net interest income, treasury markets income was unchanged during the quarter, with higher funding costs offset by gains in other income.
For the 9 months, net interest income increased 22% to $7.66 billion, as net interest margin rose 20 basis points and loans grew 6% from a year ago. Commercial book NIM rose 30 basis points. Going forward, the Group's net interest income and net interest margin will benefit from the 75 basis point Fed rate hikes announced in late September, the 75 basis points announced today and further increases in Fed funds rate. On the asset side, net interest income and net interest margin will benefit from repricing of about $180 billion of fixed rate instruments and fixed deposit rate home loans in future periods.
Slide 6, underlying loan momentum was healthy in the third quarter, as non-trade corporate and housing loans grew faster than in the first 2 quarters. Excluding trade loans, loans increased $7 billion or 2% in constant currency terms from the previous quarter. Non-trade corporate loans rose $8 billion or 3% over the quarter from broad-based growth across the region and sectors. Housing loans increased $1 billion or 2% from higher loan disbursements and lower [ round-offs ]. These gains were moderated by a $5 billion or 10% decline in trade loans, as maturing exposures were not replaced due to unattractive pricing. Loan growth for the first 9 months was $16 billion or 4%. The growth was predominantly in non-trade corporate loans.
Slide 7; the deposits were stable from the previous quarter at $533 billion. Over the 9 months, deposits rose $24 billion or 5% in constant currency terms. Fixed deposits grew $62 billion, while CASA declined $38 billion. Most of the decline in CASA was seen in the third quarter, of which Sing-dollar CASA decline was $11 billion. Nevertheless, Sing dollar savings deposit market share rose 0.4 percentage points in the third quarter, as the industry Sing dollar savings balance declined at a faster rate.
The growth in fixed deposits was predominantly in foreign currencies and was used to fund foreign currency loan growth. This enabled us to swap less from surplus Sing dollar CASA deposits, which continue to earn attractive returns. The pace of decline in CASA has been in line with our expectations. Notwithstanding the decline in the third quarter, our CASA balances remained more than $100 billion higher than before the pandemic. The liquidity coverage ratio and net stable funding ratio were at 133% and 114% respectively.
Slide 8; third quarter gross fee income was stable from the previous quarter at $923 million. Wealth management fees fell 4% from the previous quarter to $323 million, as market conditions remain weak, dampening sales of investment products. Investment banking fees declined 17% to $25 million, as deal flows were also impacted by adverse market conditions. These declines were moderated by higher card fees, which rose 10% to $223 million, as travel spending continued to recover towards pre-pandemic levels.
Loan-related fees rose 7% to $122 million. Transaction service fees were stable at $230 million. Gross fee income over the 9 months was 8% lower than a year ago at $2.86 billion. The decline was due to lower Wealth Management and Investment Banking fees, partially offset by growth in other fee activities.
Slide 9; third quarter expenses rose 10% from the previous quarter to $1.83 billion led by higher staff costs. With total income rising faster than expenses, the cost-to-income ratio improved from 44% to 40%. 9-month expenses rose 7% from a year ago to $5.13 billion led by higher staff costs. The 9 month cost-to-income ratio was 42%, an improvement of 2 percentage points from a year ago.
Slide 10 on nonperforming loans. Asset quality remained resilient. New nonperforming asset formation in the third quarter remained low, and there were significant upgrades and repayments during the quarter. Write-offs were at a similar level to the previous quarter. As a result, nonperforming assets fell 5% from the previous quarter to $5.60 billion, while the NPL ratio improved from 1.3% to 1.2%.
Slide 11; the resilient asset quality resulted in third quarter specific allowances declining to $25 million or 2 basis points of loans. 9-month specific allowances for credit exposure declined 40% from a year ago, to $260 million or 8 basis points of loans compared to 14 basis points a year ago.
Slide 12, total allowance reserves stood at $6.71 billion, with $2.81 billion in specific allowance reserves and $3.90 billion in general allowance reserves. Total general allowances increased $153 million during the quarter. Additional general allowance overlays of $350 million were taken as a prudent measure, even as baseline general allowances were reduced by $200 million due to portfolio improvements. The $6.79 billion of allowance reserves resulted in an allowance coverage of 120%, of 216% after considering collateral.
