DBS Group Holdings Ltd
SGX:D05
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DBS Group Holdings Ltd
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Good morning, everyone, and welcome to DBS' fourth quarter and full year results briefing. Briefly to say that, this morning, we announced full year net profit of $4.39 billion, a record high. For the fourth quarter, net profit was at $1.22 billion, also a record. And the board has proposed a final dividend of $0.60 a share and a special dividend of $0.50 per share.
So with us today, we have our CEO, Piyush Gupta; and our CFO, Sok Hui, to give us more color on the numbers. Without further ado, Sok Hui, please?
Good morning, everyone. We achieved a record profit for the full year and the fourth quarter. Full year earnings rose 4% to $4.39 billion as total income grew 4% to a new high of $11.9 billion. Broad-based growth in loans and fee income more than offset the impact of a lower net interest margin and weaker trading performance. Underlying loans rose 9%, with breadth and momentum increasing over the course of the year. Including loans from the consolidation of the ANZ retail and wealth management businesses we acquired, overall loan growth was 11%. Fee income grew 12%, which was also broad-based. Productivity gains from digitalization and cost management initiative contained expense growth to 3%.
The fourth quarter's earnings were also at a new high, rising 33% from a year ago to $1.22 billion. Total income grew 10% to stay above the $3 billion mark for the second consecutive quarter despite seasonally weaker noninterest income in fourth quarter. Business momentum was strong. Loans expanded by an underlying 3% and by 4% after the consolidation of the Taiwan operations of ANZ during the quarter. At the same time, net interest margin improved 5 basis points from the previous quarter and 7 basis points from a year ago to 1.78%. As a result, net interest income crossed $2 billion for the first time. Fee income was 23% higher, led by wealth management and investment banking.
Our balance sheet remained healthy. Nonperforming assets were stable from the previous quarter, while specific allowances for the quarter were at a more normalized 25 basis points of loans. Our liquidity was ample, with liquidity coverage ratio of 131%. Our final Common Equity Tier 1 was at 13.9%. With the recent finalization of the Basel capital rules, we are now able to ascertain that the impact on us is benign. As such, we have decided to rationalize our capital requirements. The board has suspended the scrip dividend with immediate effect. It has proposed a final dividend per share of $0.60, raising the full year payout by 55% to $0.93, as well as a special dividend per share of $0.50.
Full year net profit rose 4% to $4.39 billion. Total income also increased 4% to $11.9 billion. Higher net interest income and fee income more than offset the impact of lower trading income and higher allowances. Net interest income grew 7% or $486 million from asset volume growth, which more than offset the impact of a 5 basis point decline in net interest margin to 1.75%. Fee income rose 12% or $291 million, led by growth in wealth management, cash management and investment banking. Other noninterest income declined 18% or $342 million due to a weaker trading performance and to a net gain on fixed assets a year ago.
Expenses rose 3% or $158 million to $5.13 billion as ongoing digitalization and productivity initiatives kept cost growth. Profits before allowances increased 4% to $6.79 billion. Total allowances were 8% or $110 million higher at $1.54 billion from the accelerated recognition of the weak oil and gas support service exposures during the third quarter.
Fourth quarter net profit was [Audio Gap] higher than a year ago at $1.22 billion. Total income rose 10% to $3.06 billion as strong business momentum resulted in double-digit increases in net interest income and fee income. Net interest income grew 15% or $273 million from loan growth as well as a higher net interest margin, which rose 7 basis points to 1.78%. Fee income increased 23% or $121 million from broad-based growth, led by wealth management and investment banking. These increases were partially offset by a weaker trading performance, which resulted in a 26% or $115 million decline in other noninterest income.
Expenses rose 11% or $134 million to $1.36 billion due to higher marketing and technology cost as well as the consolidation of ANZ. Profit before allowances was 9% higher at $1.70 billion. With oil and gas exposures having been dealt with in the previous quarter, total allowances halved to a more normalized $225 million.
Compared to the previous quarter, fourth quarter earnings were 48% higher. Total income was maintained above $3 billion despite seasonally weaker noninterest income. A combined 12% or $126 million decline in fee and other noninterest income was offset by 6% or $122 million increase in net interest income from loan growth and a higher net interest margin during the quarter. Expenses rose 8% or $100 million, resulting in a 6% decline in profits before allowances of $1.70 billion. Total allowances of $225 million were 1/4 of the previous quarter, where we recognized the residual weak oil and gas support services exposures as nonperforming.
From this chart, you can see that business momentum accelerated over the course of the year, resulting in a progressive increase and year-on-year growth of total income and profit before allowances. A large part of the year's income and operating earnings growth occurred in the second half. At the same time, the growth in income and operating earnings was due fully to net interest income and fee income.
Other noninterest income was lower for each of the 4 quarters due to a weaker trading performance. The acceleration in net interest income growth was due to both net interest margin and loans. Net interest margin in the first half was lower than a-year-ago period but stabilized in the third quarter and rose in the fourth.
Loan growth had a slow start in the first quarter and progressively accelerated in the subsequent quarters. Fee income growth was also faster in the second half as both business momentum and buoyant market sentiment boosted a range of fee income activities.
Fourth quarter net interest income crossed $2 billion for the first time, rising 6% from the previous quarter and 15% from a year ago to $2.1 billion. Contributing to the strong growth was a higher net interest margin, which rose 5 basis points from the previous quarter to 1.78% as Singapore-dollar and Hong Kong-dollar loans were repriced. Net interest margin was also higher than a-year-ago period by 7 basis points in contrast to the first few quarters of 2017, where net interest margin was lower year-on-year. For the full year, net interest income was 7% higher at $7.79 billion, with most of the increase occurring in the second half.