Slide 13; the Group's common equity Tier 1 ratio declined 0.4 percentage points from the previous quarter to 13.8%. Profit accretion was partially offset by dividend distributions. Risk-weighted assets increased, led by strong growth in nontrade corporate loans. There was also a modest impact on CET1 from mark-to-market losses on fair value to OCI securities, as a result of higher interest rates. CET1 of 13.8% remained above our target operating range of between 12.5% to 13.5%, while the leverage ratio of 6.1% was twice the regulatory minimum of 3%.
Slide 14; the Board declared a dividend of $0.36 per share for the third quarter, bringing the dividend for the 9 months to $1.08 per share. Based on yesterday's closing share price and assuming the dividends are held at $0.36 per quarter, the annualized dividend yield is 4.1%.
Slide 15, the final slide. We achieved record third quarter and 9-month performance despite challenging financial market conditions, a testament to the strength of our franchise. Business momentum was sustained, asset quality was resilient and the inherent value of our deposit franchise became more apparent with high interest rates. These positives enable us to more than offset pressures on market-related income. The record third quarter ROE of 16.3% underscores the significant structural improvements we have made over the past few years, including from digital transformation. Our transform franchise, balance sheet strength and leverage to rising interest rates, will enable us to continue delivering healthy shareholder returns in the coming quarters amidst external headwinds. Thank you. And over to you, Piyush.
Thank you, and thanks, everybody, for dialing in as usual. I have a couple of slides to reemphasize some of the comments that Sok Hui made, and perhaps amplify on a couple of things.
So the first -- Slide 2, I think it's called. Just a look back in the quarter, I think the 2 or 3 things that stand out. One is underlying business momentum has continued to be quite strong. Our corporate loans grew by about $8 billion for the quarter, and that was broadly dispersed. It was in different markets in India, in Taiwan and Australia, U.K., Singapore itself, and across multiple industries. Property was one of them, but TMT, ERI, Energy, so fairly diversified broad-based growth.
In Singapore, you can see our mortgage book grew as well. We've grown barely $300 million, $400 million in the first half of the year. We grew well over $1 billion in the third quarter. Our bookings have held up, despite a little bit of a slowdown in the market. But what is more this thing -- is our refinancings in as well as our lower refinancing [ outs ] that our overall balances. I think part of that reflects the fact that we had competitive pricing in parts of the quarter. But nevertheless, overall loan growth was strong. The only area that didn't grow was trade, and a lot of that was deliberate. As rates have been going up, it has been hard to hold the credit spread in the trade book and the low-margin trade book doesn't make sense to us. So to a large extent, we've been getting the low-margin loans runoff.
Liquidity remains healthy. As Sok Hui pointed out, there continues to be a conversion from CASA to fixed deposits. A large part of the conversion is in the dollar book. In the Sing-dollar book, our CASA ratio is still 93%, because that is high to 94%, so very sticky. In the U.S. dollar book, there is more conversion, but it's consistent with our thinking and our model, our expectation for how much we should expect to move to fixed deposits and the repricing. Even after that, as Sok Hui said, our overall CASA levels are over $100 billion higher than they were just a couple of years ago. And our LCR, NSFR, et cetera, In fact, around the region, liquidity seems quite comfortable.
On fee income, quarter-on-quarter was flattish, but the good news is, the Wealth Management seems to be stabilizing despite no improvement in the market conditions. Capital markets also continues to stay challenged, ECM really had no activity, though in the last few weeks, we got to see some bond activity coming out of China, Nevertheless, that part of the business, markets related fee continues to be slow. On the other hand, fees on cards, in particular, is improving as the markets continue to open up and travel activity is increasing. So that's been helpful.
On Wealth Management, obviously, the one big silver lining was net new money. We continue to benefit from a lot of inflows into the region. In the first 9 months, total inflows have been about $15 billion, double what they used to be. And a lot of that money is waiting on the sidelines to be invested. That momentum is good, continues as we speak. So I do think there's some upside over there.