We had underlying loan growth of $9 billion or 3% in the fourth quarter. The growth was broad-based across trade, corporate and Singapore housing loans. In addition, we consolidated $2 billion of ANZ loans in Taiwan. Including these loans, overall constant currency loan during the fourth quarter was $11 billion or 4%. For the full year, underlying loan growth was $25 billion or 9%, with the growth accelerating and broadening over the course of the year after a slow first quarter. Including the consolidation of $8 billion of loans from ANZ for the year, overall constant currency growth was $33 billion or 11% for the year.
Deposits rose 4% during the quarter and 11% from a year ago in constant currency terms to $374 billion. They included $11 billion from the consolidation of ANZ. Other funding rose $5 billion during the quarter to $41 billion from issuances of commercial papers and covered bonds. Our liquidity ratios remain well above regulatory requirements. The liquidity coverage ratio was at 131% where the net stable funding ratio exceeded the requirement of 100%.
Fourth quarter gross fee income was $734 million, 22% higher than a year ago. The growth was broad-based. Wealth management fees rose by an underlying 30% to $227 million as buoyant market sentiment and franchise growth resulted in higher sales of unit trust and other investment products. Investment banking fees doubled to $66 million from higher equity markets and fixed income activities. Transaction service fees grew 3% to $153 million as a 13% increase in cash management fees were partially offset by a decline in trade finance fees. Compared to the previous quarter's record, gross fee income was 7% lower due to seasonally lower wealth management and loan-related activities. For the full year, gross fee income was 13% higher at $2.99 billion, with the growth led by wealth management, transaction services and investment banking.
Institutional Banking full year operating performance was stable from a year ago. Total income of $5.28 billion and profit before allowances of $3.52 billion were little changed. Cash management income grew 32% to $1.11 billion as the introduction of new products and solutions using digital channels increased customer mandates across the markets we operate in. The improvement was offset by declines in treasury products and loan-related activities. Asset balances rose 6% or $15 billion to $247 billion as both trade and nontrade loans grew. Cash management deposits were 4% higher at $142 billion.
Consumer Banking and Wealth Management's full year income rose 9% to a record $4.67 billion. The growth was across all categories and led by 21% increase in investment products to $1.38 billion. Loan and deposit income grew 5% to $2.63 billion from higher housing loan and deposit volumes. Card fees were also higher.
Wealth Management customer segment income rose 25% to $2.11 billion. Assets under management grew an underlying 13% to $188 billion. Including ANZ, AUM rose 24% to $206 billion, strengthening our position as one of the top wealth management banks in the region. Income from the retail customer segment was stable at $2.56 billion. Our market share in Singapore housing loans crossed 30% during the year, and we continue to have more than 50% of Singapore-dollar savings deposit market share.
Full year treasury customer income fell 3% to $1.15 billion. A decline in income from corporate and institutional customers was offset by higher income from Wealth Management customers. Income from the Treasury Markets business segment, which reflects structuring, market-making and trading activities, fell 24% to $856 million due to lower contributions from interest rate activities. Total treasury income amounted to $2.01 billion, 13% below a year ago.
For the fourth quarter, expenses of $1.36 billion were 11% above a year ago and 8% higher than the previous quarter. The increase was due to higher technology costs, higher business-related costs, including marketing and the consolidation of ANZ. For the full year, expense growth was kept at 3% to $5.13 billion as digitalization and cost management initiatives yielded productivity gains. Staff costs and revenue-related costs were higher, in line with income and business volume growth. Technology costs were flat for the full year. The full year cost-to-income ratio was 43%, in line with guidance.
Hong Kong full year earnings rose 40% to $996 million. Total income increased by 6% to $2.22 billion as net interest income and fee income growth was offset by a decline in other noninterest income. Net interest income rose 9% or $122 million from higher loan and deposit volumes. Loans grew 16% in constant currency terms. Excluding ANZ, loans increased 15% from trade and nontrade corporate loans growth. Deposits increased 19% in constant currency terms. Excluding ANZ, deposits was 12% higher from growth in current and savings accounts. The CASA mix improved from 57% end 2016 to 61%. Net interest margin was stable at 1.74% as the benefit of higher interest rates and an improved customer mix were offset by lower loan-to-deposit ratio.
Fee income rose 19% or $96 million from broad-based growth, led by Wealth Management, including investment products and bancassurance, cash management and investment banking. Other noninterest income fell by 1/3 or $97 million due to lower treasury customer flows as well as a $45 million property disposal gain recorded in 2016.
Expenses declined 2% to $945 million. Profit before allowances rose 12% to $1.28 billion. Total allowances of $80 million were 1/4 the previous year's, which had included specific allowances for corporates with RMB derivative exposures. The 2017 allowances also included a write-back on specific provision of $57 billion from the recovery of a major loan exposure. General allowances of $75 million were taken for loan growth.
Nonperforming assets were little changed from the previous quarter at $6.1 billion. With residual weak oil and gas exposures having been recognized in the previous quarter, new NPA formation fell to $362 million, in line with the ex-oil-and-gas NPA formation over the past several quarters. The NPL ratio was unchanged at 1.7%. Specific allowances for loans for the fourth quarter totaled $206 million or 25 basis points, in line with our through-the-cycle average. The majority of the charges were for existing NPLs, including exposures in India and China.
Impact of transition to FRS 109 expected credit loss. We wrote back $5 million of general allowances in the fourth quarter, resulting in general allowance reserve of $2.62 billion as at 31st December 2017. The results amounted to the 1% of uncollateralized credit exposures we are required to maintain under MAS Notice 612. With the implementation of [ FRS 109 ] on 1st January, 2018, our expected credit loss, the equivalent of general provisions today, was estimated to be $2.53 billion. This was $95 million lower than the 1% general provisions we had maintained.
Under MAS Notice 612, if the expected credit loss is below 1%, the difference must be held as regulatory loss allowance reserve in shareholders' funds. As such, the $95 million was transferred to the regulatory loss allowance reserve for 1st of January 2018. Going forward, under [ FRS 109 ], specific provision charges will be the same as before. However, the charge for general provision will depend on charges to the expected credit loss from quarter to quarter. We expect these charges to be lower than the 1% general provision charge we used to take; they are likely to be more volatile.
Our capital ratios remain strong. The fully phased-in Common Equity Tier 1 ratio was 13.9%, 30 basis points higher than the previous quarter from the accretion of retained earnings. Risk-weighted assets were little changed, as loan growth was offset by declines in off-balance sheet items. Our leverage ratio of 7.6% was more than twice the minimum of 3% envisaged by the Basel Committee. The Basel Committee announced the finalization of Basel III reforms on 7th of December 2017. The finalized reforms pertain to revisions to the standardized approach for calculating credit risk, market risk, credit valuation adjustments and operational risks, constraints on using internal models as well as the introduction of a risk-weighted asset output flow based on the credit standardized approach. These revisions, together with the fundamental review of the trading book, will not be implemented until 1st of January 2022. For DBS, the aggregate impact of the 2022 rule changes as well as the changes to the standardized approach for counterparty credit risk effective 1st January 2019 is fairly benign, increasing RWA by about 5% on a pro forma basis.
Given the benign impact of the Basel capital rules, the board has determined that ordinary dividends can be sustained at higher levels. The board therefore proposed a final dividend of $0.60 per share, bringing the full year ordinary dividend to $0.93, up 55% from a year ago. Barring unforeseen circumstances, we expect to pay a dividend per share of $1.20 for 2018. Our policy of increasing dividends over the longer term in line with earnings growth remains unchanged.
The board also proposed paying a special dividend of $0.50 per share together with a final dividend. The special dividend is intended to return the capital buffers that had been built up prior to the finalization of the new capital rules. The special dividend is also intended to mark the 50th anniversary of DBS this coming year. In addition, the board determined that the Scrip Dividend Scheme would not be applied to the full year 2017 final dividend as well as the special dividend.
In summary, our record full year and quarterly performance was driven by business volume growth, which more than offset the lower net interest margin and weaker trading performance. The results reflected the quality of a broad-based franchise and nimble execution.
Our pipeline continues to be healthy. Our digitalization efforts are enabling us to capture market share in developed markets, deepen our presence in emerging markets and increase overall productivity. As a result, our structural growth and returns have improved. Asset quality is benign, with NPA formation and specific allowances reverting to more normalized levels. Our liquidity and capital are strong. The significant increase in dividends reflects the quality of our earnings, the strength of our balance sheet and the improved returns we are generating from shareholders.
Thank you. I'll now hand you over to Piyush.
Okay. Thanks, Sok Hui. As usual, I'll make a few observations, and then we can open it up for Q&A. If I can have the first slide.
So I'll cover 3 things. I just want to make a couple of comments on 2017 as I look at the whole year in review, then some thoughts on capital and dividends. Obviously, that's the big news in this quarter. And then again some comments on where I see next year and how we're kicking off.
Slide. All right. So I think it's -- the most important thing to take away, if you look at last year, is our business momentum is very strong. And as you saw in Sok Hui's slide, it really kicked in, in the second half the year. Third quarter was strong; fourth quarter was even stronger. Loan growth, 9% ex ANZ, 11% with ANZ, that's pretty robust; deposit growth, in the same order of magnitude, very robust; 13% growth in fee income for the year, very robust.
Actually, for me, the fact that we delivered $4.4 billion bottom line after all the accelerated provisions we took for the oil and gas sector in the third quarter says a lot. To be able to deliver record bottom line, actually not even take a down year, after all of the cleanup of the portfolio, just reflects on the strength of the franchise.
Fourth quarter business momentum was also very good. Again, Sok Hui pointed out the 3% growth in the loan book ex ANZ, very broad-based, coming from all the usual stuff from China, real estate activity, M&A activity, the mortgage book in Singapore. So very, very broadly defined.
Net interest income was up 15% on the year and for the quarter, but year-on-year. So we made about $100 million, $120 million up from the third quarter on net interest income. Our noninterest income is up 23% if you compare the quarter with the same quarter last year, and that's pretty substantial. And that reflects after a weaker trading performance. Still, the rest of the fee and commission income has been very strong.
We actually made about $120 million less than the third quarter, but that's to be expected. Our fourth quarter will always the lowest for our noninterest income. And frankly, the fact that we have a $3 billion top line in the fourth quarter, which is normally seasonally our weakest quarter, just says a lot of how strong our underlying momentum was for the quarter.
Our NIMs for the quarter was good. There's obviously due a large part of net interest income apart from the loan growth. Our quarter -- fourth quarter average is 1.78%. Our exit rate in December was actually 1.80%, 1.81%, so even stronger. Of course, SIBOR and SOR have eased off in January from the December levels. But debt notwithstanding, my anticipation is that the NIMs will continue to increase from where we are.
So what were the challenges for the year's trading? And trading was the biggest challenge. Our trading overall for the year, just the trading portion of the business, is down 24%. That's in line with the [indiscernible]. Our -- look at treasury activities between the customer side and the trading side, we're down 13%, and that's just smack midway of the pack. I think JP has reported 17% or 18% down, Goldman reported 13% down. But on the other hand, BAML and Citi are single-digit down, 8% to 10%. So at 13%, we are right in the middle of the pack in terms of the effects you see performance.
The good news is 2018 just kicked off to a rolling start. So the $350 million of drag we had last year on the back of treasury and trading, first of all, I don't expect another down year. So even if you had a flat year, you won't see a year-on-year delta. But in point of fact, the year has actually kicked off to a great start. So I'm optimistic.