And finally, a last comment on the asset quality. Asset quality has been really pristine. We've seen no new NPA formation. Our NPL rates are down to 1.2%. We're seeing no stress in the books really. And in fact, we continue to see upgrades and repayments.
There were some questions I saw on, why would you add general provision of $350 million, that's the case? And the answer to that is, frankly, there is a lot of uncertainty around next year. I don't think any of us have seen a 5% interest rate environment in a long, long time. And if rates head to plus/minus 5%, what impact that has on slowdown in Asia and therefore, potential credit despite [indiscernible].
So what happened is through the 3 quarters of this year, our general provisions had reduced by $350 million, just because of improvements in our book. And we took the opportunity to add the $350 million back. So we've gone back to a GP level that we had at the end of last year. It's not for any specific knowledge, it's just for being very prudent, given the uncertainty around the interest at and the economic outlook for next year.
Next slide; so we think for next year -- in the end of the second quarter briefing, I said our base case was that inflation starts going down and the Fed levels off at 3.5%. But I had highlighted in my comments, that there was a tail case. And the tail event was -- inflation was more sticky, and the Fed didn't level off at 3.5%. Well, as you can see, that tail event is what's playing out. Inflation has been stickier. CPI levels are still high. I do expect inflation rates to start leveling off, partly from base effect in the coming quarters, but for the time being, they are high.
What's more important is the Fed body language and the Fed statements are quite clear. I mean they're not leveling -- not really leveling off at 3.5%. I think they will definitely wind up at 4.5% this year and probably our current base case is 4.75%, but they could even see through that. And therefore, do you wind up with a slowdown only in the U.S. or a recession is anybody's guess. But my current thinking is that, you could wind up seeing a recession in the U.S., if rates hit north of 5%. And therefore, you will see a sharper slowdown in Asia, if that is the case.
And that uncertainty of how would rates go up to and how much slow down you see, is what some of our outlook and our guidance is being predicated on, that there is a lot of uncertainty with these high interest rates. We haven't seen this environment in a long period of time.
China also is an uncertainty. Right now, our original [indiscernible] base case was that after the Congress, you might start seeing it opening up. And if we discount that [indiscernible] floating around. In reality, it doesn't seem to be the case that China will open up very rapidly. It could take them a few quarters or longer to open up. So there is some upside if they do open up quicker. But in our thinking right now, we are assuming that they wind up taking 2, 3 more quarters before the economy starts opening up as well.
Nevertheless, our loan pipeline for the time being, looks quite healthy, as we're looking at the prospects, we think we can get mid-single digit for next year. But I want to hasten to add that, sometimes, the pipelines disappear. So if you really see a sharp slowdown in Asia in the early part of next year, we'd have to go back and reconsider the pipeline, and we would be thoughtful about that. In fact, I think we see a moderation in our loans even in the fourth quarter. And that's for a different more idiosyncratic reason.
There is that -- today with the dollars rates where they are and the renminbi rates where they are, it's much cheaper to borrow onshore in China than to borrow offshore in the international markets. And so several of our Chinese clients are switching over from international to local markets. And obviously, we're not that competitive in the local market. So you might see a softening or a moderation of the momentum in China, but that's idiosyncratic thing, one-off because of that situation.
On wealth and cards, we're assuming we can get double-digit growth, and that's partly because of a base effect. This year has been down -- overall, we're down 20%. And so even if there is some degree of optimism in the market and you don't see the continued negative news coming out of China, then you should see some positive effects coming out of that. So I think a double-digit growth in fee income should be possible.
On NIM, our modeling currently suggests that if the Fed fund rates get to 4.75%, our NIM, which is circa 2% today, we should be able to get to about 2.25% NIM. Now there are a lot of moving parts in this. One, this is, as Sok Hui pointed out, the full bank NIM. The underlying commercial bank, commercial booking is much higher. But like several other international banks, the funding cost of the treasury book, means that there's a drag on NIM. And so this is actually a blended number, which includes a much stronger growth in the commercial book, but some drag on the NIM -- on the treasury book.
This also reflects the fact that, the cost of funding and deposits at the margin is going up more rapidly as we go forward. I've indicated before, that our modeling up to 3%, 3.5% suggested that we could do $18 million, $20 million of basis points in income. But as you go forward and get to 4%, 5% dates, that sensitivity does not necessarily hold. And so the payout rates increase, and that's why the 2.25% incorporates that.
The last thing in corporates, again Sok Hui pointed out, we do have $180 billion of assets in our fixed rate and our FHR portfolio. About a quarter of these were repriced by the end of next year and another quarter reprice actually in 2024. So you do see some tailwind from the repricing of the fixed rate book. But when you add and get all of that together, we think this is where we'll probably wind up.
Our cost income ratio continues to be good. Obviously, it's helped by the income line. Our cost growth for this last quarter was close to 10%. Our own sense is that, you will see costs in the high single digits, a 9%, 10% growth rate next year, but the cost income ratio should still be headed down. And finally, our ROE; we think ROE, we will be [ comfortable at ] about 15%. We do think cost of credit might go up next year. This year, like we pointed out, has been unusual. We were 8 basis points of specific provisions in the first 9 months. And like I pointed, we're not seeing any stress, and we're not seeing any pain, but 40 years of banking tells me that at 5% interest rate, you should expect to see some pain and some new cost of credit.
So ROE assumptions, we are assuming cost of credit goes back to a normal cost of credit, the plus 1 is 20 basis points on SPs that we normally assume. But even if we throw that in with the rest of the assumptions that we have, we think our ROE will be very comfortably -- well above 15%. So I think we have shaped up for a solid year next year as well.
So why don't I stop there and we'll take questions.
Okay. Thank you, Piyush. We'll now go to the media Q&A. [Operator Instructions] We have a question from Chris Wright.
I have 2, if I may. [indiscernible] Citi consumer vertices or sales, I should say, gradually going through UOB, you completed a couple of them this week. Not netting your Taiwan purchase, could you just bring us up to date on how that's going along and whether the increased geopolitical noise around Taiwan and China is giving you any concern at this time?
Second question, the FinTech Festival is underway, and we saw through the week, the announcement about the pilot trade and the project [indiscernible] involving DBS. Without getting into the weeds of that specific transaction, I'd be interested in your high-level view, about where de-fi might take us and what it means for banks like DBS?
So Chris, on the first question, that process is going smoothly and well. As you know, unlike UOB who is actually doing the transaction and then doing the operations close in the future, having Citi continue to process for them for some period of time, we are doing our transaction differently. We are going to do the operations close and the legal close all at one time, which is targeted for August next year. In the meantime, we're working very closely with Citi, to make sure that our systems are up to snuff, and we know how to transfer the people, the systems and technology. And like I said, right now, I think we are firmly on track.
On the geopolitical considerations, frankly, I alluded to this before. When we did the deal, we spent a lot of time thinking through the consequences of geopolitics with respect to China, Taiwan, et cetera. And our overarching view has always been, that as an Asia-centric commercial bank, our strategy includes a healthy view on North Asia. You cannot be an Asia-centric bank without meaningful North Asia presence. And really, if geopolitics comes to a stage where you have the next world war, Taiwan is the least of our issues and problems. The issues will be much bigger, and include Singapore and Asia and the rest of China.
So the incremental exposure we take to Taiwan, is really not material. We think through that kind of scenario. And absent that kind of scenario, the underlying book that we're purchasing, it's a card book, it's a [ wedge ] book. I think that will continue to do quite well. And anecdotally, if you look at Ukraine today, despite the war, the consumer businesses and domestic businesses in Ukraine are doing just fine. And so I don't think that will get overly impacted.
Your second question on de-fi, look I've said before, I do think that the power of the technology is game changing, because it eliminates the need for a hub-and-spoke arrangement, and it creates the architecture, where you can do point-to-point dealings, whether it's person to person or entity to entity. The point-to-point dealings for authentication, identity, value transfer, confirmations, can make a fundamental difference to what I call the back office of the world. So I do think those opportunities are very, very real. Everybody conflates the notion of de-fi necessarily to crypto and so on, official money. I think there is a long way before private money will replace official money. I mean the evangelists would argue it could happen very quickly, I think it's going to be a long time. But the rest of the stuff, perhaps fear -- the money, perhaps the official digital currencies, perhaps the projects we are doing with Partior, which is delivery versus payment, across asset class, instant settlement. I do think all of those have their legs, because they bring efficiency to the overall system.