The other thing which came up, Sok Hui pointed out, expenses in the fourth quarter were higher than you would expect, with about $100 million [Audio Gap] some of that reflects bringing on the Taiwan business from ANZ. Now if you look at the ANZ business, the overall cost-income ratio of the business is about -- when ANZ had it, the cost-income ratio of the business was close to 90%. That's why -- one of the reasons they were selling it. We think we can bring it on to our books at 55%, 60%, now that's substantially higher than the rest of our business. But even within that 55%, 60%, Singapore and Hong Kong are very low because we bring the business on with pretty much no marginal cost. We just added to our platform. But Taiwan and Indonesia are quite high. Taiwan cost-income ratio is over 80%, and Indonesia cost-income ratio is in the 60s. So as Taiwan and Indonesia come in, they actually are a drag on our overall cost-income ratio. The expenses come in higher. They're still being profitable. And they're still returns-accretive, but from a cost-income ratio prism, the cost related to the book of business we're integrating now is a high cost. So that is a part of the fourth quarter expense.
And then we also spent some money in marketing. So you'll see from my next slide, our shares are up. So we pumped some money in marketing. We have a rebranding effort going on, and we spent some money on tech. We actually did some of the tech cloud transformation projects into the fourth quarter. So there are some onetimers around that. But at the full year, we're at 43%. So it's nothing to really be overly concerned about.
But just going back to the business momentum slowly for a second. Slide. If you look at the slide, they're just quite a robust story. On mortgages, our market share is now close to 31% for Singapore, 30.8%. We had a 2.1% market share increase. Now some of that, about 1.2%, came from ANZ, but almost 1% of the increase came from organic businesses, right. So 31%, we haven't seen a 30%-plus market share in Singapore for -- ever. Very strong.
If you look at cards, cards ENR share is up from 20% to 25%, so 1/4 of the market now. Some chunk of that came from ANZ, about 3%, 3.5%. But ex ANZ, our share went up by 1.5 percentage points. And so that's quite substantial. Share of billings went up by 2% from 18% and change to 20% and change. About half of that is ANZ, about 1 percentage in the thing, but 1% of that is organic growth.
If you look at Wealth, our AUMs grew 24%, 25%. I saw the UBS announcement last week. It's in line with UBS, about the same. But if you look at our income growth, we grew 25% on income, and that's far stronger than anybody else's income growth reported so far. And our net new money for the year is very strong. We grew net new money at 60% for the year. This is ex ANZ. If we add GP, ANZ's new money, then it's like 140%, 150%, but 60% is ex ANZ.
SME was strong it turned out SME, we had 11% growth in the SME book. Cash management was strong. We have 29% growth for the year. And actually, if we look at the last 4, 5 years, we're running at 26% CAGR on cash management, which is very robust. And trade, the book turned around. So asset book is up 24%, constant currency, by almost $9 billion, $10 billion for the year. So cash, trade, mortgages, consumer, card, lending, SME, just very broad-based, robust business momentum. And a lot of it you started seeing through the back end of the year.
Slide. The other thing which -- I just thought I'd leave this slide -- we've obviously covered this just a couple of months ago in our Investor Day, but it is worth reemphasizing that we're seeing the digital impact come through in our numbers. We will actually update our digital value capture number in our annual reports. We won't give them time for now, but in the annual report, we will do an updated set. But we're tending to see market share gains. I mean, you don't get market share gains of this sort we're talking about. In -- it is the cards and mortgage, which are fairly commodity businesses, easily. So a large part of that is driven by the digitization of the business in Singapore and Hong Kong. We're seeing that.
We continue to see very good traction with Digibank and the SME distribution growth in India and Indonesia. We're just a tad short of 2 million customers in India now, as of last week. And in Indonesia, we ended the year at about 70,000-odd full savings account customers. So momentum is good.
On the back-end architecture, by the end of the year, 2/3 of our applications are now cloud-ready. By the end of this year, 2018, 90% will be cloud-ready. A chunk of that will be on a private cloud, but by the end of this year, a large part of our computation part will actually have started moving to the public cloud.
We launched the world's biggest banking API platform in November. We now have about 180 different open APIs. We have 60 API partnerships. So the ecosystem strategy is beginning to kick in quite nicely. And then obviously, the digital value capture, like I said, that's working too and we'll give you an update on that in our annual report. So that is the second big thing to me about 2017, the digitalization. It's still a watershed year. It's a seminal year in some ways in our transformation journey.
The third big thing to me about [Audio Gap] is that we cleaned up the portfolio around the offshore money. And by now, the portfolio has been relatively okay. The offshore marine thing was a overhang to the problem. So in the third quarter, we cleaned it up. Having cleaned it up, our new NPA formation for the fourth quarter actually gone back to normal levels. Our SPs, we're a tad on the high side because we recognized provisions for some old NPLs in China and India. Again, we're just trying to clean up the book as much as we can. So net-net, actually, the portfolio quality is actually looking very good from where we are.
Slide. So next is quick comment on capital and dividends. Sok Hui covered some of this slide, but she talked about this. The older Basel rule impact finalization. I earlier anticipated that we might have an impact of maybe up to 10% on RWA. As things happened and the way the rules had come out, our impact's only 5%. And this is obviously much lower than the European banks. I saw a report on SocGen yesterday saying the impact was 35%. My estimate was most European banks would see an impact of in the region of 30% to 50% on RWA. But the nature of the rules is we see some impact of about -- a little lift from the standardized listing of CCR, the counterparty credit listing. And we'll see some impact from the fundamental review of the trading book.