Okay. We have the next question from Goola. Goola, would you unmute yourself?
Yes, thanks. Congratulations on very good results. Can I just ask on the score of the NIM and the net interest income, how much more upside are you likely to have next year, if we end up at 5% on the Fed funds rate, and there's some impact on credit costs? And I didn't catch how much you expected your credit cost to be, so that's one question, okay, so that is outlook for next year. And then could you repeat the $180 billion of assets, is this your securities book, your high quality liquid assets? And if so, was there an impact -- what was the impact on your CET1? Because I think UOB said, they had an impact on CET1, they gave the figure as well. I'm just wondering what that was on yours?
And okay, then look at the outlook, the pipeline for both loans and Investment Banking pipeline for next year? I wonder if you could give us a flavor of that. And also, there's been a lot of investment in India, there is a recent Morgan Stanley report. So I'm just wondering, how is your Laxmi Vilas Bank acquisition tracking in terms of income, margins, credit costs, et cetera? And are you getting any of that institutional business [indiscernible] CMBS on setting up property funds, et cetera, so are you getting any of that institutional interest?
And the last question was also, I think it was asking about decentralized finance, I'm not quite sure how it works, but how will it impact your institutional business? I mean will you lose anything in fees, will you get something in efficiency, that sort of thing, if you could? Did you get all those questions, Piyush?
Goola, I got to see if I can try to scribble it down. There were 10 of them.
But you speak very fast. It's very difficult to catch everything you speak.
Well, the first one, actually, if you go back to my second slide, the answer is there. We said that Fed funds rates get to 4.75%, NIM will be at about plus/minus -- slide 3, next slide, please, 2.25%, right? And so if you said 5%, I said 4.75%, but it's in that order of magnitude. So we do have that.
You asked about credit costs and the reality is, we have no real line of sight to cost of credit for next year, because this year has been fantastic. And this last quarter, our provision is only 2 basis points. And therefore, there's -- on the one extreme, you can make the case that, you're not seeing any stress in the portfolio. You're not seeing any provisions, portfolio continues to improve. So cost of credit could really continue to be very benign even next year. On the other hand, because rates are going up to this 4.5%, 5% level, we haven't seen that kind of interest rate environment for a long time.
And it's just -- logic tells you that you should start expecting to see higher cost of credit. And therefore, what I said in my talk is that, in our thinking, we're saying cost of credit would probably go back to a -- through-cycle level of about maybe 20 basis points of SPs or something. But again, we really don't have line of sight to what the real number could be. In our planning assumptions, we're assuming that, we did go back to a normalized cost of credit of around 20 basis points.
The $180 billion book is about half and half. Half of it is our loan book and other half of it is our securities book. The loan book comes from fixed rate and EBITDA lending. A chunk of that is in the mortgage book. 2-thirds of our mortgages don't reprice right way. One-third is related to fixed deposit linked mortgages, and SORA, and then another one-third is really fixed rate. So that reprices over time. And then the rest is other fixed rate loans that we have in the corporate book.
The other half of that roughly is our securities book. And our duration portfolio plus our interest rate swap portfolio, plus our HQLA. Maybe Sok Hui can give some more color on that as well.
Yes. So the fixed rate instruments that we talked about, is really in the sort of corporate treasury book. So they are mainly held to collect. So don't have the fair value to OCI that we talk about. Most of the fair value through OCI securities instruments, which are mark-to-market, are from the treasury and markets book and that had a 0.3 percentage point impact on CAR in this quarter. As you would see, all the banks reporting, they'll see the FVOCI impact. So for us, of the 0.4 percentage point decline, 0.3 percentage points came from the FVOCI book, the other 0.1 percentage point due to sort of the growth in RWA from normal loan growth.