Though the 2 areas, we see some impact, the standardized flows have no impact on us at all. And so the 5% impact was even lower than I had anticipated. So we retained 14.3% as our core CET, end of the year. But if you will adjust for the full transition and you go full phase-in, the 13.9% is the starting-off base to look at. I've guided before that we're comfortable at around the 13% range. It could be plus, minus 0.5%, but we're comfortable at about a 13% range. And so that means that we have surplus capital. Now this is something I had said before. I do believe there's surplus capital. And as soon as we get clarity on the Basel reforms, we'll be in a position to start being more efficient with the capital usage.
So we were be able to do that, and we were sort of primed for it. Our board took stock of that. And we did these 3 things. One, we bumped up the annualized dividend to $1.20 per share. And that gives you about payout, it's north of 50%. I think it's 54%, 53%, 54% right now. And we're not committed to a payout ratio. But that's a good starting base when you get to that kind of level.
On top of that, we decided do a onetime, $0.50 dividend. And it's really to do a onetime return of the surpluses that we built up preparatory to the Basel reforms kicking in. So we did that as well. And then we decided to terminate the scrip dividend. Now as you know, we never give discount on scrip dividend for several years. So it was not dilutive in the sense, but nevertheless, we kept issuing more capital every year, effectively. So we decided to stop that. We don't need that either.
So the sum impact of all of this is that if you look at our dividend yield as of on pro forma estimates, it's about 4.5%, 4.5. So we've got back to being a fairly high yield stock at this point in time. We're not changing our dividend policy. Our policy has always been where it sits with the increasing dividend over the longer term, in line with earnings growth. And so we continue to maintain the stance. So we don't have a specific payout ratio in mind, but we will continue to be steady and stable in terms of how we think about dividends in line with the earnings growth.
Slide, all right. So a quick comment on 2018. Next slide. So again, to start with, despite the volatility in the market and the turbulence, the fundamentals of a global macro economy are very, very robust. And we all know that. The U.S. economy is strong, probably circa 3% GDP growth rate. Europe is strong, still continuous to be stable. Japan is outperforming. China is strong and steady. The rest of the region is looking good. India will see a little notch up. So I'm quite optimistic about the global macroeconomic environment. And on the back of that, we're retaining some of the guidance. We've given loan guidance at 78% in the past. We think we should be able to do that.
There are a couple of payments on the loan side. One is as the renminbi is strengthening one more time, is we opened up some offshore, onshore arbitrage, so the opportunities to do some more financing at that side. Also, the Chinese outbound investment has continued to be fairly robust. So obviously, we were in the middle of that deal flow. So that's helpful. The other thing is that Singapore mortgage book continues to be robust with all the en bloc and all of the residential things happening. We didn't see a lot of the impact of that in 2017, but in 2018, we do expect to see people coming back and for different kinds of refinancing. People were moving out of homes and moving into new homes and so on. So I'd be relatively confident about the loan guidance.
On NIM, no question. We expect to see higher NIM. It's kind of hard to give you a color on what the NIM might be. Like I said, exit rate in December was already at 1.80%, 1.81%. On the negative side, 2 things. One, that LIBOR has already run ahead of the Fed actions. So even if you wind up with 2, 3 Fed hikes, LIBOR has already ahead. So I don't think you'd see all of that flow through to LIBOR. The second is that we see the Sing dollar strengthening. And so as the Sing dollar is strengthening and the EMEA does not enter the soft market, then the pass through rate into the cyber tends to be somewhat muted. So those are negatives. The positives are that, I think, we've already guided for maybe a couple of rate hikes just given the strength of the U.S. economy. People are not talking about 3 to 4 rate hikes. So we might actually get a rate hike more than we'd anticipated. We report all of that together. I think it's safe to assume that last year, our blended NIM was 1.75%. I don't see why we won't get at least 10 basis points better than that. But it's very hard to call because there's a lot of moving parts in that NIM story.
On income, I expect to get low double-digit growth, for sure, and that includes ANZ. So we'll get the full year impact of ANZ and I told you before that's worth about $600-odd million at least in the top line. So that will kick in for this year. But the rest of the business momentum and the NIM increase will kick in as well. So we should be able to get at least low double-digit.
Cost-income ratio, actually, if I exclude the ANZ add-on, our cost-income ratio will come up by 0.5%, which is what we're guiding consistently. But because of that higher Taiwan, Indonesia business that comes on, and we're not -- and we won't go to Taiwan's expense, synergies for that upfront. So we'll be able to get a cost-income ratio, which will still be stable at 43% post the ANZ -- including the ANZ integration.
And finally, on allowances, our SP should be on the lower side of the cycle average. Cycle average is 25, 27, but I don't anticipate even getting to the cycle average. The rest of the environment is actually fairly benign. And then the expected credit loss, GP, as Sok Hui described, leads to percent, 1%. The way it works out now, any new loans we put in our book, what's called phase 1 GP, it only comes in at under 20 basis points, 18 to 20 basis points. The rest of the ECL comes from stage 2, so migration or deterioration in the portfolio through the year. Again, that's tough to call. On the stock that we have, ECL is close to 1% GP. But if you look at forecast on this, we've cleaned up our bulk, we don't have too much weakness in the portfolio. I don't anticipate a lot of downward migration in the portfolio given the overall macroeconomic environment. So my sense is you won't get anywhere near the 1% that we used to have on GP as well, but like Sok Hui said, this number depends on migration and stage 2. So it could move up and down a bit.
But bottom line when you put all of that together, we're actually quite optimistic about 2018. So top line looks good. Costs are under control. The credit environment looks fairly steady. The full impact of ANZ is kicking in. Interest rates should be robust, and all our fee income businesses are doing very well. So we're fairly confident about 2018.
Okay. Sok Hui point out 35% RWA, it was not SocGen it was ABN Amro.
Okay. We’ll be happy to take questions now. Could I request that you speak into the mic in front of you because we have a webcast going on so it just picks up the voice. Our first question is Krish.
Two questions from me, if I may. You've addressed the issue with what the ANZ loan book has done in terms of a cost income sense. So what about the actual credit quality of the ANZ portfolio? Now that's on your books, how does that compare to the rest of the business? Second question. No doubt you watched the Danamon transaction finally go through to MUFG. I just wondered how that feels after spending 1.5 years there. But more to the point, given how DBS' strategy has moved towards the digital and away from bricks and mortars since. Is it actually good for DBS that, that deal never happened?
Let me take the second question first. I said it several times in the last 5 years. God smiles in strange ways, and that's the bullet I'm glad we missed. If you remember, we -- when we went in and made a bid for Danamon, the rupee was trading at INR 9,000. The rupee now trades at INR 13,000. I would have taken a 40%, 50% hit on goodwill just on the currency, forget everything else. And then after that, the regulations changed: they put pricing caps, they put rate caps and so on. So yes, we are not unhappy that the deal didn't come through. But the more broader question to that, if I think this whole digital transformation which that's in there is so important, to find any bank and certainly to us that anything that would distract us from pursuing that agenda at scale, I don't think it's a good idea in the short, medium term. Even the ANZ acquisition, and we spent a long time thinking about it. Now it's a very attractive deal in financial terms, but we spent a long time thinking about it only because of how much it might distract us from the [indiscernible] journey we were undertaking. We decided to do it because we thought we could handle it without putting us too far behind our agenda. As I look back, we're at least a couple of quarters behind where I would like to be, because ANZ took a lot out of the company. So I still think on balance it was a worthwhile tradeoff, but we try to do a large deal at scale, it would set us back a couple of years, and I don't think that's worth it. So I think that the window for transformation is short and with all of big tech and everybody else participating in the space, it should not be able to make the change in this period of time. You will suffer a lot more. So I think we're better off getting this done, and then you can worry about other expansion strategies in the future. The ANZ book portfolio is actually quite good. The quality of that portfolio and book is very similar to us. And since we brought it on it's not resulting in any material changes in our delinquency or in the profile of our business. They had a book of business when we acquired it, we also brought on the reserves related to the book they had. The reserves are more than adequate for any losses that we anticipate, so not expecting anything from there.
Is there a second question? Jamie?
Jamie from Business Times. You talked about how banks are kind of exiting the OMG market and there are some funds there, perhaps looking to buy some distressed loans. I mean, how do see that market? And what's DBS's position on this right now?
So let me recap what I said before. I think there are 2 parts of the sector in Singapore. One part of the sector is the part that supports deep sea development activity. I think that deep sea development activity is going to be structurally challenged for a period of time. And even though oil prices have picked up by $65, $70, I read a report that somebody might want to start looking at Brazil exploration. But when I talked to our O&D producer clients, nobody has appetite to take on serious development projects at this price level. I think you have to see oil sustainably higher before people go back into North Sea, Brazil and off the Africa coast. I don't see that happening. So to my mind, that part of the industry is actually structurally embedded. And I don't think there's going to be a lot of upside in that part of the industry in the short, medium term. I think also -- I'm not smarter than anybody else, but all of the issues around peak oil and shale, so what stage electric cars is at, and peak oil, and what stage the shale come in, it's also uncertain. But net amount senses, I don't see oil going up to $80 and beyond sustainably. So I don't think deep sea will come back in my view. The rest of the industry in Singapore supports the rest of the stuff. The [ channel ] sea, the boats and barges, the maintenance activity of the drilling and so on, I think there's still in a cyclical downturn. So I think that part will be restructured. It will survive and come back. But the cyclical downturn is protected, and it's protected because even though oil prices have gone up, we've seen some pick-up in the charting activity. You're still not seeing the material shift change in the margins. And the reason for that is all the oil majors are just pricing to a $50 oil price. So they're still not going back and revisiting the margins of the supply change. Admittedly some pick-up, but it's not that material yet. I think it will take at least another year or so before margin pick-up comes back and the people in that part of the industry can generate enough cash flow to start servicing debt and can spin it in a sustained way. So if you look at all of the restructuring that is happening, and [indiscernible] announced yesterday and [ indiscernible ] did this before. Marco Polo did this. Everybody is trying to minimize the cash outflow to service debt and the principal and interest and extend it out so that they get time to build cash flow margins and improvement and they can start servicing that debt. That's the nature of the restructuring that is going on. We're very active in that restructuring. On the one hand, we're conservative. We recognize all the possibility of provision. So we're not banking on that, but at the same time, we're not exiting that space. Some of these are good companies. They're clients of ours. And we're actively participating in helping these plans restructure so that they can survive and be able to participate in the industry going forward.
[indiscernible]
[indiscernible] [ how do you loan the ] market share cost 30%. Is it mainly from the refinancing? Or is this from new launches?
It's actually broad-based, but a lot of it is from refinancing. We have been active in the refinancing space as well. So we also have a lot of refinancing out but refinancing in, too. And from building and the construction as well. We're not seeing the impact of the en bloc phase and the refinancing from there this year, but it will host the building under construction coming. And new bookings have been strong. Our new bookings for the quarter were over $2 billion again. Our overall new bookings for the year have been quite strong. So frankly some of that will inform our portfolio for next year as well.
New bookings in terms of refinancing [indiscernible]
Everything, the new loans booked, which are not...
More than $2 billion compared to...
For the fourth quarter or for...
Fourth quarter. And also, can I ask for your views on the blockchain. How do you think it's going to impact the banks? And how is DBS looking into the blockchain areas? And what's your view on cryptocurrency?
Can we take some more questions related to the results? I think that's a philosophical view and I'll come back. I'll answer your question. We have views on all of this but that's obvious.
Goola?