Then your second question is around outlook. Again, I talked about that for investment banking, et cetera. So right now, the markets are still not open, though we started seeing some fixed income and bond issuances come out of China in the last few weeks. So not in fact, easy to say when the markets open up. The good news is, we have a very strong, and very healthy pipeline for the capital markets business, both on ECM and DCM. So if over the next several months, we start getting windows of opportunity and some degree market confidence comes back, then we do have the opportunity to bring a number of deals to the market.
India, in particular, the whole Laxmi Vilas is doing very well. India continues to be our fastest-growing franchise over the last year or 2. And our outlook for next year is also very promising. The country -- like the Morgan Stanley report, we believe in that too, the country is on the cusp of tremendous momentum. We think our timing in India has actually been quite good for the investments we've made. At this point in time, though, the margins, income, et cetera, for the Laxmi Vilas thing are still negative, because we're still integrating the business. So it's consistent with our model and our plans. In fact, in some cases, outperforming. The underlying portfolio quality of the book has been better than we thought, and we actually got recoveries on that as well. But overall, that book is doing well and the country franchise is doing quite well.
You had some questions on the institutional business, which I did not follow. So I will skip that. Maybe you can ask me that again or somebody else knows. Your last set of questions were on de-fi and what the impact of de-fi might be? And really, it depends on, A, what time frame and what view you take. If you really take the view that in the future, everybody, all 9 billion people on planet earth start dealing directly with each other, and you could easily make a case, that you don't need banks, banks disappear, central banks disappear, stock exchanges disappear and countries also disappear. [indiscernible] to sort of cannibalize themselves and the entire institution.
So I do think what you'll wind up, is a more intermediated form of de-fi. And an intermediated form of de-fi, I think you'll still find role for various kinds of intermediaries and players. I make the analogy sometimes, to commercial banking and investment banking. 40-50 years ago, when people started going directly to the capital markets, you'd argue that you didn't need commercial banks. But what happened is that, a new role evolved. And so commercial banks started getting investment banking arms, to help the issuers reach out to the investors. I do think that those kinds of roles are likely to happen in the de-fi metaverse as well, people who create context, people who create access, people who help shepherd the system. So I do think there are some opportunities around that.
I also think there are opportunities to drive down costs, as you correctly mentioned. When I say back offices of the world can change, I do think there's some potential for cost efficiencies in the future.
You can improve the customer experience, and that's somewhat helpful. Partior does that, it changes the T+2 settlement paradigm for T+0, for example, or the experiments that we're talking about right now in Singapore, some of them can be helpful.
Okay. Next question from Chanya.
Congrats on the great number to Piyush and team. I have one question on Wealth Management. We should say will help drive fee income to double-digit growth next year. Will that be coming from stronger inflows, or are you expecting more transactions that generate fee use? Also, could you share your view on inflows into Singapore next year, where it will be coming from? Are you seeing strong inflows? And if you expect China lockdown to continue for 2, 3 more quarters, will that drive more inflows to Singapore?
Chanya, it's very hard to predict what happens to inflows and whether China lockdown [ stalls ] or not, actually, our inflows have been more broad-based than just China. We've been seeing inflows from broadly in North Asia, but also other parts of the world. The big pickup has been North Asia, though, but it's not specifically only China. So when we talk about the wealth fees, we've got $15 billion -- actually, if you look at year-to-date, there are closer to $18 billion, $20 billion of inflows. A lot of that money is actually sitting on the side, it's in deposits or cash form.
So if the markets become a little kinder, I expect a lot of that money to be put to work. So that will be a tailwind, you're correct. But on top of that, our overall wealth fees are down 20%-odd percent year. And we've said before, that the wealth business in Asia, a large part of it is linked to animal spirits. Recurring income in that business is only about 20%. 80% of that income comes from trading and animal spirits. And therefore, along the path, if that picks up, then you should expect to see a recovery.
The next question from Prisca from Straits Times.
I have a question Piyush, on outlook. Where do you see the tipping point, in which the U.S. economy will enter a recession, and Asia might slow down? Is this at a 4.75% mark, or could this be earlier? My second question is on CASA, are you worried about the CASA book going down, and are there any other reasons for -- if you decide to move to fixed deposits? My third question is on...
I didn't follow the second question, Prisca. Can you say that again?
My second question is on CASA. Given that the CASA pool has gone down, are you worried about this, and are there any reasons why -- reasons behind the decline, besides the move to fixed deposits? Yes. And thirdly, on interest rates -- NPEs and savings, they have been going up quite a bit. Do you think it's sustainable given that, the outcome next year is a bit uncertain and loan demand might evolve a bit?
Yes. On the first question of when does the economy go into the session, I think Powell is trying to guess that too. So at 4.75%, I was in Washington for the World Bank [indiscernible] conferences. Most people think you would see a recession at the 5% handle, and that the Fed is quite willing to drive that recession. So [indiscernible] that they do see it. If you don't, there's also a view that the Fed will continue to hike rates till they can force a recession, because they want to bring inflation down. But yes, I think there's a decent probability that with 5% handle or 4.75%, you could say recession in the U.S. Third quarter actually bounced back a little bit, but you can see consumption is already coming off, and that should create some slowdown in GDP growth.
Your second question was as CASA ability -- of course. Our CASA ratio if you look at them, over the last couple of years, 2, 3 years with zero interest rates, has gone to extraordinary high levels -- historic high levels. And that reflects the fact that the alternative use of money was not very profitable. So by moving from -- you might as well leave the money in CASA and keep the liquidity, if you can't earn very much more by moving to FD or any other investment. So the CASA ratios were historic highs. When rates go up, it's well known. People will move money out of CASA into FDs, because now, if you can get 3% in FD, it certainly becomes attractive, so you move out from CASA to FD. So that's not an unexpected occurrence.
When we do our modeling for our business, both from a liquidity standpoint and from a general balance sheet standpoint, we already take that into account, that CASA rates will come down, people will move from CASA to FD, the cost of funds will go up. And so far, to the end of the third quarter, our modeling has been very consistent with what has actually happened. So the CASA conversion, CASA deposit outflow is are very consistent with what we predicted in the past. So it's not a matter of great concern.
As you pointed out, we still have a lot of liquidity in the system. So we're okay with that.
I think -- maybe I will take the question. I think your question was around fixed deposit rate and how sustainable are the higher rates? And I think the question is, what's your alternative deployment, and I think banks will continue to sort of pay up for deposits, if they can make a turn on the deposits, because interbank rates and alternative deployments still provide a margin above fixed deposit rates. So I think it can be sustained, if external rates continue to go up.
We have another question from Anshuman at Reuters.
Many thanks for hosting the call as always, and -- it's good to see the strong numbers. I remember last time in August, you said inflation was a big underlying uncertainty, and it was hard to translate what it means for the -- just for the macro economy. Has anything changed in your outlook from the previous quarter at all? And also in terms of geopolitical uncertainty which you raised last time, are there any changes at all?
Anshuman, so first of all, I mean, what I pointed out, my base case in the last quarter was 3.5% rate, because I thought that you will start seeing moderation in inflation with rates getting up there. In reality, I think partly due to the Russia-Ukraine conflict, you didn't see that. Also partly because, I think some of the inflation is in the wages. And so CPI rates have continued to be high, which is why you're now talking about 5% in store 3.5% rate. So that's obviously a material shape.
At 3.5%, as my base -- this thing was the U.S. will slow down or it might escape a recession and Asia would have a mild slowdown. At 5%, that's a very different outlook. So I do think the U.S. does get into a recession, and I do think Asia does have a slowdown. So it's a material shift in outlook, just because the rates regime is much, much higher than we had anticipated 3 months ago.
In terms of geopolitics, I don't think. I think the U.S. CHIP Act was a little bit stronger than people had expected. The Pelosi visit created some more attention. But overall, the fact that you're continuing to see tensions between the West and the East, I think that it has been on the cards. I think what was more of a surprise to me was, China domestic politics and the outcome of the Party Congress results, because that puts into -- open up another question about when does China open up and directionally, where does it go in the medium term.
Are there any final questions, this is last call? Okay. Looks like that's all the questions we have for today. So thank you, everyone. Yup, we will [ stop ] now and we will come back 11:30 for the Analyst Call. Thank you, everybody. Bye.