Yes. Can I just ask about the dividend payout ratio? You said that for next year, sorry, for this year, you're going to payout $1.20, about $3.1 billion [ of earnings ]. So that's going to be around a 54% payout [indiscernible]
$3.1 billion is a lot of money.
Yes, but it's a 54% payout of your, of this year's earnings.
Yes, that's correct. I pulled it out. Our new booking volume for the year was 12 -- over $12 billion, 21% up from 2016 to 2017. So...
$12 billion?
So $12.4 billion mortgage.
Just one more question about the private banking in the U.S. You've got the total AUM at $206 billion. Could you give us an idea of sort of the range of the private banking AUM [ indiscernible ]?
I think all of them but as wealthy because we generate the same business and money from all of them. But if you look at what I call the high net worth, so people more than $1.5 billion, which is comparable to some of the private banks, that's $145 billion.
Sing or U.S.?
Sing.
Sing dollars.
Yes, Sing dollars. Are there any more questions?
Do you expect the clients in nonbearing loan ratios in 2018 -- is it correct to say this is peak?
I'm not sure we'll get decline in the ratio. The ratio is still pretty stable. For decline in the ratio, I'll say, denominator will go up. So we might see something from that, but the numerator, I don't think we'll see a lot of recoveries or [indiscernible]
Can you give some color on the collateral value in offshoring? Do you think there has been stabilization?
So the number of funds actually are limited. So like I told you, in the margins that activity rate has gone up. Charter has gone up. There's some pick-up in this but the number of transactions is limited. They were very small tucks and bolts, $1 billion to $3 billion level of tucks and bolts, and that level, the prices stay roughly where they were in the previous quarter. So the prices didn't move. But just small bolts. So it's hard to see what happens. In fact, last time when we took a third quarter cleanup, we were very conservative in our collateral evaluation. So we don't expect collateral values to fall below that. Since then, oil prices have gone up and rates have gone up. So if anything, it should get firm but we don't also go back and check collateral values every other month. So I'm just telling you anecdotally from the transaction we saw in the market.
[ indiscernible ]
I have 2 questions. The first one is on the NIM. I think you said it's very hard to call the many moving parts this year on where you expect it to be but you also expected to grow low double-digits. Did I hear that correctly?
The low double-digit was our total income.
So the NIM, where do you expect it to be? And what are these moving parts? And the second question maybe, you can deal with that first, is on the oil and gas. So what we've been hearing is local banks have shrunk the overall oil and gas lending to the industry. Have you dismantled the oil and gas unit actually?
Absolutely not.
That's the top that [indiscernible]
Definitely not. We just saw the papers today. [ We should have ] restructured [ EZEON ] right, and there's huge bunch the exposure to [ EZEON ]with this restructure. Everyone has a restructuring in this industry in active parts, spend all their money on the restructuring, so we couldn't have disbanded the unit [ by a long chalk ]. We have 100 clients plus in Singapore. We still have 100 clients plus in Singapore in the industry. On your other -- this thing on NIM, so the many moving parts [indiscernible] so firstly, how many fed rate hikes are there? First moving part. I don't know. The -- if you look at the analysts and the economists, they're talking 3 to 4. If you look at the futures market, it's still pricing 2 to 3, 2.5, if you will. So it's still unclear how many rates -- does the selloff this last 3, 4 days have an impact on Fed decisions? We've had a new Fed Chairman. What is their view? So hard to call. It could be anywhere between 2 and 4 rate hikes. That's a big difference. I can't tell you what the right answer to that is. Second, even if we have Fed rate hikes, how much of that has already been factored into LIBOR and how much will pass through the LIBOR. The LIBOR is really outrun some of the Fed rate hikes already. So it's started actually, how much would flow through the LIBOR. I think part of that is a function of people expectation for what 2019 rate hikes will be, and then people expect rate hikes will hit 3 and stabilize. Then we won't see more impact in LIBOR but people expect further rate hikes in 2019 then LIBOR will continue to reflect that. Then the third is how much of that then trades down into Sing dollars. I explained before Sing dollar trade down is a function basically of exchange rate. If the Sing dollar is weakening, then there is no reason for monetary policy activity from MAS and you get almost a 90% pass-through from the Fed rate hike into the Sing dollar. But if the Sing dollar is strengthening, there is a function of how does MAS choose to intervene. If MAS choose to intervene to the soft market, then that results in one thing and if they choose to intervene into the money market, then that results in a different outcome. But net-net, if the Sing dollar strengthening, then you only get about 40% flow-through to Sing dollar, so kind of hard to call what is the view in the U.S. dollar. They're going to strengthen further? They're going to weaken? So that's the third moving part. So when you add all of these things together, how many Fed rate hikes, how much pass-through, and what is the activities into MAS and this thing. It becomes tough to say -- land on a number for what NIM might be. But like I said, the average 1 75 last year. So with all of these should be able to get at least 10 basis points around that better than that. So if I can make a guess, I would say that but it's hard to be accurate.
Asheefa.
I'd like -- I have 3 questions. Just firstly, what's been the private banking AUM from the ANZ acquisition up to now? Secondly, if you could give more information on the net new money for all the private banking business this year in 2017 actually. And sir, what's been the impact of digitalization on your private banking business in particular, especially on the hiring front.
So the first question was the...
AUM from the ANZ.
AUM from ANZ?
Yes.
ANZ.
Private banking.
So the high net worth portion of it is about 6 -- [ Tan Shan ] you want to answer it? -- 4, the high net worth portion of it is $4 billion, but the total -- that's out of the $145 billion, right. But if you take the $206 billion, then that's about -- I think it's about 17 -- do we have that number?
[ $18.7 ] billion
$18 billion. So about $18 billion out of the $206 billion and $4 billion out of the $145 billion is ANZ. Then the second question was...
The net new money for the private banking.
So net new money is a 16% growth and they're broad based. Again, maybe [ Tan Shan ] will give you some more color, but we've got money from the regions we continue to do. We've got lot of money from North Asia, which is China, [indiscernible] but we've also got lot new money from Europe and international businesses as well. So [ Tan Shan ] more color.
So [indiscernible] fourth quarter at least [indiscernible] are in decline actually for existing DBS private banking in China. There was quite a lot of organic [ modification ] last year. We don't know [indiscernible accurate number. We've given you the [indiscernible] so hopefully that will suffice.
Okay. One more thing. International business, especially in the Middle East? What can you [ indiscernible ].
Well, we don't again disclose specific numbers from the Middle East, though our Middle East business activity we've broadened. So we're now covering Africa, which we didn't do. And we're covering some of the other regional countries in the Middle East and there's a lot more interest. So we're beginning to pick up a lot more flow from Middle East and Southern Europe coming to us. But we're also very careful about the money from, for example, we have a lot of Russian [indiscernible] Serbian money which we'd like to come in. And we're just turn it away. So we're also quite disciplined about what we actually let come in.
Yes, okay. And...
Digitalization? The digitalization impact will be massive. So at both ends, our [indiscernible] was that at the lower end we see a lot of impact from digitalization because we do online acquisition, which is 2. We're now getting 1 and 3 in part due [ indiscernible ] clients acquired digitally, but also a lot of self services, the clients would really be able to do bunch of activities online. And the other thing, we started seeing that not only in the mass [ action ] but also upmarket. So even in the private client space and so on, people got very active. Sok Hui, you want to give some more color?
So we have 2. One is the self service [indiscernible] we are seeing a big jump now in clients doing their operating online on their mobile phones and looking online [indiscernible] for example. They're also doing advertising online. So that's [indiscernible] direct [indiscernible] model, that should benefit us in time. So for example, today, in our [indiscernible] customer. In the past, they would have to get the items on 4 different [indiscernible]. Today, it's is all put into their ipad. They go and see the clients, the portfolio agenda is sent. The portfolio update done, the AI helps the client and to tell the [indiscernible], hey are there adjustments you need to make on the portfolio. These are what we're suggesting you do and here are the call for action. And then internally, we've rewired our internal business as well. So in the past, for example, with investment counsel and [indiscernible] product. They would have to call the [indiscernible] call 10, 12 different service providers. Today, it's all automated. Literally, within seconds, you can get 10 to 12 different service providers, give out their pricing. We look for the best price. We hit the trade, it's done. So all these tests automated and created approximately both gain from our productivity and also from the stickiness in the customer.
Anecdotally, [indiscernible] reveal the numbers. Our RM productivity is -- has [ to top this side ] in the market. Our actual productivity bar is very, very high relatively. So one of the big upside we have we saw that with Société Générale and we've seen that with ANZ that when we bring on a book and RMs, the productivity of those RMs is about half of productivity of [ RRs ]. And therefore, the easiest opportunity we saw [indiscernible] in ANZ is to double that RM productivity. And we doubled that by giving them a broader product base to sell and putting it all the automated tools in the [indiscernible] and that gives us immediate lift when we do that.
Jamie, did you have question? We'll give you the last.
Can I just please another 2 questions, just a follow-up on that. Citibank says that the private banking business for them, they say that the recent market on cost-to-income ratio are about 58%. Are you lower than that?
Yes, we are lower than that.
Second is there's been lot of talk about climate change and there's been a lot of reports about guys -- the Federal banks funding a lot of coal plants, particularly in Vietnam and Indonesia. What is your policy in terms of funding these plants? And are there things that you're doing to change the way which you put up lending for emerging markets?
So we've actually spent a lot of time this year in 2017 revamping our sustainability agenda, especially what we call our responsible financing policy. We actually brought on a full-time officer to help us recall the policies, and appointed a full Chief Sustainability Officer as well. And so for each one of the sectors which are more environmentally vulnerable, mining is one, plantation is one, coal is one, et cetera, we've developed fairly robust policies for what we will do and what we won't do. In developing the policy, we benchmarked all the global best practices, what banks around the world are doing. So we benchmarked that and come up with a policy which is fairly consistent with global guidelines. In respect of coal, let me first start with one caveat. Remember that the bulk of energy needs in our part of the world are coal. And whether it's Indonesia or India or China or Vietnam, that's not changing between now and 2030 or 2040. Every world bank, any global report tells you that 40% plus of energy needs of the total population will still be coal driven. No matter how far these countries start converting to renewable and alternative forms of energy. And therefore, it is important to understand that you can't turn this off and turn this off overnight and you deprive
40% of people in a small town and villages in Indonesia the ability to get electricity and light. That's not necessarily a good outcome for either society or the environment. So you've got to be thoughtful about how you transition. And so it's very -- the key is how do you manage the transition arrangements in a sensible kind of way. The policy with coal that we set up, for example, is that in any developed market, where it's easy to move alternative today, we won't do anymore the same. So we put a complete stop to that. In developing markets, we certainly go to what I call -- I've been advising people not to use the term, but effectively, the dirty coal and the slightly better qualities of coal. So [indiscernible] so we stopped doing the low end stuff. And in line with many of the global plans, we'll only do the better quality stuff from the end of this year. Why the end of this year? We have a couple of clients that we committed to and our style is not to pull out on clients. So we'll finish that and then we'll stop doing any of that stuff after the end of this year. And then third, we're actually starting to build a renewable portfolio. So we're consciously and actively working with our clients to do wind, to do solar, to do a whole bunch of renewables financing to shift the portfolio mix of what we have in that business.
Okay. I'm afraid we are running out of time. So maybe we'll take some of this offline. So thank you guys for coming. We'll talk to you later. Thank you. See you next quarter.